2024-07-08 08:18:24
The ECB’s decision to reduce interest rates by 0.25 percent. point – a strategic step that allows to move the slowed down economy. This has been under consideration for quite some time, but many have been concerned about the possible return of inflation.
“This news is extremely important for real estate developers, for whom lower borrowing costs can mean more affordable financing options for projects, which can accelerate the pace of development and investment,” explained Deividas Žukas, head of Bigbank’s business loans department.
It is said that real estate developers are already preparing for the recovery of the real estate market in Lithuania. The submission of projects to the primary market often depends not only on the investments and plans of the developers, but also on obtaining construction permits.
According to Kęstutis Faktorovičius, head of real estate development company “Kenova”, some developers delayed the start of construction of some projects, seeing sluggish sales. Therefore, it is likely that reduced interest rates will encourage those rates to increase somewhat.
Ugnius Latvys, general director of the real estate development company “Kaita Group”, says that for some time there were rumors of stalled projects in Vilnius due to the slowdown of the real estate market, but now that is no longer the case. “Of course, the challenge of offering projects to the Vilnius real estate primary market is directly related to longer terms for obtaining building permits, but large developers rearrange their project cycles so that this aspect has as little influence as possible.
This year, we have planned investments in Lithuania for more than 40 million. euros. The number of apartments we offer alone for the primary real estate market of Vilnius is almost 650″, said the specialist.
Eglė Savostė, head of the “CITUS” analysis department, also discusses the process of issuing construction permits, which has a lot of uncertainty: “Unfortunately, reduced interest rates have very little impact on the development process.
On the other hand, currently the offer in Vilnius is very balanced. It consists of about 5,500 new dwellings, although about 20 percent this quantity is an illiquid supply that has not found buyers for more than 24 months. However, judging by the market dynamics, the supply in the market is certainly sufficient. If it increases, after some time further supply growth is also likely.”
The effect will not be noticeable immediately
Real estate developers met the ECB’s interest rate cut optimistically, but rather cautiously. Many see this as an opportunity to secure more favorable financing for new projects and to refinance existing debts at lower costs.
Developers are well aware that lower interest rates can increase profitability by lowering the cost of money, making previously marginal projects more financially viable.
However, D. Žukas notices that caution still prevails in the market – developers are not in too much of a hurry: “They understand that although lower interest rates are beneficial in the short term, the market is watching the behavior of stocks.”
U. Latvys claims that the money has not disappeared from the buyers’ accounts and is simply immobile at the moment. Those buying housing for investment have currently put their plans on hold because the increased interest rates no longer allow securing the kind of return that was calculated in the past. However, in order to move the market properly, according to the specialist, it will be necessary to wait for bolder interest rate cuts.
The real estate market will definitely not overheat
After the 2008 crisis, economists and society are waiting for a new real estate crisis every time. At first glance, one may get the impression that the real estate market may heat up again due to falling interest rates.
However, the developers assure that they are not really thinking about overheating the market at the moment. First of all, this is because the effect of the interest rate cut will not be seen immediately. According to E. Savostė, the currently significantly increased demand will allow to amortize the growing demand at least for some time.
Other developers do not even expect to see a higher growth in demand this year and expect to see more real changes only next year, when interest rates will already be reduced a bit more – currently the falling EURIBOR has only a psychological effect, and the housing affordability indicator is improving only due to rising wages.
However, even the most pessimistic developers do not see the possibility of overheating, since, according to them, developers have created enough supply and it will certainly not decrease in the next few years to such a level that prices suddenly rise sharply, although a healthy increase of several percent can already be expected next year.
2024-07-08 08:18:24