Best of the Baltics: what Vilnius offers investors InvestingAbroad

It has the largest old town in eastern Europe, a lively new city and agrowing economy where property costs less than in Riga and Tallinn.Daniel McLaughlin reports

In the quickening rush for Baltic property, foreign investors have often overlooked Lithuania in favour of the country's northern neighbours.

The Latvian capital Riga is the biggest city in the region, has long been its commercial hub, while Estonia's capital, Tallinn, has captivated many property hunters with its pristine old town and proximity to Helsinki, just across the Gulf of Finland.

But as investors pause for breath after their dash into Riga and Tallinn, some who want a second bite of the Baltic cherry, as well as many first-time buyers in the region, are now focusing their attention on Lithuania.

Like Latvia and Estonia, Lithuania is a politically stable member of the European Union with strong economic growth and an ambition to adopt the euro by 2010, a goal that it narrowly missed this year when Brussels deemed that its level of inflation was too high.

And while sharing many of the attractions of its neighbours, Lithuania is luring investors with distinctive features of its own.

Vilnius boasts the largest old town in Eastern Europe, a UNESCO-listed gem of Baroque, Gothic and Neo-Classical architecture, alongside a vibrant new city with lots of green space and suburbs whose Communist-era tower blocks quickly peter out into farmland and forest.

About 500,000 people live in Vilnius, but occupy less than a quarter of the city's total area, allowing it to "breathe" while offering plenty of scope for development as residents look to move from small apartmentsinto new, larger accommodation.

Owner-occupancy rates in Lithuania are among the highest in Europe, creating not only a desire among the younger generation to buy their own apartment or house as soon as possible, but also a fund of property capital that locals can use to leverage borrowing.

Mortgage rates are low and housebuyers regularly borrow up to 90 per cent of a property's value - opportunities that are being eyed by many of the hundreds of thousands of Lithuanians who now work in Ireland and Britain, and already send cash home to service a mortgage or are saving money to buy property when they return home.

What's more, many investors now see property in Vilnius as something of a bargain, having been passed over by the Russian money that is drawn to Riga (where half of the residents are ethnic Russians) and the Scandinavian cash that has been sunk into Tallinn, which is the most northerly of the Baltic capitals.

"I believe buyers in the Baltic should now be looking at Lithuania," says Nicholas Lane, director of Tucana Property.

"You can find good value property in Vilnius that simply isn't available any more in Riga and Tallinn, and in the old town of Vilnius we hope for 20 per cent annual capital appreciation, maybe more."

The Baltic states take pride in the speed with which they overhauled their economies and infrastructure after regaining independence from the Soviet Union in 1991, and the property-buying process in each of the countries is relatively straightforward.

"In Lithuania, there is a simple land registry system to verify ownership, and it's possible to complete a purchase in about six weeks," says Lane. "Capital gains tax is 15 per cent if you sell within three years, after which you are exempt. And legal and other costs of buying in Lithuania probably come to about 5 per cent of the property price."

The historic heart of Vilnius is the main target for most investors, but the fringes of the old town and the suburbs of the capital are coming under increasing scrutiny, as are the coastal city of Klaipeda and the vibrant student town of Kaunas.

"The biggest potential is in the capital and on the coast, and parts of the coast are at the same price level as Vilnius, while other cities are certainly cheaper," says Raimondas Reginis of regional property specialist Ober Haus.

"Newly constructed apartments (without finishing) go for €1,000-€1,600 a square metre in residential districts and €1,800-€2,800 a square metre in prestigious city districts, such as Antakalnis and Zverynas," Ober Haus said of Vilnius in its 2006 report.

"The average price of a newly constructed apartment in the centre and Old Town varies from €1,850-€3,500 a square metre - in some cases prices even hit €5,000 a square metre. These flats are sold without final finishing which requires another €200-€300 a square metre."

Vilnius' high owner-occupancy levels, and the temptation among expat residents to buy rather than rent accommodation, means annual rental yields are not likely to surpass 6 per cent, and less on the Baltic coast, where the summer season is short.

"There is enormous opportunity in Lithuania," says Peter Baker, the Irish chairman of M2 Invest, which offers stakes in property projects from the initial stage of land-acquisition right through to completion of an apartment complex.

"All the fundamentals are there, and we are supplying housing to a place where there is real demand among locals, and a real desire to get on the property ladder."

AGENTS IN LITHUANIA

Tucana Property www.tucana-property.com

00 44 207 0961247

Ober Haus

www.ober-haus.com

00 370 5 210 9700

M2 Invest

www.m2invest.lt

05 054 2492 (Ireland);

00 370 5 249 6965 (Vilnius)