SSE.LT

Recently Ober-Haus has published a report overviewing the development of real estate market in the first half of 2008 in Lithuania. A few things draw attention, apart from a general downside market trend and a “light depression”, as portrayed by Ober-Haus.

Firstly, as I have already mentioned, residential real estate prices in Lithuania have declined in 1H2008. According to Ober-Haus estimations, Vilnius-based dwellings lost 9% of their value; the second largest city, Kaunas – 10%; the third, Klaipeda – 12%. Land prices across the country plunged 20-40%, depending on a region and infrastructure integration level.

Secondly, according to the company’s March survey, a half of potential real estate buyers with adequate amount of capital would not prefer purchasing flats due to negative price expectations.

As a result, Lithuanian banks do not lend money for land purchases anymore. Building companies are also suffering from tighter credit conditions, as they are obliged to sell flats prior to launching a project and taking a loan. So, according to Ober-Haus, Vilnius will have built only 3,500-4,000 new flats in 2009, down 40% from planned 6,000 flats. Kaunas and Klaipeda will have built roughly 2,000 new flats together in 2009, twice lower than this year. The company does not give any forecast for 2010. However, I believe further decline in real estate demand is the most promising scenario, even under soft-landing scenario, which of course is very questionable.