According to Citus experts, a correction of prices in the real estate market should not be expected in the near future, but they are expected to continue to rise, especially in the secondary market. This is due to the fact that, first of all, the cost of construction is rising, as is the cost of all goods and services.
„The situation in the rental market, the activity of investment funds, and the fact that there are few completed homes on the primary market – developers will simply not be in a hurry to sell them – will also push up house prices. Seeing this situation, with inflation reaching long-standing records, Lithuanians are looking for a place to invest their money and more and more of their countrymen are turning to Lithuania’s resort towns. After the first lockdown, the seaside has attracted the most interest, but it can only stretch so far and will not accommodate all of Lithuania. As housing in the seaside is becoming less affordable, buyers have started to look to Birštonas and Druskininkai,“ says Šarūnas Tarutis, head of investment and analysis at Citus.
The potential of Druskininkai is underestimated
It is not without reason that buyers are increasingly looking to Druskininkai in Dzūkija. In terms of return on investment, for example, housing in Palanga, known as the capital of summer holidays, generates less income and recovers the money invested more slowly than in Druskininkai, which is attractive throughout the year. According to Citus analysts, this trend is especially visible in the case of medium– and large-size housing. For example, the rental yield for a 58 sqm apartment in Palanga will be 7.09%, in Vilnius – 4.75%, and in Druskininkai – as much as 8.5%. Such a property in Druskininkai will pay off in almost 12 years, in Palanga – in more than 14 years, and in Vilnius – in 21 years.
„A similar trend can be seen with other housing sizes – in the capital, it takes about 20 years to pay off the rent, with rental yields of 4–5%, but even this is good compared to other Western capitals. In Palanga, a large apartment of over 80 sqm will pay for itself in almost 15 years, while the rental yield, except for small apartments, is barely 7%. In Druskininkai, meanwhile, it will take 12 years at the latest, while the rental yield is 9–12%,“ comments Mr Tarutis.
The rental income and return rates can be explained by a much lower supply than in other resorts. Analysts at Citus estimate that on unpopular dates in Druskininkai there are around 23–50 properties available for short-term rent, with an average of around 40 units. Rental prices are expected to continue to rise year on year. For example, a small apartment currently costs EUR 54 per night, while in three years’ time it is expected to cost around EUR 70, and in five years’ time it will cost EUR 77.
„All segments and locations are projected to see growth in both rents and property values. In Druskininkai, rental income will increase by several tens of euro in five years. During this period, the value of real estate will rise – in 3 years, 19% growth is forecast, in 5 years – even 30%. Looking at the figures, we notice that people buy property both for themselves and for investment, but the latter is much higher in this period – about 65% of customers consider a home in Druskininkai as an investment,“ explains the head of investment and analysis at Citus.
Those wishing to invest in Druskininkai have plenty to choose from. The real estate project management company Citus is developing the „NEMUNAS by CITUS“ project with an investment of EUR 28.5 million. Construction is expected to start very soon, with the building conversion permit expected in August.
„The project is to be implemented in three phases: the first phase will involve the conversion of the main building into apartments, the demolition of two small ancillary buildings, and the second and third phases will be the construction of new hotel buildings. We plan to hand over the apartments in the first block to the buyers in Q2-Q3 2023, and to complete the renovation of the whole building in Q2-Q3 2024,“ commented Šarūnas Tarutis, head of investments and analysis at Citus.
„NEMUNAS by CITUS“ has already attracted exceptional attention – as soon as the launch of sales was announced, 750 people had already expressed interest in the housing. The sales team has already had about 150 meetings and 46 apartments out of 372 have been reserved. Buyers are interested in this project because this type of housing has not been available until now.
„NEMUNAS by CITUS“ buyers will have the opportunity to add competitively priced, quality rental accommodation to the resort’s overall offer in the future. At present, individual rentals have much less or no service and hotel prices are high and not affordable for everyone. Therefore, a wider range of people will have the opportunity to stay in a functional property with most of the features of a private apartment, at a lower price than in hotels, but with a wide range of services (spa centre, restaurant, housekeeping). We are currently intensively searching for business partners who would be willing to provide part of the services here,“ says the head of investment and analysis at Citus.
Tourist flows are higher than in Palanga
Druskininkai is also probably the least seasonal resort. While Palanga still does not have enough off-season attractions, Druskininkai is famous for its sanatoriums, swimming pools, and infrastructure, which can be enjoyed at any time. According to the Department of Statistics, before the pandemic, occupancy in Druskininkai was 57.7% compared to Palanga’s 39.2%, and a business licence for a year costs twice as much: EUR 342 in Druskininkai and EUR 684 in Palanga.
„Druskininkai is a resort with an incredible occupancy rate. Even before the pandemic, when the seaside was full of tourists, the annual occupancy rate in Palanga was nearly half that of Druskininkai. Of course, after COVID-19 paralysed the world, these figures dropped, but we can see that the situation is improving and the figures are slowly recovering. We believe that this resort will continue to grow. This is particularly evident when looking at historical, pre-pandemic data: in Palanga, annual occupancy has not exceeded 40% since 2015, while in Druskininkai, the accommodation statistics have always been growing and have exceeded 50%,“ says the real estate expert.
In 2021, there were 2.6 times more accommodation units in Palanga than in Druskininkai, although more tourists went to Druskininkai than to Palanga. For example, in 2019, Palanga received 353,000 visitors and only 19% of them were foreign tourists, while in Druskininkai, out of the 371,000 people who stayed in accommodation establishments, as much as 35% of the traffic was made up of tourists from other countries. In 2020, the number dropped by 39%, but already in 2021, recovery was visible and the number of visitors will grow by 5% annually from 2022 to 2025.
„Druskininkai’s multi-seasonality is an untapped and undervalued potential. It is this characteristic that allows the resort to grow by 5% annually. If the absence of seasonality were to be harnessed, it is forecast that the town could grow even faster. Druskininkai is also in a perfect location, so that if one market is lost, tourist flows, unlike in Palanga, do not disappear, but simply redistribute. For example, in 2021, Druskininkai still saw a significant number of tourists from Russia and Belarus (around 44%), with only a few from Estonia or other countries. However, already last year the situation turned around. Only a few per cent of tourists came from the East, but the share of travellers from Germany, Israel, and other countries increased. For this reason, once we have received the building permit for „NEMUNAS by CITUS“, we are planning to actively communicate and market in other markets, such as Poland, and we are expecting a lot of interest,“ comments Š. Tarutis.
„NEMUNAS by CITUS“ is located in the very centre of the resort and is the tallest building in the city. After the works, the volume of the building will remain unchanged and the total area will increase from 17.3 thousand sqm to 18.6 thousand sqm.
„The sales team is available 7 days a week and is multilingual. For the convenience of our clients, we are focusing on online sales: we have 360-degree visualisations of the apartments so that you can appreciate the future views through the window without leaving your home and imagine the final product by looking at the visualisations. And when you come to Druskininkai for a holiday, you can take a look at the full-size demo apartments next to „NEMUNAS by CITUS“ and discuss with the sales team what level of finishing package you would like to have,“ says Šarūnas Tarutis, head of investment and analysis at Citus.
Facts and figures
– Address of the plot: Liepų g. 1, Druskininkai;
– Plot size: 215.13 a (2.15 ha);
– Estimated investment: €28.5 million;
– Use: hotel apartments;
– Total area: 18,6 thousand sqm (phase I);
– Number and size of apartments: 372 units, 13.6 thousand sqm (Phase I);
– Number and area of commercial premises: 11 (Phase I), 1.88 thousand sqm (Phase I);
– Number of rooms: 1–4;
– Apartment area: 19–82 sq. m.;
– Preliminary prices of apartments: from 2 200 Eur/sqm;
– Designer: studio Archas;
– Construction manager: Citus Construction;
– Planned construction deadlines: commencement of construction of Phase I – 09.09.2022; completion of construction of Phase I – Q2 2023, completion of Phase II – Q2 2024.