A rare combination of conditions for real estate investment – three factors changing the landscape

A strong, fundamental basis underpins this optimism. It is not merely statistical growth or another cycle of rising prices, but a signal of a shift in the broader economic cycle and the emergence of new market conditions.

The key difference lies in the synchronised transformation of macroeconomic processes, which is shaping a new reality for the housing market. Wages are increasing not only nominally but also in real terms, while lending policies are undergoing structural – rather than purely cyclical – changes. This combination is historically rare and provides a much more durable foundation for long-term growth than typical market cycles.

Housing prices reflect the effectiveness of monetary policy and its impact on household financial decisions. While housing demand may appear to be a straightforward indicator, in reality it is a complex interplay of factors, including purchase intent, savings, income generation and borrowing conditions.

In terms of predictability, purchase intent and savings are highly subjective and fragmented indicators. By contrast, income and borrowing conditions are significantly more predictable, making them stronger signals for assessing the market’s direction.

In the first quarter of 2025, wages in Lithuania were 10.3% higher than a year earlier. Although the pace of growth has slowed slightly, the upward trend has now continued for a decade.

The differences are particularly pronounced in the major cities – in Vilnius, for example, the average salary in the first quarter of this year was 35% higher than in other regions. This gap is driven by the growing national economy and the increasing demand for highly qualified professionals, who are predominantly concentrated in Lithuania’s largest cities.

Looking ahead, the outlook remains positive. According to forecasts by the Bank of Lithuania, average wages are expected to grow by an average of 8.4% annually over the next three years. Given the population concentration in major cities and their higher income levels, demand for housing is expected to remain strong.

Following the period of high inflation in the post-pandemic world, monetary policy is now returning to a neutral stance. Euribor has halved, and the forecasted stabilisation of inflation suggests that drastic intervention by the European Central Bank (ECB) is likely to be unnecessary.

Purchasing a property rarely occurs without bank financing. Mortgages, which offer significant leverage and carry relatively low margins, are a key component influencing both housing demand and prices. According to data from the ECB, inflation is expected to stabilise at around 2% over the coming years.

In a low-inflation environment, the Euribor component of mortgage interest rates is unlikely to increase, which will enhance households’ ability to borrow for property purchases.

The ECB forecasts confirm the outlook for inflation stabilisation: headline inflation is projected to decline from 2.0% in 2025 to 1.6% in 2026, before returning to the 2.0% target in 2027. Notably, core inflation (excluding energy and food) is expected to steadily decrease from 2.4% to 1.9%, signalling long-term price stability. Moreover, the energy sector is forecast to contribute negatively to overall inflation in 2025–2026, which will further support the purchasing power of homebuyers.

Based on our analysis and data from the ECB, this logic is also confirmed by statistics. Unlike previous crises – the financial crisis of 2008 and the debt crises of 2011–2013, when housing price developments were driven by extremes in housing demand – the current real estate cycle is fundamentally different. ECB data indicate that inflation is currently being driven primarily by general supply shocks (the energy price boom and the pandemic’s effects) and monetary policy effects, rather than speculative processes.

In my assessment, this means that the current market dynamics reflect the impact of fundamental economic factors rather than an artificially created demand bubble. This situation is significantly more favourable for long-term investments.

In practice, these fundamental factors are already reflected in statistics. In Vilnius and Kaunas, the number of transactions in the first five months of this year was 2,717 in the capital and 606 in Kaunas, compared to 1,262 and 345 in the same period last year. The average price per sqm of flats in Vilnius reached EUR 3,772, and in Kaunas, EUR 2,970; in both cases, this represents a 13% increase over the previous year.

In the multi-family housing segment, where Demus Asset Management specialises, these positive developments reveal desirable opportunities. Growing demand, combined with a limited supply of high-quality housing, is creating a favourable investment environment.

When rising wages are coupled with improved access to mortgage financing, the purchasing power of households in Lithuania – particularly in the major cities – is increasing. It is a key indicator supporting the forecast that demand for apartments is unlikely to decline in the medium term.

Adding to this is the consistently strong intention to own a home in the Baltic region (over 80% of the population), along with relatively low household savings levels. For investors, investment in the residential housing segment rests on a solid foundation for generating attractive returns.

Despite these positive trends, specific challenges remain in the market. In recent years, public authorities have increased the bureaucratic burden on real estate developers, though there is now a stated intention to reduce it. The construction sector continues to face labour shortages, and over the long term, demographic shifts may affect demand dynamics.

Potential regulatory changes must also be closely monitored, as they may impact the investment climate. However, these risk factors are not expected to outweigh the overall positive outlook in the short term.

In 2025, Lithuania’s residential real estate market is showing clear signs of recovery. Fundamental economic factors – rising wages and improved borrowing conditions – are laying a strong foundation for sustained demand.

I presume that the current environment, for the first time in a while, is once again particularly favourable for long-term real estate investment, especially in the professionally managed multi– family housing segment. Market data confirms that this is not a short-term fluctuation, but the result of stable and well-grounded economic processes.

In this context, choosing the right investment partner is crucial. Successful real estate projects require not only capital, but deep expertise – many years of development experience, the appropriate licences and professional risk management.

Taking all the key fundamentals into account, the current period presents a rare opportunity – one that must be appropriately recognised and seized. The market is sending a clear signal: those who act now will gain a significant advantage in the near future.