This section is intended to be a summary guide to all stages of the property investment cycle, from initial purchase and financing through to letting, management and eventual resale. Whilst it endeavours to be comprehensive, we are always happy to discuss matters in further detail either by telephone or in person at our Fulham office. Indeed, we pride ourselves on the quality of our staff and will normally be able to address any immediate queries or concerns you may. If not, we can also draw on our in-country resources to give answers to your questions within 24 hours.

• Choosing the Right Property
• Power of Attorney
• Property Ownership by Individuals
• Standard Payment Terms
• Costs Associated with the Purchase
• Financing the Purchase
• Exchange Rate Risk
• Tax Liabilities
• Letting the Property
• Local Banking
• Reselling the Property

For the most up-to-date information on the property market please look at our Lithuania market research report.

Choosing the Right Property

Arc Property only begins operations in a country after conducting extensive due diligence to ensure that market conditions are suitable for investment. The very nature of emerging markets ensures this is an ongoing process. However, our in-country presence, in-depth analysis and extensive network of contracts amongst Lithuania’s leading real estate professionals, ensures we keep abreast of all new trends and developments and are able to offer our clients the very best available investment opportunities.

Moreover, unlike many other agents, we are completely independent, ensuring our recommendations are based solely upon your investment needs and not private profit.

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Legal Services and Power of Attorney

Arc Property has negotiated a comprehensive legal package with a leading local law firm that covers every legal aspect of the buying process at a fixed cost of EUR 1,750 + VAT. This encompasses everything from advice on the initial preliminary purchase agreement, through to representation at all stages of the conveyancing process. It even includes power of attorney services, which enable clients to complete all aspects of purchase (including mortgage and insurance arrangements) remotely.

Clients who do not require full legal assistance can also select individual services according to their requirements at a fixed preferential rate. Full details are available upon request.

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Property Ownership by Private Individuals

There are no restrictions in Lithuania on the purchase of real estate and private development land by foreign persons. It is also possible to purchase agricultural or forested land by forming a Lithuanian limited company. Arc Property’s local legal partners can fully assist with this process.

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Standard Payment Terms

One of the key attractions to Lithuania in comparison to many other countries is that there are typically no staged payments; off-plan purchases are usually secured by a one-off deposit payment of just 10-20% of the purchase price made c.10 days after the point of reservation.

A major consequence of this is that with generous local financing available, it is possible that your initial deposit payment may be your only equity investment. Under such terms, apartments in Vilnius can effectively be purchased for as little as £4,000.

Moreover, off-plan buyers enjoy capital gains on the entire property value throughout the construction period (typically 12-18 months) solely on the basis of their initial deposit payment. With the opportunity to reassign preliminary purchase agreements prior to completion still possible in Lithuania, this can be an extremely lucrative investment strategy.

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Costs Associated with the Purchase

Another key positive of the Lithuanian real estate market from an investment perspective is that the purchase process is very defined and associated costs easily quantifiable. Further, unlike most countries, the Republic does not charge stamp duty or other documentary taxes on sales of receivables.

• Arc Property Service Fee: 3% of purchase price
• Loan Arrangement Fee: from 0.5% of loan value
• State Notary Fees (translated POA and approval of purchase agreement, ownership, and mortgage requests): c. 150 GBP
• Insurance (Property and Accident): c. 200 GBP
• Legal Fees: See Legal Services and Power of Attorney

Please note that these are only indicative figures and the exact amount will vary from property to property.

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Financing the Purchase

A further incentive to invest in Lithuania is that local banks are willing to provide high loan to value mortgages to foreign investors (up to 80% at present) at very competitive rates and over periods up to 30 years. 

Whilst it is possible to borrow in US Dollars (USD) and Lithuanian Lita (LTL), the Lita is now pegged to the Euro (EUR) in preparation for full currency conversion and so we typically recommend investors take Euro mortgages. Based on EURIBOR (the European Central Bank base rate) and starting at just 3.6%, these rates are significantly lower than the Bank of England base rate.

With gross rental yields for new-build properties in Vilnius currently c.5%, it is still possible to generate sufficient rental income to cover mortgage costs. Any shortfall will likely be negligible and more than off-set by anticipated capital appreciation rates in what is predicted to be Europe’s number one capital growth market in 2007. [Knight Frank, 3Q Report]

Naturally, it is also possible to finance purchases by releasing equity from your other assets and Arc Property is happy to recommend appropriate independent legal advice.

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Exchange Rate Risk

Exchange rate risk is all part of purchasing in a foreign currency. Rate fluctuations may work for or against you, so it is important to be aware of the risks and the potential consequences.

One way to manage adverse currency fluctuations is to ensure that you have sufficient funds available to absorb any extra costs. Alternatively, a forward deal can be put in place with a foreign exchange company to secure a set rate at some future date (up to 2 years in advance).

Arc Property is able to recommend a number of suitable firms who perform such services.

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Tax Liabilities

Real Estate Tax – 0.3%-1% with exemptions

From 1 January 2007, real estate tax is levied at between 0.3% and 1% on the value of the immovable property owned by legal entities according to the rate applied by the relevant state municipality. However, the tax is not levied on personal residential properties provided the premises are not used for commercial purposes or rented by legal entities.

Land Tax – 1.5% for legal entities

Legal entities that own land are subject to land tax at the rate of 1.5% of the value of land as calculated by the relevant state municipality.

Income Tax – 15% for property and rentals

Personal income tax rates are 15% and 27% depending on the type of income (the top rate will be reduced to 24% from 1 January 2008). However, income derived from rent and the sale of property is levied at just 15%. Moreover, income derived from the sale of property held for more than 3 years is not subject to tax.

Interest paid on mortgage loans is tax deductible.

Capital Gains Tax (CGT) – 15% with exemptions

In Lithuania, capital gains are subject to standard income tax rates.

VAT - 18% with exemptions

VAT is levied on the supply of goods and services at the standard rate of 18%. However, the sale of buildings used for more than 24 months and associated land transfers are VAT exempt. The rent of real estate is also VAT exempt (with some exemptions).

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Letting the Property

Arc Property place great emphasis on the perceived rental potential when sourcing our developments.

We have teamed up with one of the local market leaders to offer our clients a comprehensive western-style lettings and property management service at an extremely competitive rate. Indeed, the charge for sourcing tenants is simply the first month’s rental income and subsequent property management is just 8% of monthly rental income. Services include:

• management of tenant arrivals and departures (including full inventory);
• 24 hour emergency call-out;
• administration of monthly rental payments (calculation, delivery, verification);
• administration of monthly expenses (building maintenance, electricity, gas, real estate tax, etc.);
• verification of water, gas and electricity meters;
• co-ordination of replacement of damaged goods and supervision of repairs;
• management of subcontractors if required;
• enforcement of rental contract terms and conditions.

Gross rental yields in Vilnius are currently c.5% and there is good demand for new-build and renovated apartments. Nevertheless, the type of tenant and contract does of course vary depending on the property and location.

In general terms, Vilnius city centre apartments generate the highest rental income and appeal much to international workers. However, lease periods tend to be shorter than apartments in the suburbs, which are popular with families and Vilnius’s burgeoning, newly affluent middle class. Here rental periods can be anything from 6 months to 5 years.

Arc Property staff will happily advise clients further on such matters according to individual requirements.

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Local Banking

Many of our clients opt to open local bank accounts so that mortgage payments can be made in a timely fashion with minimal hassle and a ‘working’ balance maintained to cover local costs (maintenance, tax returns, etc.).

Lithuanian banks are experienced in opening accounts for non-residents and publicity material and all necessary documentation is typically available in English. The process can be completed either in person or by power of attorney (see above).

Thereafter, secure internet banking facilities enable clients to check their balances and make payments online.

Again, Arc Property is able to advise clients on the best local banking options according to individual requirements.

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Reselling the Property

Arc Property continuously monitor local market conditions and are well placed to advise clients on exit strategy. Indeed, this is possibly the most important stage in the investment cycle as this is the point at which any capital gains earned become realised.

As part of our ongoing service we will advertise your property on our website free of charge and promote it to any of our clients looking to buy on the secondary market in Lithuania. We can also advise on leading high street estate agents and local property portals to help ensure your property gains maximum exposure to prospective local buyers.

This service is complimentary and seller’s will be subject to no additional fees.

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