Lithuania’s real estate market shows signs of recovery but mainly due to EU financing

  • 2010-10-21
  • By Linas Jegelevicius

DUSTING OFF THE COBWEBS: Lithuanian builders recommerce work on once dormant construction sites.

KLAIPEDA - The construction and real estate market is still sluggish, but industry experts unanimously maintain it has already bottomed out and is slowly inching its way up. The slow recovery trend will likely prevail in the longer term, as various market players who enjoyed a staggering real estate boom three years ago, are exceedingly cautious and rational today. The sprouts of optimism are particularly seen in large cities, where construction activity stir is seen not only in the public sector, mainly co- financed by EU funds, but in the private sector as well. However, in smaller provincial towns, the first sights of recovery are feeble, as construction activities in the private sector remain nearly frozen.

“Thank God, lately we have been receiving more construction orders, however, 80 percent of them come from EU co-financed projects. Thus, lately we have been renovating several kindergartens, schools and some other public buildings. Also, we have been working over one year on our largest object, Taurage County Hospital, whose renovation is also partly co-financed by EU funds,” Boleslovas Apavicius, owner of Apastata, the largest construction company in the county, revealed to the Baltic Times. He is convinced that the worst years for the construction business are already behind us, “Honestly speaking, we have been teetering on the brink of survival over the last years, mainly working at prime cost. Otherwise, if we had set a higher bid than it (prime cost) in public tenders, we definitely would have lost all of them. In addition, luckily, to speak in images, we had stocked some cushioning fat in the years of the boom, which we used when we were put on the severe diet. However, now the market obviously has bottomed out and is moving slowly up.”

The entrepreneur had expected a lot from the ongoing renovation of the soviet blocks, which in Lithuanian are dubbed “boxes”, but the process, he asserts, has hit a snag. “It (process) was picking up rapidly a couple of years ago, but with the changes in the government’s policies, it has been skidding of late,” Apavicius said. Until recently, the Lithuanian Government would cover 50 percent of the renovation costs, but, starting this year, its input has decreased to 15 percent. With Lithuania and Taurage County scrambling to fully use the EU funds, the builder feels comfortable that “things should go well in the years to come.” However, with the EU funding period 2007-2013 reaching its end, the long-term prospect, Apavicius maintains, remains gloomy. “Nevertheless, I hope Lithuania will be able to pick up on the EU input and develop the industry itself,” the Apastata owner gleamed with cautious optimism.

Another builder, Valdas Adamonis, director of Aldma Construction Company in Rokiskis, in the northeast, re-echoes his peer’s in Taurage concerns and expectations, “The stir in the building market is tangible, but it is too early to call it a recovery.” Asked what he foresees, Adamonis responded, “There are more public tenders for building projects.” However, likewise in Taurage, the entrepreneur solely relies on the so-called European projects. “Nearly 90 percent of all projects are partly financed by the European Union. Without it, we would be stumbling. Unlike in larger towns, Kaunas or Vilnius, construction work in the private sector is still frozen or just showing slight signs of thawing out,” Adamonis admitted to the Baltic Times. While being interviewed, he reiterated the word “existing” several times. “Even with EU support, all construction companies are on the brink of survivability, though the worst time is behind us,” the entrepreneur said.
While the province lags behind, the buds of optimism are embodying the cautious exuberance in the Lithuanian capital, Vilnius. Thus, according to the preliminary data of the Center of Registers, approximately 300 new apartments have been sold during this year’s third quarter. It makes up a 57 percent increase compared to the same period in 2009.

However, versus the second quarter of this year, it is still an 11 percent fall. The center announced that nearly 1200 apartment sales have been registered in Vilnius in the third quarter of the year. Interestingly, a whopping 59 percent of the deals take up apartments of so-called economy class, wavering between 2800 and 4600 litas (812 – 1,335 euros) per one square meter. Only 36 percent of the sales involved middle-class apartments, whose prices range from 4600 to 6400 litas, a considerable plunge from three years ago. Prices remain stable in this segment from the beginning of the year. With the budget-savvy apartment buyers being a vast majority, luxury apartment buyers are nowhere to be seen. “Only a few new apartments are sold in the prestigious apartment segment, over 6400 litas per one square meter,“ Dainius Matulionis, a real estate expert, revealed.

While the apartment sale trend is shaping up in Vilnius, it remains stagnant in other large cities. Thus, through the third quarter, 600 buy-and-sell trades have been registered in Kaunas, the second largest city, while in Klaipeda, the third largest city, only 450. “It may still look sluggish, however, it is a much better result compared to the first half of 2009. Statistically, we state a 30 percent apartment sales increase in the first half of this year. While apartment prices remain stable in Kaunas, Klaipeda and Panevezys, they are on a slow, but constant rise in Vilnius. We have particularly witnessed a stir in the segment of cheap-and-moderate-priced apartments,” said Saulius Vagonis, Head of the Marketing and Evaluation Department at Ober-Haus, a leading real estate agency in the Baltics. With the stir in the market, he remains cautious with market estimations in the long term. “It is just too premature to draw far-reaching conclusions.

We still have to wait for more defining signs of recovery,” Vagonis cautions. However, according to him, some positive, up trend-defining indications are hard to be dismissed though. “It is a good sign that we saw active sales in summer, when usually they are sluggish due to the seasonal lethargy. It gives optimism that the market will be even more exuberant during the last months of the year,” Vagonis said to The Baltic Times. Being cautious with his predictions, he is much more outspoken about the past. “In the summer of 2009, real estate prices dropped 2-3 percent every month, suggesting no sign of a recovery whatsoever. However, after just one year since then, we see quite a different situation, a much more promising one,” the Ober-Haus employee said. He relates the recovery tendencies with the general economic situation in the country. “There is much more optimism in the country, though some macro-economic indications are still gloomy – though unemployment has stabilized, but is not decreasing, salaries are frozen and emigration levels are still high. We can expect a more rapid real estate recovery when all of the economy will recover,” Vagonis concluded.

Real estate experts from, a trendy real estate Web site, share Vagonis’ market evaluations and expectations. “We will hardly see any substantially positive changes in the real estate market, as its prospects, to a major part, will be defined by the general situation in the country, particularly by the level of unemployment, emigration level and banks’ lending policies. No less important will be the Government’s decisions on the issues of real estate taxation and bankruptcy of natural persons. Most likely, the real estate’s pulse will coincide in its rhythm with the pulsation of separate Lithuanian regions and the whole country itself. It will likely be a slow and long ascent, which may be hampered by certain ditches, “ real estate experts predict.

Gediminas Bareika, President of Average and Small Real Estate Agency Association, gladly states that real estate prices have not gone down for more than three months in a row. “Quite assuredly, I am convinced that the bottom has been reached and we are slowly moving up. With real estate supply hugely surpassing demand for the past two years, I see a new thing quality-wise – there is already a shortage of economic apartments - those of one or two rooms. In addition, the majority of potential buyers, having learnt a painful lesson of the downturn, are exceedingly saving-conscious – buyers ask for small apartments with autonomic heating. To my knowledge, several construction companies are to start new building sites with a landmark-defining feature – the blocks will have solar collector systems, something quite new in the real estate industry. They will cut heating expenses to a minimum – something all inhabitants dream of nowadays,” Bareika said. With construction at a deadlock in 2009, the largest Lithuanian cities, Vilnius, Kaunas and Klaipeda, are expected to erect 2-6 new blocks each this year.

Indra Valioniene, owner of Termionas, a consulting real estate and financial company in Klaipeda, calls the time “sobering up.” “After flying high with no potential for that whatsoever, people have landed heavily, hitting the ground hard. Those who showed most resilience are trying to stand up and make decisions according to their needs and capacities. It is the time for sobering up,” Valioniene spoke in a bright fashion to the Baltic Times. However, she admits the recovery has reached Klaipeda as well, “Forget large construction sites. I am glad to see some move in the market, as most builders are trying to thaw out their frozen construction sites and finally finish them. Obviously, there are no grandiose, large-scale constructions, and I wonder whether we will see them in the near future,” she said.