The balloon’s not bursting

 – this would be the briefest way to summarize 2006. House prices rocketed by as much as 74 pct in Wrocław, the highest increase among large Polish cities. Prices also shot up in Kraków (70 pct), the TriCity (68 pct), Łódź (53 pct) and Warsaw (51 pct), with Poznań bringing up the rear with 29 pct – according to data provided by the Tabelaofert.pl. service. Warsaw is the place where you would need the most hard cash to buy a flat, where the average price this January stood at PLN 7,843 per sqm; Wrocław is not far behind, with the mean price at PLN 7,206 per sqm. Those are the average prices, but there are also plenty of examples to make the man-in-the-street’s hair stand on end. During its gala event at the Teatr Wielki in Warsaw, the Orco Property Group announced that apartments in the Złota 44 project will be sold at around EUR 7,000 per sqm. Having said that, this event to celebrate the flats going on sale was something of a marketing innovation in the housing sector.

Shortages in the millions

 Rocketing house prices are just one aspect of the problem, with the other being the rising cost of investment land. There are simply very few plots available. As has been the case for the last several years, the absence of local spatial development plans is continuing to make developers, but not local government officials, very frustrated. Furious battles are fought for each piece of decent land. According to Łukasz Madej, RedNet Property Consulting’s managing director: “A few years ago foreign developers were scared to enter the Polish market with large investments. They started operating with smaller projects, allowing them to test the waters. Today they declare that they want to remain in Poland for a long time and become leading players here.”

Jacek Sanek, an associate director at Knight Frank admits that: “The prices agreed for the land of the defunct bus depots are evidence of much optimism and a conviction that the Polish housing market will continue to grow. My own assessment of the value of this land was somewhat below the amounts paid out.”

Let construction continue

Łukasz Madej draws attention to the fact that: “Construction costs also increased last year, independently of the soaring house and land prices of which much was said last year. The emigration of building workers to western European countries has not petered out. Construction companies could dabble at will in the many available offers if theyAccording to Knight Frank, construction costs – that is of general contracting – rose by even as much as 20–40 pct in 2006.

Wholesale purchases

Data published by Reas Konsulting suggests it is in Wrocław that most homes are purchased as capital investments (32 pct), followed by Kraków (28 pct), the TriCity (21 pct) and Warsaw (15 pct). Last year, in some cases whole buildings were being sold by their developers to investors such as Mostostal Invest with Apartamenty Sielecka in Warsaw’s Mokotów district.

 A number of analysts began to issue very cautious forecasts in late 2006 that the market situation is an artificial bubble which will soon burst.

I think it is just a normal part of the growth cycle of the residential property market and that no sudden change in the present trend should be expected. The price situation will continue since this market has a huge potential for growth. The prices of homes should approach those of western Europe. The same can be said of Polish earnings, the increase of which underlies the upsurge of customer purchasing potential. The process of bringing these values into line will take a shorter or longer time, but nothing can hold it back in the longer term.”

Riding at walking pace and no longer galloping

  “Warsaw prices will rise by 15–20 pct within the first half of 2007 but then the market will cool down and grow by 2–3 pct quarterly”.

Emmerson’s vice president highlights: “The superheated housing market in Wrocław and Kraków will continue to grow by 15–20 pct. But it is the cities which have, up until now, avoided the greatest house price inflation, that is Łódź, Gdańsk and Poznań, which will prove to be the most interesting to watch.”

 Łukasz Madej remarks that: “Attention to the quality of offered products should become an important element for developers operating in the very near future. Supply is gradually but clearly increasing, which means customers will be taking an increasingly critical approach to what is on offer. Let me give just one simple example: a company designed a deluxe 4-room apartment with a view of a power plant chimney; the time is not far away when you will have to pay heavily for such ‘mistakes’.”

Aleksander Skirmuntt feels that: “The growth of single-family home development is a further stage in the move towards market maturity. There is great interest among developers in such investments, particularly in the districts further away from the city such as Białołęka and Zacisze, as well as in the upmarket Warsaw suburban locales, such as Konstancin-Jeziorna and Wesoła. The price of land in those places is already exorbitant and will continue to rise.”

  The leader on this market is still J.W. Construction, closely followed by Dom Development. The latter company entered the Polish Stock exchange last autumn, thereby giving its new owners the opportunity to make a lot of money, what with the value of its shares rising by as much as 53.5 pct on the first day of trading. And it is for reasons such as this that analysts gave the Warsaw developer the highest rating in 2006.