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Investing • Real Estate

Investing in Lithuania real estate: a Euro appreciation play?

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Dateline: Klaipeda, Lithuania

Earlier this year, Latvia — Lithuania’s Baltic state neighbor to the north — gave up the Latvian lat and adopted the common Euro currency.

Normally, I’m not a big fan of unions or government alliances. I want governments to be as small and splintered as possible — forced to compete with each other for people and investment.

However, the ascension of the Baltic nations to the European Union has proven very interesting for investors. And if conditions remain the same, it is believed that those who invest in Lithuania real estate could see some of the same benefits.

Estonia, the third and northernmost Baltic state, adopted the Euro currency three years ago in 2011. Since then, property prices in Estonia have risen by nearly 60%.

There has already been some build-up in real estate prices in Latvia in the less than three months since Euro adoption there. One expert in Lithuania suggested that it has been as high as 10%, in addition to any appreciation before the actual currency turnover.

Basically, Lithuania is the latest country that many believe will benefit from the theory that ascension to the European Union and the adoption of the Euro currency increases property prices. In some cases, it’s supposed to increase property prices dramatically.

The phenomenon began last decade when western European countries like Italy were joining the EU. Some property owners in Italy reported real estate appreciation of as much as 80% to 100% in the few years after the Italian lira was discontinued in favor of the common Euro currency.

You wouldn’t think that real estate in Europe would be appreciating much. After all, countries like Italy are deeply in debt with little way to rid themselves of the problems caused by years of wanton spending and disregard for capital.

But the European Union has made winners out of many property owners.

How and where to invest in Lithuania real estate

I believe there is potential for this in Lithuania’s real estate as well. Several months ago, my friend Bobby Casey mentioned at my Passport to Freedom conference that he was a fan of Lithuania real estate. Bobby lives in Latvia but is only a few hours away from the Lithuanian capital city of Vilnius, so I believe him.

He’s seen first hand the real estate rebound in Latvia, an indication of what happens when a government takes serious steps to get itself out of a recession.

That’s why some investors are calling for impressive gains in Lithuania’s real estate. People I’ve spoken with on the ground estimate anywhere from 20% to 30% to 50% in the mid-term. Of course, the real number will be anyone’s guess, and you should always do your due diligence.

But at least someone is making the case for investing in real estate here as an appreciation play.

Here in Lithuania, the Euro is set for adoption on January 1, 2015. The local currency, the Lithuanian Lita, is already pegged to the Euro at a rate of 3.4528:1. Owing to Lithuania’s proximity to Poland and Latvia — both users of the Euro — plenty of merchants here quote prices in litas as well as euros, if not exclusively in euros.

Property prices here aren’t dirt cheap, but they are relatively reasonable. A 700 or 800-square foot flat could go for anywhere from $200,000 to $300,000 depending on how new it is and how the place is decorated.

And foreigners can own real estate here more or less without restrictions. Unlike appreciating markets in Asia, you can actually buy a first-floor condo or even raw land if you wish.

Take a few steps outside of Old Town into other areas of the city center and you can find decent properties as low as $125,000.

Of course, real estate in the capital of Lithuania — or almost anywhere else for that matter — is always going to be priced higher than real estate in the smaller cities, which is why some investors are considering areas like the seaport of Klaipeda (where I am staying), the summer resort town of Trakai, and elsewhere.

There are also up-and-coming areas of Vilnius that will probably ripen nicely over the next two to five years as more large-scale development goes into currently marginal areas.

Are there downsides to investing in European real estate?

Investing in Lithuania real estate is truly a play on the concept that entering the Euro currency zone increases property prices in a country in the mid-term. Lithuania would likely be the third Baltic state to see that happen.

The issue for some, of course, is political stability. While young people and younger investors here are focused on the appreciation, a few older people I spoke with remember the days of Soviet occupation, and believe that Vladimir Putin will undergo an aggressive campaign to add territory.

Some of this thinking, believe it or not, is fueled by the American media. I have no doubt that older Lithuanians have reasons to doubt Russia’s intentions, but it’s fascinating to see how many conservatives in the United States are foaming at the mouth about how aggressive they believe Putin will become when the US military has destroyed the economy of any number of countries by dropping bombs over it.

Surely, the political issues currently underway should be considered before making an investment in Lithuania’s real estate. However, the idea that there is money to be made here lies solely, in my mind, in the potential appreciation. You’re buying property with the goal being to earn a nice return in two to four years, and then sell the place.

Considering that rental yields in Lithuania are relatively low — anywhere from 4% to 7%, getting higher on lower-end property — this is not a place I’d tie up my capital for years on end.

I’ve interviewed a few real estate experts on the ground here and have written a complete summary of which property types are best for potential investors. I’ve also provided an overview of the various cities worth looking at and asked about investing in land and investigated whether remodeling older, Soviet-style apartments is worth it as a “flip”.


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