If the ruling in Lithuania will impose a tax on the second and subsequent housing, it will shake the real estate market and reduce prices. Despite the fact that the expectations of residents and businesses are now the highest in the last 10 years, but in the near future the number of home buyers will decrease.
This was reported by Nerijus Machiulis, senior economist at Swedbank, at the conference “The Muddle of the Real Estate Market: An Inconvenient Truth."
“Lithuania is the fifth most open economy in the world, 85% of its GDP creates exports.Of course, if something terrible happens in export markets, if geopolitical tensions arise, world wars in the market of commerce start, this concerns industry, services and tourism. This will quickly affect the expectations of residents and the real demand, “- said the economist.
However, now, according to him, polls show that residents and business feel very good and positively assess the situation – as it was 10 years ago.
A good position is shown both by the growing contributions of residents and by the relatively consistent growth of loans.
Мачюлис has noticed, that the countries of an eurozone specify that the main brake of economy – shortage of workers. This also applies to Lithuania. As the number of workers in Europe grows, salaries will grow, and the growth of wages will lead to higher inflation, an increase in the interest rate, which means less people will take out mortgages.
Markets hope for a slight increase in interest. For example, the interest rate at the end of 2020 will be 0.5%. Many believe that money will continue to be relatively cheap.
“Low interest rates have unbalanced financial markets, stock prices have risen, property prices have fluctuated in different countries, but since the beginning of the century they have greatly inflated, especially in the last 10 years, when real estate began to invest," he said, that an increase in the interest rate may slow down the rise in property prices.
The deposits of Lithuanian residents for 10 years increased from 6 to 12 billion euros, and financial obligations remained relatively small.
He drew attention to the fact that in the first quarter of 2018 the number of real estate transactions in Lithuania declined, the market became less active, the situation stabilized both in Vilnius and Klaipeda (in both cities the number of deals decreased by 10%.
“The growth in prices has slowed down and will continue to slow down in the future, and we expect the prices to stabilize at this level, provided that they do not expand the real estate tax base (now the authorities are considering the possibility of taxing second and subsequent housing).
A real estate tax could shake up the market, even if it affects only the second housing. A considerable part of buyers will reconsider their intention if they plan to buy housing as an investment, “said Maciulis.
According to him, the Central Bank of Lithuania has already raised the issue of overheating in the real estate market in the country. However, in Kaunas, prices have not yet reached the pre-crisis level, but in Vilnius they were equal to them only recently.
“Yes, prices returned, but then there was clearly a price bubble, they seriously ran counter to the opportunities." This is not the case now, since salaries for this time have increased by 70%, “the economist said.