Moving out

The unprecedented boom in the Polish housing market is now slowing down. Will developers and investors shift their focus to countries in the same situation as Poland when it all started?

Take a shortage of housing (especially in major cities), combine it with an influx of capital investment following Poland’s accession to the EU in 2004, add to this an ongoing economic boom, and mix in cheaper and more easily available credit, and what we have is massive upwards pressure on the price of homes. This is the situation we have had on the Polish residential sector over the last few years, with the result that the market has become very crowded with developers and investors.

Newer Europe

The prices rises, however, are now starting to level off. And with the entry into the EU of Romania and Bulgaria at the beginning of this year, as well as the prospect of several more under-invested post-Communist states following suit in the years to come, would it not now make sense for residential companies to have a serious look at countries with the same qualities as Poland had 3 or 4 years ago? To get nearer the truth, ‘Eurobuild Poland’ asked a few people working in the Polish residential sector what they thought about the current situation and whether they were considering pulling out of the country and taking their investment elsewhere.

Aiga Investments is a Spanish investment vehicle that invests in Poland, the Czech Republic and Romania. Alvaro Boada, a partner of the company, outlines how they divide their operations between the 3 countries: “We own a strong portfolio of off-plan apartments, well diversified amongst the main Polish and Romanian cities. Our objective is to establish long term partnerships with the main developers in all of these countries,” says Mr Boada. He goes on to add that: “Our investment potential in these markets, for the next couple of years amounts to EUR 100-120 mln, 70–80 pct of which will be invested in Poland, 15–20 pct in the Czech Republic and the rest in Romania.” According to Alvaro Boada, the company’s strategy now is to acquire plots, “with an investment programme designed to invest across the major Polish cities, typically seeking to establish joint ventures with reputed developers.”

Fast track to success

Aiga Investment’s activities are overwhelmingly concentrated in Poland, with Romanian investments forming only a small part of the total. The question is whether there will now be a shift in the company’s strategy towards favouring investment in the newer EU country. This, however, is not the case, as in Alvaro Boada’s opinion: “Romania, in terms of the real estate market, is like Poland 4–5 years ago. However, Poland is a reality – whereas Romania is still a gamble. Poland’s real estate market is on a train at full speed, whereas Romania’s train is still at the platform and may never leave.” Nevertheless, he does admit that in Poland the high returns of recent years are no longer so easily obtained: “Poland’s real estate market is not ‘El Dorado’ anymore. Nowadays, a professional analysis of location, quality, design and price are factors that can lead unprofessional investors make mistakes,” says Mr Boada.

So does Alvaro Boada believe that there is any truth in the claim that investors and developers are beginning to leave Poland? In his opinion, “people are now having a look at the newer EU states, as well as those that are soon to enter and some that may never enter the EU. This is true in places such as the Ukraine, Serbia, Montenegro, Macedonia and even Albania. But I don’t think there will be a huge outflow of capital from Poland to these countries.” As he goes on to explain: “Right now Poland is red hot. And this is down to growth, falling unemployment, favourable interest rates and the general stability of economic factors. I know investors who are putting their money into both Poland and Romania, but none who are pulling out a single dime from Poland in order to invest in Romania.”

Padraic Coll of Irlandzka Grupa Deweloperska, currently developing the SOM Grzybowska residential building in central Warsaw, agrees that “some companies may be investing abroad as a natural extension of their activities, especially the big ones. But this is not a sign that the Polish market has peaked – the Polish market should be good for another 4 years or so.” Padraic Coll is also of the opinion: “Prices won’t be increasing as they have been doing in the last couple of years, but there’s still a lot of demand and stability in the market – especially in the big Polish cities.”

The other side

of the coin

Krzysztof Droń is the general manager of the DOR Group, which has development projects in and around Warsaw, such as Szucha Residence and Wilanów Residence, amongst others. In his view, the picture for the Polish residential market is certainly getting more complicated: “There are 2 sides of the coin,” says Mr Droń. “One side is the continuing strong need for new flats. The other side is that there are now problems with getting mortgages from banks. More and more clients are receiving negative answers when their salaries and disposable income are weighed against flat prices.” According to Krzysztof Droń, this is partly related to “problems in finding a workforce and materials for construction projects. Both these elements bring with them a significant cost increase”.

The DOR Group is not, however, disheartened about the Polish situation: “The activities of our company are entirely based in Poland. We are looking at opportunities in other countries, but at the moment we are strongly focusing on Poland, as there is enough work to be done,” states Mr Droń. As he sees it, “the situation in Poland will be attractive for a minimum of 5 years. Investment in countries with a different set up and culture simply requires more work and initial investment. DOR’s preference is to invest in Poland at the moment because it allows us a more optimized way of investing.”

Big boys take a dip

Krzysztof Droń’s believes that it is only the very big operators who are so far dipping their toes into the newer markets: “Generally, other countries such as Romania, Bulgaria and Ukraine are going the same way as Poland has already gone, therefore the big development companies have noted a significant opportunity, seeing the investment risk as acceptable with potentially higher returns,” says Mr Droń. He also believes that another incentive is that “there are more and more companies coming on to the Polish market, so it is getting crowded. This is leading the bigger companies who can afford to do this, or those with very good local contacts, to take a look elsewhere.”

For the majority of developers and investors, it does seem to be the case that the prospects for the Polish residential market remain rosy enough for them to stay put, rather than being tempted to move to the newer or future EU countries. However, Padraic Coll of Irlandzka Grupa Deweloperska sounds one note of caution, having heard “a few rumours going around that prices are going to stop rising.” According to him, the cloud on the horizon “might be a crunch in the construction market, due to labour shortages and rising costs.” But his optimism about the Polish market remains undimmed: “We will be looking at newer EU countries, but at the moment we are still concentrating on Poland”, says Mr Coll.