Experts say buy now

  • 2011-05-18
  • By Matt Garrick

Movers and shakers: Urban Edenstrom, BPT Asset Management Managing Director Algirdas Vaitiekunas, and Deputy CEO at East Capital Private Equity Biljana Pehrsson discuss Lithuania’s recovering real estate market.

VILNIUS - Optimism about a real estate recovery in Lithuania was a popular consensus view at the Baltic Real Estate Investment Forum in Vilnius on May 12, with industry experts urging opportunistic property hunters that the market after 2011 would only climb higher.

The threat of towering interest rates by 2015, and the banking sector seriously considering granting major property loans for the first time since the global housing crisis were two key reasons for companies to invest in Lithuanian development property, real estate experts announced at the conference.

“History tells us that future shocks are a certainty. We could have a new Lehman’s every seven years, or every ten,” CEO of Stronghold Invest, Urban Edenstrom, told the audience of industry moguls, referring to the American banking firm Lehman Brothers, whose bankruptcy three years ago was alleged as the primary cause of the recent global financial meltdown. “There is a risk that real long term interest rates might rise significantly by 2015.”

During the event, 245 delegates and international players from the banking, construction, finance and real estate sectors came together to share and swap insider opinions on the region’s recovering market.
Lithuanian and Estonian real estate sectors were diagnosed as surfacing strongly from the recession, by the 32 speakers who took part in the event, especially in comparison to the struggling markets of Latvia and Scandinavia. “The bottom has passed, and in terms of people’s salaries, it’s the most advantageous time to buy residential real estate,” affirmed managing partner of Ober-Haus Real Estate, Peter Gage Morris.

Costs for development of residential properties in Vilnius were said to be becoming more reasonable than during, or even before, the crisis, though consequently, demand was now increasing faster than the rate of supply. “The overhang is very low in Vilnius. It is quite hard to find nice, new apartments,” said Morris.

“This year, we are starting with a completely different picture,” local real estate expert Domas Dargis told a panel. “We’ve had people waiting for two years for the economy to return. Now they’ve waited long enough to see we’re okay, and they’re happy to come back into the market. We are selling 100 apartments in Vilnius per month. The demand is there.”
The need for living space in the Lithuanian capital has also meant developers are constructing smaller flats, which real estate companies are labelling ‘studio apartments,’ in order to fill a higher demand schedule quickly. “The average size of apartments in Vilnius decreased considerably over the last eight years,” conceded Morris.

Industry heads claimed for the first time since the global recession that Lithuanian banks were opening their doors to offer real estate loans to reputable developers. “Two years ago, they wouldn’t even talk to us. Today, they at least let us into their premises. And I have even seen offers,” announced CEO of Norwegian firm Selvaag Eiendom, Per Bomann Larsen, during a panel discussion about residential real estate.

As the economic recovery continues to drive up housing prices, it was said banks were coming around to the needs of developers, but remain cautious. “They are looking more for those who are professional players. In 2006 and 2007, they were giving loans to anybody,” said Citypro partner, Hindrek Leppsalu.
Head of Baltic banking at Swedbank, Hakan Berg, advised the audience of the changes banks must now take toward financing housing developments. “We are very much trying to have a more liquid capital market,” he stated. “Then everyone will benefit.”

The global financial crisis was a common topic on the tongues of the day’s speakers, predominantly about how to be equipped for the next one. “We spend a lot of time discussing what went wrong [in 2008]. The stupidest thing would be to make the same mistake twice. But [another market drop] will come, from a different angle, and we need to be prepared,” warned industry head Terje Turner.

Construction companies, too, were looking to move back into the post-crisis playing field, but remained unaffordable for many developers, with construction costs rising twenty percent over the last year. Experts blamed the extensive increase on labor and material costs, which have moved steadily higher since the market upturn.
“Construction companies were hit hard by the recession, and had to downsize, so now they are a bit fearful of committing to projects,” equated Leppsalu. “The pricing in the future will be more construction-driven than by the land. It will be a good time to buy if the construction price is low.”

Though the outlook for the Lithuanian industry was positive overall, industry experts warned a lack of international investors will keep the market at a smaller stature.

“There are almost no international investors in Sweden, Denmark or Norway, so I don’t think you can expect too much international money in the Baltics,” Edenstrom said, talking about the future for investment in the region. He reminded audience members, although investors were holding back from flooding the Baltic market, that there was still considerable movement. “Nobody wants to be the first, but […] international buyers, such as Baltic Property Trust, have already raised special funds for the Baltics and expect to invest a minimum 200 to 300 million euros in 2011 and 2012,” he claimed.

Another issue of debate was the implementation of the euro into Lithuania, which is pegged to replace the current currency, the litas, by 2014. “Having the euro is a huge advantage for international investors. Estonia is definitely gaining from it,” said deputy CEO of East Capital Private Equity, Biljana Pehrsson, referring to the euro’s introduction into Estonia in January this year.