Strong October in New Housing Markets and the Opportunity to Capture Better Investment Returns
In October, a surge in new housing sales was recorded in the three largest cities in Lithuania. In Vilnius, sales increased by over 50% compared to both September and October of the previous year. Greta Zarembiene, a Partner and Head of Investor Relations at the crowdfunding platform Röntgen, notes that some investors are rushing to take advantage of higher returns, as a decrease in Euribor, and consequently in the profitability of other debt markets, is expected next year.
According to the data of the real estate services company Inreal, despite Euribor interest rates reaching 4%, sales of new housing grew not only in Vilnius, but also in the much smaller markets of Kaunas and Klaipeda.
According to Tomas Sovijus Kvainickas, the company's head of investment and analysis, the biggest challenge for buyers at the moment is the high interest rates, which encourage people to rent rather than buy. The fact that the housing market is mostly constrained by interest rates, not prices, has been mentioned earlier by major Lithuanian property developers. On the other hand, according to T. S. Kvainickas, the amendments to the real estate tax currently being discussed in the Seimas may make it more expensive to rent rather than to buy a first home.
According to G. Zarembiene, interest rates on all other debt markets have risen along with Euribor. As a result, crowdfunding platforms have also started to offer higher interest rates to investors. At Röntgen, they have now risen from 7.5% to 12% on average.
“We consider ourselves the most conservative platform in the market, with the strictest project selection – minimizing risk will always be a higher priority for us than slightly higher returns. While we see that investors today primarily value low-risk projects (such as those nearing completion or already generating returns), we also notice a desire to take advantage of the increased interest rates,” says G. Zarembiene, illustrating that in the first 10 months of this year, "Röntgen" raised EUR 40.9 million in loans, more than double the amount raised in the same period last year.
Additionally, in the year leading up to October 31, 2022, "Röntgen" returned EUR 23.1 million in loans to investors, of which EUR 12 million came from the sale of real estate and the successful completion of an aviation project.
Expectations of Cheaper Loans
Euribor futures indicate that the European Central Bank will start to cut base rates in the middle of next year and by the end of next year interest rates in the euro area should fall to around 3.5%, Swedbank's chief economist Nerijus Maciulis told Verslo zinios. In his opinion, the rate cuts will be even more aggressive and will settle more around the 2% mark within a year and a half.
According to G. Zarembiene, this sends several signals to investors today: a further recovery of the housing market in the context of falling interest rates is highly probable, and real estate projects being launched or developed today are sure to find their buyers. Also, if Euribor is falling, interest rates in other debt markets will also fall, so today is a particularly good time to capture higher returns.
"The current period is unique in that expectations for returns on investment have increased. Investors lending money with real estate collateral can expect interest rates up to 12%. But this won't last forever. As Euribor decreases, the costs of all lending tools will decrease, meaning lower earnings for investors. In turn, understanding that the market will be slower for some time, we are assessing the risk of each project even more conservatively and focusing on completing already started and platform-financed projects. This way, the loan portfolio will have more completed and sellable properties, with the construction risks already resolved,” says G. Zarembiene.
Currently, the Röntgen platform offers investors three projects. The "Riverland Cottages" project in its second financing stage, with a very low-risk rating, is already attracting participation from a private debt fund and one of the commercial banks operating in Lithuania, alongside retail investors. Investors are also offered a diversified investment opportunity with UAB "NT reikalas," which includes real estate projects being developed in various locations in Vilnius, such as "HOME+" and "12 biciuliu." Finally, investors are invited to finance the next stage of the "Juozapaviciaus 13" project in Kaunas – this project in Kaunas's San?iai district already has strong pre-sales, while the experienced developer is several months ahead of the construction schedule.
Strong October in New Housing Markets and the Opportunity to Capture Better Investment Returns
In October, a surge in new housing sales was recorded in the three largest cities in Lithuania. In Vilnius, sales increased by over 50% compared to both September and October of the previous year. Greta Zarembiene, a Partner and Head of Investor Relations at the crowdfunding platform Röntgen, notes that some investors are rushing to take advantage of higher returns, as a decrease in Euribor, and consequently in the profitability of other debt markets, is expected next year.
According to the data of the real estate services company Inreal, despite Euribor interest rates reaching 4%, sales of new housing grew not only in Vilnius, but also in the much smaller markets of Kaunas and Klaipeda.
According to Tomas Sovijus Kvainickas, the company's head of investment and analysis, the biggest challenge for buyers at the moment is the high interest rates, which encourage people to rent rather than buy. The fact that the housing market is mostly constrained by interest rates, not prices, has been mentioned earlier by major Lithuanian property developers. On the other hand, according to T. S. Kvainickas, the amendments to the real estate tax currently being discussed in the Seimas may make it more expensive to rent rather than to buy a first home.
According to G. Zarembiene, interest rates on all other debt markets have risen along with Euribor. As a result, crowdfunding platforms have also started to offer higher interest rates to investors. At Röntgen, they have now risen from 7.5% to 12% on average.
“We consider ourselves the most conservative platform in the market, with the strictest project selection – minimizing risk will always be a higher priority for us than slightly higher returns. While we see that investors today primarily value low-risk projects (such as those nearing completion or already generating returns), we also notice a desire to take advantage of the increased interest rates,” says G. Zarembiene, illustrating that in the first 10 months of this year, "Röntgen" raised EUR 40.9 million in loans, more than double the amount raised in the same period last year.
Additionally, in the year leading up to October 31, 2022, "Röntgen" returned EUR 23.1 million in loans to investors, of which EUR 12 million came from the sale of real estate and the successful completion of an aviation project.
Expectations of Cheaper Loans
Euribor futures indicate that the European Central Bank will start to cut base rates in the middle of next year and by the end of next year interest rates in the euro area should fall to around 3.5%, Swedbank's chief economist Nerijus Maciulis told Verslo zinios. In his opinion, the rate cuts will be even more aggressive and will settle more around the 2% mark within a year and a half.
According to G. Zarembiene, this sends several signals to investors today: a further recovery of the housing market in the context of falling interest rates is highly probable, and real estate projects being launched or developed today are sure to find their buyers. Also, if Euribor is falling, interest rates in other debt markets will also fall, so today is a particularly good time to capture higher returns.
"The current period is unique in that expectations for returns on investment have increased. Investors lending money with real estate collateral can expect interest rates up to 12%. But this won't last forever. As Euribor decreases, the costs of all lending tools will decrease, meaning lower earnings for investors. In turn, understanding that the market will be slower for some time, we are assessing the risk of each project even more conservatively and focusing on completing already started and platform-financed projects. This way, the loan portfolio will have more completed and sellable properties, with the construction risks already resolved,” says G. Zarembiene.
Currently, the Röntgen platform offers investors three projects. The "Riverland Cottages" project in its second financing stage, with a very low-risk rating, is already attracting participation from a private debt fund and one of the commercial banks operating in Lithuania, alongside retail investors. Investors are also offered a diversified investment opportunity with UAB "NT reikalas," which includes real estate projects being developed in various locations in Vilnius, such as "HOME+" and "12 biciuliu." Finally, investors are invited to finance the next stage of the "Juozapaviciaus 13" project in Kaunas – this project in Kaunas's San?iai district already has strong pre-sales, while the experienced developer is several months ahead of the construction schedule.
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