It will cost more
As Lithuanian politicians aim to attain their promises given to electorates, with one hand they give out money and with another, they introduce new taxes that will mostly affect those who try to live better and invest their money to attain properties or to rent them. Since 2020 government lowered the untaxed limit for real estate up to 150 thousand euros. Meaning, that people whose real estate is valued at over 150 thousand euros, have to pay a 0.5% fee over that sum. It is predicted that this fee will affect about 37 thousand people, out of them about 26 thousand are located in Vilnius. This factor, indeed, can make RE contracts more passive in cities and affect people renting out properties.
Moreover, the government abolished business permits for house rentals when more than one os being rented. From now on, a separate business permit is needed for every single property. Meaning that for those, who invested or plan to invest in property renting, expenditure is rising and revenue from investment is less significant. Therefore, it makes some to look for alternatives or go into the black market.
RE crowdfunding will grow
As commercial banks keep decreasing the rate of giving out loans, more and more RE developers will be forced to look for alternative financing options. Consequently, crowdfunding in 2020 will grow and investors will have more choice in which projects to invest. However, interest in the projects will get lower. This tendency can be seen even now when projects with 8% interest are easily financed. It is a natural process of crowdfunding development that already has started in the west, where crowdfunding has been for longer. Indeed, it is also affected by money, losing its worth, and increasing savings in bank accounts. Nevertheless, with lower interest, bigger and safer projects will be introduced so more reliable loans will make up for lower interest.
Interestingly, new real estate tax changes can even benefit the crowdfunding market because these platforms with RE mortgages can become more attractive for investors due to lower fees, and quicker turnaround compared to buying and renting real estate.
New European laws will increase competition in Europe
In December 2019, Finland, which was leading the EU commission, and the European Parliament reached a political conclusion regarding the new system that will ease crowdfunding services in the whole EU.
The new law aims to encourage among-country business financing, as the national law until now differs so much that it hinders crowdfunding services and it has a direct impact on the market. Primarily, because the law is valid only in its origin country, new substantial law requirements appear for smaller investors that usually encounter such difficulties that it is not equivalent to their investment size.
For the same reasons crowdfunding service providers, using such platforms, are discouraged to enter other countries where they are not present. Therefore, crowdfunding until now, usually, was executed only nationally, not giving an opportunity to grow for the EU crowdfunding market and not giving a chance for businesses to use crowdfunding services.
Although with the new EU law, new requirements could come, crowdfunding platforms in Lithuania will not need to implement many changes as the new law is very similar to the current law in Lithuania. Anticipated changes will only improve competition and crowdfunding market development in Europe for Lithuanian platforms.
‘Statista’ crowdfunding research predicts that in 2020 the worldwide crowdfunding market should grow by about 23.3%. However, considering the new European Union law, it is expected much higher growth. While in Lithuania, in the next year, the market could even double.
Overall, regarding the investment in the RE market in 2020, we can say that, indeed, there will be changes. On one hand, traditional investing in 2020 will be arduous. On the other hand, the alternative RE investment market will encounter positive changes that will encourage the growth of this market.
Viktorija Vanage - RE expert and founder of crowdfunding platorm Profitus
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