Everything you need to know is included in our Lithuania Property Pack
Lithuania is becoming an attractive destination for foreign real estate investors due to its growing economy and affordable property prices.
Buying property there can be complicated though, especially if you're not a local resident.
Both our property-buying clientele and our local partners have raised several common concerns with us. We've listed them all in our Lithuania Property Pack.
This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.
Is it safe or risky to invest in real estate in Lithuania?
One cannot discuss the Lithuanian property market without addressing the legacy of Soviet occupation.
Take, for instance, the Old Town of Vilnius. Here, stunning medieval buildings may have a complicated ownership history. After the Soviets left, many properties that were seized during the occupation were returned to their rightful owners, often leading to multiple claimants.
In 2008, an Australian man purchased a quaint apartment overlooking Gediminas Avenue, only to later discover that there was an existing ownership claim from descendants of pre-Soviet era owners. Such scenarios, though less frequent now, underscore the importance of exhaustive title checks.
On the brighter side, Lithuania has been progressively increasing its transparency in property transactions.
The nation ranked 8th in the World Bank's "Ease of Registering Property" index in 2019, a commendable leap from its position a decade ago. This rise is, in part, due to the digitized Land Book Register, offering a relatively straightforward way to verify property titles.
Yet, one should be cautious. In Kaunas, Lithuania's second-largest city, there have been instances where discrepancies between the digital and paper records led to protracted legal battles.
The picturesque town of Palanga, Lithuania's coastal jewel, offers a lesson in the dynamics of foreign property transactions.
Palanga has seen an influx of Norwegian and Swedish buyers, attracted by its amber-laden beaches. Some have lamented about "tourist pricing," where foreigners are occasionally quoted prices 10-15% above market rates. A good countermeasure is getting property valuations from multiple local sources to ascertain a fair price.
While Lithuania's judicial system is fair, it can be sluggish. A British couple in 2017 bought a property in Klaipeda, only to be embroiled in a boundary dispute with their neighbour.
The case took nearly two years for resolution. Engaging a local attorney early on, especially one specializing in real estate disputes, can be a preventative measure worth its weight in gold.
The Lithuanian government, in its bid to promote foreign investment, eliminated the previously existing 5% property sales tax for foreigners in 2014.
However, a prospective buyer should be wary of the annual property tax, which, while generally low, can be higher for luxury properties in upscale neighborhoods of Vilnius.
Buying real estate in Lithuania can be risky
An increasing number of foreign investors are showing interest in Lithuania. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.
Potential real estate buying mistakes in Lithuania
The concept of "žemės ūkio paskirties žemė" or agricultural land designation
When buying residential property in Lithuania, a specific pitfall you should be aware of is related to the concept of "žemės ūkio paskirties žemė" or agricultural land designation.
In Lithuania, a significant portion of land is designated for agricultural use, and this designation comes with specific restrictions.
You might find a property with an appealing price and location, but it could be situated on land designated for agricultural purposes. The key issue here is that if you're not a farmer or don't intend to use the land for agriculture, changing this designation to residential or commercial use can be a complex and lengthy process.
It involves dealing with local municipalities and the National Land Service under the Ministry of Agriculture.
This mistake is not uncommon, especially among foreigners who might be attracted by the lower prices of such properties.
The frequency of this occurrence is notable, as Lithuania has a substantial amount of agricultural land, and the nuances of land designation are not always immediately clear to those unfamiliar with the system.
To avoid this pitfall, you should thoroughly check the land designation of any property you are interested in. This can usually be done by consulting the Real Property Register (Nekilnojamojo Turto Registras) or by seeking assistance from a local real estate expert who is familiar with Lithuanian land laws and regulations.
Being vigilant about this aspect can save you from a lengthy and potentially costly mistake.
"Bendrija" or housing cooperatives
Another unique pitfall to be aware of when buying residential property in Lithuania involves the concept of "Bendrija" or housing cooperatives.
In Lithuania, many apartment buildings, especially older ones, are managed by these cooperatives, which function differently from typical homeowners' associations you might be familiar with.
In the Lithuanian context, when you buy an apartment in a building that's part of a Bendrija, you automatically become a member of this cooperative. The challenge here is that these cooperatives often have significant control over building maintenance, renovation decisions, and the allocation of communal costs.
The issue arises because some Bendrijas may have outstanding debts or ongoing disputes among members regarding building management or financial decisions.
This can be particularly tricky for you as a foreigner, as navigating these communal dynamics, understanding the specific rules of the Bendrija, and participating in decision-making processes might be challenging, especially if you're not fluent in Lithuanian.
To mitigate this risk, you should thoroughly research the financial and operational health of the Bendrija associated with the property you're interested in. This can involve reviewing financial statements, understanding any ongoing legal issues, and gauging the cooperative's overall management efficiency.
It's advisable to engage a local real estate attorney or a property management expert to assist in this evaluation.
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"Teisinės būklės patikrinimas" or Legal Status Check
A third unique pitfall when buying residential property in Lithuania is the issue of "Teisinės būklės patikrinimas" or Legal Status Check.
In Lithuania, there can be hidden legal complications with a property that are not immediately apparent, even to experienced buyers.
This issue often arises in the context of ownership disputes or unclear property rights. For instance, after Lithuania regained independence, many properties were restituted to their pre-Soviet owners or their descendants. This means that the legal status of some properties, particularly older ones, can be complex, with potential claims from previous owners or their heirs.
For you, as a buyer, especially a foreign one, this can pose a significant risk.
If you purchase a property without a thorough legal status check, you might later find out that there are unresolved legal issues or claims against the property, which can lead to lengthy legal battles or even loss of the property.
To avoid this, you should ensure that a comprehensive legal status check is conducted. This involves more than just verifying the current owner and checking for any outstanding mortgages or liens.
You should also look into the complete history of the property, including its restitution status, to ensure that there are no potential claims or disputes.
"Energinio naudingumo sertifikatas" or the Energy Performance Certificate (EPC)
Another specific pitfall to consider when buying residential property in Lithuania is related to the "Energinio naudingumo sertifikatas" or the Energy Performance Certificate (EPC).
In Lithuania, like in many European countries, an EPC is mandatory for all properties that are sold or rented. This certificate provides information about the energy efficiency of a property and its estimated energy consumption.
The pitfall here is that some properties, particularly older ones, may have poor energy efficiency ratings, leading to higher than expected energy costs.
In Lithuania, where winters can be quite harsh, heating costs form a significant part of homeownership expenses. A property with a low energy efficiency rating could therefore result in substantial additional costs that you might not have anticipated.
Moreover, the Lithuanian government has been implementing more stringent energy efficiency standards as part of its commitment to environmental sustainability and energy independence.
This means that properties with poor energy ratings might not only be more expensive to maintain but could also face potential future costs related to mandatory upgrades or renovations to meet these evolving standards.
To navigate this pitfall, you should carefully examine the Energy Performance Certificate of any property you're interested in. Pay attention not only to the current energy rating but also to any recommendations for improvement listed in the certificate.
It's also wise to factor in the potential cost of any necessary upgrades into your overall budget.
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"Kultūros paveldo objektai" or Cultural Heritage Site
Another unique and often overlooked pitfall when buying residential property in Lithuania is related to the "Kultūros paveldo objektai" or Cultural Heritage Sites.
In Lithuania, certain properties, especially in older towns and cities, may be classified as part of cultural heritage. This classification imposes strict regulations on renovation, restoration, and even maintenance.
If you're considering buying a property in historic areas, particularly in cities like Vilnius, Kaunas, or Klaipėda, you might find yourself dealing with properties that fall under this classification. The primary challenge here is that any modification, including essential repairs or renovations, often requires approval from the Department of Cultural Heritage.
This process can be time-consuming and restrictive, with specific guidelines on materials, colors, and techniques to preserve the historical integrity of the property.
For you as a potential buyer, especially as a foreigner, this might mean facing significant limitations and additional costs in maintaining or renovating the property. Moreover, failing to comply with these regulations can lead to hefty fines and legal complications.
To avoid this pitfall, it's crucial to check whether the property you're interested in is listed as a cultural heritage site.
This information can be obtained from the local municipality or the Department of Cultural Heritage. If it is, you should thoroughly understand the implications for property maintenance and renovation.
Consulting with a local architect or a lawyer specialized in Lithuanian property law who is familiar with the regulations surrounding cultural heritage properties can provide valuable insights and guidance.
"Senojo fondo butai" or Old Fund Apartments
A less obvious but important pitfall to be aware of when buying residential property in Lithuania is the issue of "Senojo fondo butai" or Old Fund Apartments.
This term refers to apartments in buildings that were constructed during the Soviet era, particularly before the 1990s. These buildings are common in Lithuanian cities like Vilnius, Kaunas, and Šiauliai.
The main concern with Old Fund Apartments is their often outdated infrastructure.
These buildings may have issues with outdated electrical systems, plumbing, and heating, which can not only lead to higher maintenance costs but also pose safety hazards. Additionally, many of these buildings lack modern amenities and may require significant investment to bring them up to contemporary living standards.
Furthermore, these older buildings often have less efficient insulation and may not meet modern energy efficiency standards, leading to higher heating and energy costs, especially during Lithuania's cold winters.
As a potential buyer, especially as a foreigner, it’s crucial for you to be aware of these issues.
Before purchasing, you should conduct a thorough inspection of the building's structural integrity and systems. This includes checking the condition of the roof, the plumbing system, the electrical wiring, and the heating system.
Also, you should consider the potential costs for renovations and upgrades.
In some cases, the cost of bringing an old fund apartment up to modern standards can be substantial and may outweigh the initial savings in purchase price.
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"Daugiabučių namų renovacija" or Multi-apartment Building Renovation
An additional unique pitfall in the Lithuanian real estate market is related to "Daugiabučių namų renovacija" or Multi-apartment Building Renovation.
In Lithuania, there has been a significant push towards renovating older apartment buildings to improve energy efficiency. This is particularly relevant for buildings constructed during the Soviet era.
The issue for you as a potential property buyer, especially as a foreigner, lies in the financial and administrative aspects of these renovations. If the building is scheduled for renovation, it can lead to increased costs for apartment owners. These costs are often shared among the apartment owners and can be substantial.
Additionally, the renovation process can be lengthy and may cause inconvenience during the period of the works.
It's important to be aware that while these renovations ultimately lead to improved living conditions and reduced energy costs, the initial financial burden can be a significant factor to consider when purchasing an apartment.
Furthermore, there can be complexities in decision-making processes within the community of apartment owners regarding the scope and nature of these renovations.
To avoid surprises, you should inquire about any planned or ongoing renovations in buildings you are considering. This information can usually be obtained from the building's administration or the local municipality.
Understanding the status of these renovations, the expected costs, and the timeline is crucial.
Moreover, you should also factor in the potential increase in the property's value post-renovation.
In many cases, renovated buildings in Lithuania see a substantial increase in value due to improved energy efficiency and modernization, which can be a significant advantage in the long term.
The issue of "Mokesčių skolos" or tax arrears
A specific and significant pitfall when buying residential property in Lithuania, particularly for a foreign buyer like yourself, is the issue of "Mokesčių skolos" or Tax Arrears.
In Lithuania, properties can have associated tax debts that can be transferred to the new owner upon purchase.
When a property has unpaid property taxes or other municipal debts, these debts often become the responsibility of the new owner after the sale.
This means that if you purchase a property without conducting a thorough check, you might unexpectedly inherit a significant financial burden.
This issue is particularly prevalent in cases where properties have been neglected or have been in the possession of owners who have not adequately managed their fiscal responsibilities. It's not uncommon in Lithuania, especially with properties that have been on the market for an extended period or have unclear ownership histories.
To safeguard yourself against this pitfall, it's essential to conduct a detailed background check on any property you're considering.
This check should include a verification of any outstanding tax liabilities or municipal debts associated with the property.
In Lithuania, this information can typically be obtained from the local tax authority or the municipality in which the property is located.
Given the potential severity of inheriting tax debts, it's advisable to work with a local real estate agent or a legal professional who can guide you through this process.
They can ensure that all necessary checks are conducted and that any outstanding debts are cleared before the purchase is finalized.
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"Žaliosios zonos" or Green Zones
Another specific pitfall to be aware of when purchasing residential property in Lithuania, especially as a foreign buyer, is related to "Žaliosios zonos" or Green Zones.
In Lithuania, certain areas are designated as Green Zones, which are areas meant for environmental preservation or have restrictions on development and construction.
The key issue here is that if you purchase a property within or adjacent to a Green Zone, you might face significant limitations on what modifications, renovations, or expansions you can make. These restrictions can include limitations on building height, density, and even the types of materials you can use.
This is particularly relevant in areas around major cities like Vilnius, Kaunas, or Klaipėda, where urban expansion is often in close proximity to these environmentally protected areas.
For you as a buyer, it's crucial to be aware of these zoning restrictions.
They can impact not only your ability to modify your property but also affect future property values. In some cases, changes in zoning regulations or expansion of Green Zones can occur, which might further restrict what you can do with your property.
To navigate this pitfall, you should conduct a thorough investigation of the zoning regulations applicable to any property you are considering.
This includes checking the current zoning status and any future urban planning changes that might be in the pipeline.
Local planning departments or environmental agencies can provide this information.
"Nekilnojamojo turto vertinimas" or Real Estate Appraisal discrepancies
A unique pitfall in the Lithuanian residential property market, particularly relevant for a foreign buyer like yourself, involves "Nekilnojamojo turto vertinimas" or Real Estate Appraisal discrepancies.
In Lithuania, the valuation of a property can sometimes significantly differ from its market price, and this discrepancy can have important implications for your purchase, especially regarding obtaining a mortgage or calculating property taxes.
The valuation of a property for mortgage purposes in Lithuania is often conducted by certified appraisers, and this valuation might be lower than the market selling price.
This situation can arise due to various factors, including the appraiser's methodology, market volatility, or specific characteristics of the property that might not be fully reflected in the appraisal.
For you, this means that if you rely on a mortgage to finance the purchase, the amount you can borrow may be less than expected based on the property's market price.
This discrepancy could require you to have a larger down payment to cover the difference between the loan amount and the purchase price.
Furthermore, property taxes in Lithuania are based on the official valuation of the property, not necessarily on the purchase price. This can lead to situations where you might end up paying higher taxes if the official valuation is higher than what you paid, or vice versa.
To mitigate this risk, it’s important to get an independent appraisal of the property before finalizing the purchase, especially if you plan to use mortgage financing.
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