Calm after the storm

Earth-shattering events were the rule almost every week last year. Mind-numbing price rises, huge queues of customers, apartment blocks sold out before receiving building permits. But we now seem to be in a period of something like tedium. Experts at Reas use a more elegant expression: no upheavals on the housing market in the first six months of 2007

Warsaw and Kraków were just a nose in front of other Polish cities as regards the number of homes built and price rates per sqm. Warsaw leads in prices with PLN 8,626 on average required to purchase a square metre in an apartment put on the market in the second quarter of 2007. In terms of price-rise intensity, however, Poznań is in front, where the average price of a flat rose almost 50 pct between October 2006 and March 2007, to reach PLN 5,956 per sqm.

Prices keep rising but in a different way

Developers are losing no time. They were quietly building up land banks last year and have now started to invest and substantially increase the supply of housing. Reas’ experts claim rises of average prices have started slowing with the popular – i.e. less expensive – segment increasing its presence on the housing market. Apart from this, the main cause of last year’s price increases was the huge demand whipped up by access to mortgage loans, while this year’s price rises are being driven by having to pay more for development plots.

Paweł Sztejter, a partner at Reas, forecasts that average prices will continue to rise in the next few months in Warsaw and Kraków – the most mature markets – though somewhat slower than previously. “Estimates suggest rises of between 10 and 15 pct – although this must be treated as the national average. Prices may even drop depending on the location and project, whilst they could rise substantially in other specific cases.” Paweł Sztejter feels that the average Warsaw price will not exceed PLN 10,000 per sqm, and will be PLN
2-3,000 lower in Poznań, Wrocław and the TriCity.

Top-shelf prices overheat

The high-class residential market is overheating in cities such as Warsaw, Kraków, Wrocław and the TriCity, where top-shelf investments will become risky ventures in the near future. Paweł Sztejter stresses that: “The market is deformed at present, with deluxe projects in the housing market amounting to more than 10 pct, compared with just a few percent in western Europe.”

The unusually young Polish development market has created a substantial group of demanding customers looking for non-standard homes such as penthouses and lofts. The price gap between the cheapest and most expensive homes is also widening, reaching as much as ten times in Warsaw – PLN 4,500 compared with PLN 43,000 per sqm! Interest in family houses is also mounting, although this segment requires road infrastructure to develop considerably if it is to show substantial growth.

Price-rise plague to hit the ‘provinces’

Citizens of Warsaw and Kraków are still experiencing adrenaline surges in the aftermath of the 2006 price fever, but this year it will be the turn of the TriCity, Poznań, Wrocław, Łódź and Katowice to suffer from high pressure, with two-figure prices definitely in the offing. Smaller towns and cities are also becoming investor targets on the housing map and should not be sneered at, including such places as Olsztyn, Rzeszów, Szczecin, Bydgoszcz, Toruń and Lublin.

According to Paweł Sztejter: “Several companies, including a number of foreign firms, are already on the market with their growth strategies aimed at smaller, less competitive, markets. These entrepreneurs have accepted that it is just not worthwhile to struggle for just a few percent of a large market, since it is much simpler to get into a city with a population of one or two hundred thousand and win the position of market leader, delivering one or two projects of 100 to 200 flats yearly. Developers who are usually active in a single city or region are buying land from the sea to the mountains with greater energy. Globe Trade Centre, which is developing the Konstancin-Jeziorna settlement, is planning to invest in Katowice, Kraków, Łódź and Poznań, while Dom Development of Warsaw is spreading out to Wrocław, as is Robyg, which has purchased land in that city and is also planning to invest in Gdańsk, Poznań and Kraków.

Together they stand

Moves towards consolidation are becoming increasingly evident on the largely fragmented developer market, where the best way to acquire development plots with land at a premium, is to combine forces. One of the most spectacular moves here has been Morgan Stanley’s purchase of shares in the WAN company and LC Corp’s take over of Europlan. There has also been lots of jostling on Warsaw’s stock exchange.

Several companies have already made their debuts this year, including J.W. Construction and Orco Property, while Leszek Czarnecki’s LC Corp suffered a minor accident on its stock exchange debut. The Komfort Group is also preparing for its first appearance on the exchange, while Opal Property Development and Robyg are also thinking seriously about raising finance through a share issue. 

Market crash just around the corner?

Although prices on the secondary housing market have calmed down, they are definitely far from being low. A study of Reas’ data, which based its research on advertisements on the GazetaDom.pl web service, indicate that you have to pay most to buy a home in Warsaw (PLN 9,290 per sqm - an increase of 1 pct compared with May 2007). It will cost you PLN 8,132 per sqm in Kraków (a drop of 1 pct), PLN 7,263 per sqm in TriCity (5 pct up) and PLN 7,172 per sqm in Wrocław (a 2 pct rise).

It will cost you less in Poznań (PLN 5,849 per sqm) and Katowice (PLN 3,954 per sqm), although price rises in these conurbations have gained momentum and amount respectively to 10 and 7 pct.

There are no lack of experts forecasting serious market upheavals caused by the amended Housing Cooperatives Act. The new regulations make it very cheap to purchase flats in residents’ cooperatives set up in previous years, so it is surely worth devoting attention to how the market may behave when around a million flats constructed in the 1970s and 1980s suddenly appear on it. Only time will tell whether the pessimists or the realists were right.

Time before definition becomes fact

Publication of the long-awaited definition of ‘social construction industry’ which is to protect a large section of the market from a much higher 22 pct VAT rate.

Paweł Sztejter on this matter remarks: “The market is convinced that parliament will approve a definition of social construction beneficial for the industry, by holding the rate at a preferential 7 pct for all apartments of less than 120 sqm in size and for houses of less than 220 sqm. Since the 22 pct rate concerns only that part of a residential space exceeding the set limits, the final price of homes should not suddenly jump even in the case of these slightly larger residences. The definition has already been processed by inter-ministerial units, with its first Parliamentary reading on July 4th. This means it still has a very long way to go before it becomes law.

Huge deficit

Reas’ experts think supplies of homes will rise until 2009/2010 and may then start falling but developers should have plenty of work to keep them going for many long years to come. The national deficit of homes is estimated at around 1.5 mln, so it seems the most interesting period still lies ahead when you bear in mind the rate at which new projects are appearing (the Central Office of Statistics reveals that 52,709 homes were delivered in six months with a total of 114,000 for the whole of 2006).     

Ewa Andrzejewska