What awaits the real estate investment market in 2020?
Real estate continues to be one of the most popular investments for Lithuanians, but what awaits this market in 2020?
You will have to pay more
In order to fulfill the promises made to the voters, Lithuanian politicians are handing out money with one hand and imposing new taxes with the other hand, which will mostly reach those who are trying to live better and invest their money in their own housing or renting it. In 2020, the government reduced the tax-free property limit to 150,000. euros. What does it mean that people with real estate over 150 thousand EUR will have to pay a tax of 0.5% above that amount? This tax is estimated to affect about 37 thousand. persons, of which about 26 thousand Such a tax should be paid in Vilnius. This can undoubtedly dampen real estate transactions in big cities and affect people renting apartments.
In addition, the Government has abolished business licenses for housing rentals where more than one unit is rented. From now on, a business license will have to be purchased for one rental housing. This means that for those who have invested or are planning to invest in rental housing, costs increase and investment returns decrease, which may force some to look for other alternatives or step into the shadows.
Real estate crowdfunding will grow
As commercial banks continue to reduce loan disbursements, more and more real estate developers will be forced to look for alternative sources of financing. Therefore, the volume of crowdfunding will increase in 2020 and investors will have more choice in which projects they want to invest in. However, on the other side of the coin, the interest rates offered to investors will decrease. This trend is already noticeable even now when projects are easily financed for 8 percent. annual interest. This is a natural stage in the development of the crowdfunding market, which has already been passed by Western countries, where this method of financing has been in operation for a long time. Undoubtedly, rising money and the ever-growing amount of money lying in people's accounts also contribute to the same. But with lower interest rates will come bigger, safer projects, so more reliable loans will make up for falling interest rates.
In principle, the new real estate tax changes may even serve the crowdfunding market, as crowdfunding platforms with real estate collateral may become even more attractive to investors due to lower fees and time costs than buying and renting real estate.
New European regulations will increase competition in Europe
In December 2019, the Finnish Presidency of the Council of the EU and the European Parliament reached a political agreement on a new framework that will facilitate the provision of crowdfunding platform services across the EU.
The new regulation aims to promote cross-border business financing, as existing national rules differ to the extent that they hinder the cross-border provision of crowdfunding services and this has a direct impact on the functioning of the internal market for such services. In particular, because the legal framework expires at national borders, there are high legal compliance costs for retail investors, who often face difficulties out of proportion to the size of their investments.
For the same reasons, crowdfunding service providers using such platforms are discouraged from offering their services in a Member State where they are not established. Therefore, until now, crowdfunding activities were mostly carried out on a national scale, not giving the EU crowdfunding market the opportunity to grow and companies not being able to use crowdfunding services.
Although new requirements may come with the new joint EU directive, Lithuanian crowdfunding platforms will not need to make major changes, as the directive itself is very similar to the current procedure established in Lithuania. Therefore, the expected changes will only improve competition and the development of crowdfunding in Europe for Lithuanian platforms.
Statista's crowdfunding review predicts that in 2020 the global crowdfunding market is expected to grow by around 23.3%. However, taking into account the fact that the European Union is planning to adopt a common regulation, this growth in the community is likely to be much higher, and the crowdfunding market in Lithuania may even double in the coming years.
Taking a general look at the real estate investment market in 2020, it can be said that there will definitely be changes. On the one hand, 2020 looks like it won't be a good year for traditional investment methods. However, on the other hand, the alternative real estate investment market will receive positive changes that will stimulate the growth of this market.
Viktorija Vanagė - real estate expert and founder of crowdfunding platform Profitus