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Published: 16 january 2020 19:51

Viktorija Vanagė. What awaits the real estate investment market in 2020?

Viktorija Vanagė
Asmeninio arch.nuotr. / Viktorija Vanagė

Real estate remains one of the most popular investments for Lithuanians, but what awaits this market in 2020?

Need to pay more

With Lithuanian politicians seeking to accomplish at all costs the promises they have made to voters, money is handed out with one hand, while the other hand puts in place ever new taxes, which will most reach those, who strive to live better and invest their money into their own home or renting it. From 2020, the government reduced the untaxed real estate property threshold to 150 thousand euro. This means that people, who own real estate for over 150 thousand euro must pay a 0.5% tax above this sum. This tax is calculated to impact around 37 thousand individuals, with 26 thousand of them being in Vilnius. As such, without a doubt there could be a slight decline in real estate transactions in the major cities and individuals dealing in home lease could be impacted.

Furthermore, the government removed business permits for home lease, where more than one unit is leased. From now on, a business permit will have to be obtained for every single owned home. This means that those making investments or planning to invest into lease, costs increase and investment returns decline. This may lead some to seek other alternatives or into the shadow economy.

Real estate crowdfunding to grow

With commercial banks continuing to reduce their pace of issuing loans, increasingly many real estate developers will be forced to look for alternative financing sources. Thus, crowdfunding will rise in 2020 and investors will have more choice, as to what projects they will wish to invest in. However, on the other side of the coin, interest rates offered to investors will decline. This trend is already visible even now, where projects with 8% annual interest rates are easily financed. This is a natural stage of the crowdfunding market’s development, which Western countries have already completed and where this means of financing has been operating for some time. Without a doubt, this is augmented by inflation and continuously growing amounts of funds lying in citizens’ accounts. However, with ever lower interest rates, there will also be larger, safer projects, thus more reliable loans will pay off decreasing interest rates.

In essence, the new real estate tax changes could even serve the crowdfunding market because crowdfunding platforms with real estate mortgaging could become even more appealing to investors due to lower taxation and time costs, as compared to purchasing and leasing real estate.

New European regulation to increase competition in Europe

In December 2019, Finland, which held the EU presidency and the European Parliament reached a political agreement on a new system, which would ease crowdfunding platform service provision across the EU.

The new regulations seek to encourage international business financing because existing national regulations differ to the point of hampering international crowdfunding service provision and this has a direct impact on the operations of these services’ domestic market. This is first of all because the legal system ceases to apply at national borders, major legal requirement maintenance costs emerge for minor investors, who often face challenges disproportionate to the size of their investments.

Due to the same reasons, crowdfunding service providers employing such platforms are not encouraged to offer their services in member states they are not based in. As such, up to now the crowdfunding market was mostly operating on the national scale, not granting the opportunity for the EU crowdfunding market to grow and not granting companies the capacity to employ crowdfunding services.

While the new common EU directive could bring about new requirements, Lithuanian crowdfunding platforms will not need to implement major changes because the directive is rather similar to regulations already existing in Lithuania. As such, the anticipated changes will only enhance competition and crowdfunding development in Europe for Lithuanian platforms.

The Statista crowdfunding survey predicts that in 2020, the global crowdfunding market should grow by around 23.3%. However, considering that the EU plans to approve common regulations, this growth is likely to be greater in the union and in Lithuania, the crowdfunding market could even double in scale over the coming year.

Looking at the real estate investment market in general for 2020, it can be said there will definitely be changes. On one hand, it seems that 2020 will not favour traditional means of investment. However, on the other hand, the alternative real estate investment market will experience positive changes, which will spur on this market’s growth.

Viktorija Vanagė is a real estate expert and the founder of the crowdfunding platform Profitus.


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