Overview of investing in Lithuania

Massive growth
Sometimes, it’s good to start an article with some attention-grabbing facts. The price of new suburban apartments in Vilnius (capital of Lithuania) grew by 15-25% in 2005. The price of some new apartments in the city centre grew by about 50%. So, now we’ve got your attention, let’s say a little bit more about Lithuania in general, and its prospects for you as an investor.

Lithuania, the southernmost of the Baltic states with a population of about 3.5 million people, has transformed its economy in recent years. Like the other so-called ‘Baltic tigers’, the country now has a liberal, investor-friendly economic environment. The benefits of this are manifesting themselves in rapidly improving living standards – and rapid rises in the value of real estate.

Strong economy
It’s a given that the direction of the housing market, upward or downward, is overwhelmingly influenced by the rate of economic growth. By this almost foolproof rule, there’s every reason to be confident about real estate in Lithuania. The country was clearly Europe’s fastest-growing economy in 2005, with GDP growth of 7.3%. (The Economist magazine’s forecast for 2006 is 5.4% growth, still way above the EU average.)

A big part of this success is due to Lithuania’s entry into the EU in 2004. So, far, EU investment in infrastructure in the country – roads, rail, telecoms, etc. – totals about $1 billion. Certainly, the country is rapidly developing a more western, modern aura. It likes to present itself as the best of both worlds: a happy fusion of east and west, with (more and more) all the hi-tech conveniences that you’d expect to find in Britain, Germany or France.

Investor-friendly
The government has more than played its part in Lithuania’s transformation, setting company and personal taxes at a reasonable 15%. Above all, the government has shown its commitment to attracting foreign investment. Foreign individuals and companies may now purchase real estate in the country without restriction. Property rights are strongly protected, and are the same for foreigners as for native Lithuanians. It’s vital to stress that this is a stable country, and you can buy houses or apartments here without worrying about unpleasant legal or political surprises.

So what about purchase prices for flats and houses? These are, of course, far lower than in western Europe. In the present climate, you can be virtually certain of properties rising in value; but the rate of increase depends, of course, on the location and the type of property. We’ve already said that, for a desirable house or flat in a good district of Vilnius, the capital city, recent annual price rises have reached a staggering 40 or even 50 per cent.

Richer population
Obviously, this does not apply to all properties in all locations, and common sense tells us that this remarkable rate of increase can’t continue forever. However, because the country’s economic basis is sound, because the population is getting richer, and because demand for good property continues to be strong, there’s an excellent prospect for continuing rises in value.

In our view, a property chosen with a reasonable amount of care and common sense can provide you with an excellent investment. A qualified local estate agent (and yes, we can help you to find one) will be able to identify those properties that are likely to achieve the fastest, and most sustainable, growth in value. With such great potential for profit, it’s not surprising that more and more investors are putting their money into Lithuanian property. For example, around 2,600 brand-new apartments will be built in Vilnius in 2006. Of these, 70% have already been sold, many of them even before completion.

Adopting the euro
However, it’s not our policy on this site only to pay attention to the good news. Those with an eye on eastern Europe may have heard the recent announcement (May 2006) that Lithuania’s adoption of the euro has been delayed. The country had originally hoped to join the single currency in 2007, and the EU’s decision to postpone Lithuania’s entry is a disappointment, for property investors and ordinary citizens alike.

At the same time, it’s important to understand that this is a setback, but no disaster. Many EU commissioners have actually criticised the commission’s decision – taken because Lithuania fractionally exceeded the EU inflation target. Moreover, final adoption of the euro is inevitable: it will simply happen in 2008 or 2009, instead of next year. If the delayed transition to the euro holds back the explosion in real estate prices that was expected to follow – well, that can also be seen as an opportunity. It gives the ordinary investor extra time to find a suitable property, before prices begin to approach western levels.