Thanks to those taxes rent in places where there are jobs in Lithuania will become
more expensive, so much so that we will not be able to
live in Lithuania with Lithuanian salaries. This is your Western Europe for you, dear lady...
"What will
happen to the Vilnius real estate market?
"Everything
will be fine," Arvydas Avulis, Hanner's board chairman, repeated several
times. "It's not difficult for him to talk," someone in the audience
might say, and they'd be right, too.
Where that market
will move, I found out even before the pandemic at one of the real estate and
investment conferences held in Warsaw.
At that time it
seemed: Why? Why do we not yet have funds investing in such segments as
co-living or student dormitories in Lithuania? Yes, of course there were funds
in general investing in different asset classes, but in this case I am talking
specifically about co-living and student accommodation. After three (difficult)
years, the pandemic and the ongoing conflict in Ukraine, we can still see the
result in our country. Funds and real estate developers seem to have dived
headlong into co-living and student dormitories.
While visiting
the aforementioned conference and in Poland, I had the opportunity to talk with
several fund managers, some of whom were not only engaged in investing, but
also had a real estate management company. Someone (very logically) might ask:
what is the real estate management company for the fund (vs. to focus on the
core business)? I think the answer is simple: Excel looks better when you do
everything internally and spend less vs. passing it on to the rental
administrator.
This is a tip for
other rental managers (like us at Houseys) that the fund, and the real estate
developer, will never be fine with your offer. Because the most important thing
is excel, and it looks best simply by paying a salary to a manager or a few who
take care of the rent administration.
But I return to
what is happening and what will happen to the Vilnius real estate market - I am
talking about the apartment rental category. The competition here will only
increase, as institutional capital, funds and real estate developers continue
to successfully enter it. They offer/will offer various products: co-living,
long-term rental, maybe even short-term. With the latter "most of the difficulty", it is not a fact that we will see something from the big players
doing it. But the market is so small that developers will likely want to take a
slice of the short-term rental segment as well.
In the long-term
rental market, individual landlords already compete with institutional capital,
real estate developers - entire positions on the main portal of the country are
occupied by advertisements of apartments for rent by real estate developers,
and the spaces between those positions are also filled with advertisements of
their rental apartments.
It will be more
and more difficult for so-called retail investors with one to several/dozen
apartments, and then the need and importance of rental (long-term, short-term)
administrators will increase.
In Western Europe
or America, everything has already been implemented - it is enough to look,
follow what is happening there and it will be clear what will happen in
Vilnius, Lithuania. And a lot of things are happening that are unfavorable for
retail investors (understand, ordinary people) - from the regulation of the
rental market to tax changes.
And here
Lithuania also wants to appear: it is better not to even talk about the planned
real estate tax - it seems that the lobbyists of real estate developers, funds
and hotels will definitely have the opportunity to pop champagne.
Without getting
too involved in political mudslinging, it is quite obvious what is happening:
in the public eye, and especially behind the scenes, the trend is towards the
fact that owning real estate is becoming more and more unattractive. In the tax
sense. The return is heavily taxed and continues to be taxed, and that low rate
of return is OK for funds. What's next? Even more convenience for various funds
to navigate the market, even lower returns for retail investors. It's neither
good nor bad - it's just the Western Europe we've been wanting.
At the same time,
Western European and American lobbyists, unfortunately, are successfully
pushing their way through various restrictions on the short-term rental market.
This will also come to Lithuania - especially since we have a strong
Association of Hotels and Restaurants. And the real estate tax is a
"good" start.
The good news
(probably) is that the purpose of hotels that previously sounded unattractive
will become attractive. Having hotel-oriented real estate for short-term
rentals will at least provide some reassurance against looming restrictions on
short-term rentals and a real estate tax that does not appear to apply to other
uses.
Of course, there
are questions here: will there be ambiguities when hotels, as one property unit
of hotel purpose, are converted into many property units of hotel purpose, etc.
Wait-and-see.
We want to
believe that: the city, together with real estate developers, will find the
most suitable solutions for the conversion and adaptation of old hotels and
buildings to modern times. However, at least for the time being, real estate
developers planning and building hotel apartment buildings seem to be simply
bypassing one or another of the requirements. And so. Again, it looks better in
excel.
Investors will
increasingly look at it as exactly investing: an activity that does not include
going to "Senukai" and handing over the rent administration to a
relative, because "what are you going to do there". In this place, it
is good that institutional capital is coming to the apartment rental market -
it is becoming more professional.
There will be
products where the real estate investor/buyer gets everything: not only a fully
furnished and ready-to-rent real estate, but also return calculations,
professional rental administration, maybe even tax, legal entity formation
consulting/service.
So, what will
happen to the Vilnius real estate market?
Competition will
increase strongly, apartments will be rented by real estate developers and
investment funds, whose objects are presented not only in ordinary
advertisements, but also by investing in advertising.
Developers and
funds will respond to the changing trends of the rental and accommodation
market: rapidly developing co-living spaces - super compact living spaces with
various common areas.
For some time
now, students have had the option of living in new and ultra-modern spaces, in
contrast to Antakalnis apartments that have not seen for many years any repairs,
except for cosmetic ones. It is likely that we will see even more: serviced
apartments, where various additional services are also offered, such as laundry,
ironing, housekeeping, etc.
The trend of
hotel conversion and "hotel" development will emerge and spread.
Even more taxes
and regulation. Both in Vilnius and Europe. I suggest that you set your mind
and do the math. Real estate developers and investment funds are not afraid of
a few percent return, while retail investors will have to accept it.
The importance of
rental administrators and data will increase. Why? Because rental
administrators are not only tenant finders (long-term rental) or management
service providers (short-term rental), but also data aggregators. Already now,
when administering short-term rentals, we can say quite precisely what kind of
income one or another object in the ads can generate. Investment decisions can
be made based on real numbers, not just a gut feeling or someone's story.
The good thing is
that the market has become more transparent and will continue to be more
transparent, people will understand more and more the essence of investing and
that it does not necessarily consist of doing everything yourself. Various
services such as "Rent to buy" appear and will probably continue to
appear, and Vilnius seems to have a chance to enter the first place in the TOP
three of the three Baltic countries.
The author of the
comment is Tomas Grižas, manager and co-founder of the rental administration
platform Houseys."
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