EstateGuru sees property development slowdown in Baltics
EstateGuru’s head of retail investors in Lithuania has warned that property development has slowed across its key market of the Baltics, due to inflation and high interest rates.
The peer-to-peer property lending platform operates across the three Baltic states – Estonia, Latvia and Lithuania – as well as Finland and Germany.
Vaidotas Šumskis said on a company webinar that high inflation and interest rates across Europe had a “significant impact on housing affordability” in the region last year which has had a knock-on effect to development projects.
“In the Euro area, interest rates were rising fastest ever rate, and were the highest since 2008,” he said, adding that “salaries rose but so did prices.”
This meant potential property buyers needed more time to save for a deposit, which typically requires a minimum down payment of 10 to 15 per cent of the property price.
“Typically, it takes three years for a person to save for a down payment [on a property],” said Šumskis, a former economist at the Central Bank of Lithuania.
On top of that, inflation reduces the value of savings. “It all means affordability was sharply reduced,” he added.
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As a consequence, real estate transactions decreased by 25 per cent in 2022. Šumskis said people were taking a ‘wait-and-see’ approach, holding back on their moving decisions in the Baltics.
Consequently real estate developers being more flexible, reducing “fire sale risk”. He said the number of building permits in decreased in Vilnius, indicating that developers were also adopting a ‘wait-and-see’ approach.
Šumskis added that there was no point in developers building apartments – which are typically 100-120 units – as this could lead to a ‘fire sale’ given the state of the current market.
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The comments come as EstateGuru’s latest monthly update showed that it funded €9.6m (£6.2m)-worth of projects in January of this year.
Estonia and Lithuania each accounted for one-third of the total volume, followed by Latvia and Finland. Repayments totalled €7.8m (£6.9m).
“We feel we have achieved stability during the past few months,” the company said. “The average return was eight per cent, with a total of 46 loans (including stage loans) repaid.
“During January to February we fully recovered two long-term default projects in Estonia (one commercial premise in Pärnu (€700,000 – £621,000) and a boutique hotel in Tallinn (€2m – £1.78m). In regards to selling loan claims in Germany and Estonia, we are expanding our network of partners every day.”
In an SEB Bank survey in December 2022, only 49 per cent of those polled said they expected house prices to rise in next 12 months in Lithuania.
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