The year 2023 in the real estate (RE) market could be characterized as a period of continuing uncertainty, cautious hopes, reorientation, and search for alternative solutions. The most prominent theme in the RE market last year was housing affordability, reaching record lows. Changes in the largest Lithuanian RE market, Vilnius municipality, were also inevitable, along with active, abundant, and sometimes excessive legislative activity at the national and municipal levels, successful development of the manufacturing sector, and gradually improving dialogue among business, community, and government.
At the beginning of last year, the RE business increasingly voiced concerns about the deteriorating housing affordability and accessibility situation in Lithuania. As the year progressed, this issue became dominant in the rhetoric of the Bank of Lithuania and commercial banks monitoring the housing market.
In June, experts from the Organisation for Economic Co-operation and Development (OECD) presented a detailed analysis of housing quality and affordability in Lithuania, along with recommendations for improvement. It was gratifying to see that these recommendations closely aligned with proposals from the RE business: a strategic approach and even the establishment of a housing ministry, expansion of the rental housing stock, more active development of social and municipal housing, and increasing the pace and scope of renovations.
Following the OECD presentation, we observed some degree of government response regarding the deteriorating situation in the housing market – the Ministry of Environment eagerly communicated and promised to focus on promoting rental market development and improving the regulatory environment for this segment. However, the timeframe for these actions is set for the coming years. The RE business is still waiting for promised solutions.
One hopes that 2024 will be a breakthrough year when the government fundamentally changes its approach to housing policy in Lithuania. Today, housing is a matter of national security, requiring advanced and thoroughly discussed solutions. Ensuring accessibility creates conditions for young people and active, working citizens to stay and build their future in Lithuania, and also attracts professionals who strengthen our economy. These decisions are needed now. A more active dialogue with business and society could be the beginning of real change.
In 2024, the RE market brings uncertainty, anticipation of negative news, and sensitive moods. Such reserved attitudes result in sluggish demand and, consequently, decreasing project volumes implemented by RE developers. Although the need for housing among the population remains unchanged, the numbers of available properties are still insufficient.
At this point, it is crucial to see state leadership in promoting investments, actively expanding public-private partnership (PPP) projects, and addressing infrastructure burdens more flexibly, while reducing bureaucratic ambitions.
Furthermore, the RE business awaits many innovations in 2024, which will pose significant challenges to the market: the transfer of trust rights for state land to municipalities, changes in the Construction Law, legitimizing a new issuance procedure for construction permits criticized by builders and architects, requirements for 100% completion of housing, new requirements for green spaces, etc. However, the most significant concern for the business is the unpredictable changes in the most active RE market – the Vilnius municipality.
In 2023, the new municipal government in the capital city continued to “amaze” the RE business with its peculiar and unpredictable decisions: unexpectedly changing the chief city architect, radical, and sometimes unjustified changes in tree and greenery regulations, and the mayor’s initiative to review previously approved implementation projects.
Business carefully observes and is surprised by the Vilnius government’s involvement in the development process not always in the most appropriate manner and scale. Doubts arise about legal certainty in developing businesses and projects in the city. Especially when the mayor himself questions the 2021 approved general plan and its decisions. If the capital city continues to adhere to such flawed agendas and does not seek compromise solutions, it is highly likely that in 2024, investments in Vilnius will noticeably decrease, along with implemented residential and commercial RE projects.
In 2023, the manufacturing sector received the most good news when projects of significant scale were implemented and the implementation of ambitious plans continued by one of the largest Lithuanian capital companies: the VMG (West Lithuanian Wood Group) factory worth 82 million euros in Naujoji Akmenė, the Teltonika IoT Group company’s technology park worth 34 million euros in Molėtai, and in Vilnius, Liepkalnis, the construction of the “Teltonika High-Tech Hill” technology park requiring billion-euro investments has begun. The company “Biotechpharma” is also building one of the largest biotechnology cities in Europe, “Bio City,” with investments of around 7 billion euros.
The implementation and further development of such projects are significant news for both domestic and foreign investors who did not show great enthusiasm in the Lithuanian RE market in 2023.
To create an even more attractive investment climate in 2024, the most awaited contribution is from the government and its purposefully directed decisions. However, to achieve this qualitative goal, consistent dialogue between the government and business is essential.
It is encouraging to note that in 2023, there was again a sustainable dialogue between the RE business and the government: numerous working meetings, discussions, consultations, and other communication formats. It is positively encouraging to see the government’s active participation in business conferences and other specialized events because it is here that the best opportunities are created to hear business opinions, familiarize oneself with prevailing attitudes, and feel the moods.
A crucial moment for the RE business in 2024 will be the parliamentary elections – how will the composition of the parliament change, what knowledge and understanding of urban planning and city planning will potential candidates occupying decision-making positions have?
The quantity and quality of parliamentarians’ knowledge about market needs and the impact of decisions made on the business environment are fundamental factors for the smooth economic development of the country. Therefore, dialogue between business and government becomes a significant preventive filter so that some individual and market-harmful proposals by parliamentarians do not have prospects.
A worrisome situation was observed a few weeks ago when a group of parliamentarians registered amendments to the Construction Law, attempting to regulate private entity relationships and thus hinder investments, reduce competition, and at the same time increase construction work prices.
One hopes that 2024 will be the year when responsible government institutions will behave more attentively and responsibly in legislative processes and, before making important decisions, assess the possible impact on the entire market. The state must clearly communicate the impact of its decisions and how much it will cost each of us. It is high time to realize that all requirements, strictures, uncontrolled bureaucracy lead to the final product price, which in all cases falls on the shoulders of the end consumer.
Predicting the development of the RE market in 2024, one can expect more positivity due to the recovery of demand. Improving financing conditions would also improve affordability indicators. Since supply is still insufficient, it is highly likely that RE prices will remain stable, with slight corrections. The market may offer more and more diverse RE objects, among which there will be plenty of rental housing projects.
Let us have unity in 2024, as many constructive conversations, useful discussions, well-founded decisions, thus expecting the desired stability, clarity, and mutual respect. The greatest wish for the RE business is to maintain its reputation and feel responsible for it.
Respectfully,
Mindaugas Statulevičius, Head of the Lithuanian Real Estate Development Association | LNTPA