Rapid stream of capital

The limited possibilities for investing in the office, retail, logistic and hotel markets have encouraged investors to enter the new territory of the residential sector. Demand being higher than supply guarantees huge profits, easily compensating for the risk

The prices of new flats in Warsaw have been growing continuously since mid-2003, and the annual growth rate has  reached 15 per cent. Flats are being sold in the early stages of construction. Some projects find buyers even at the planning phase! Warsaw is not exceptional in this respect, as similar trends can be seen in other large cities, ie. Kraków, Wrocław, Tri-City and Poznań, and - on a smaller scale - in smaller cities as well. Furthermore, market analysts predict that with such favourable economic conditions, the boom may last at least until 2010 (as long as VAT for residential properties remains at 7 pct until 2011).
Certainly, the situation is not perfect and activity in the residential market has its drawbacks. The most serious obstacle for developers is the lack of plots covered by land development plans or valid decisions decision on outline building conditions (WZiZT). These would allow investors to estimate the residential space in particular areas, and thus, the profitability of the whole project. Therefore, the prices of plots that are actually available with such plans or construction decisions keep on going up. The costs of building are increasing as well - as general contractors also take advantage of the boom. They are, however, also being forced to cover their own rising costs, as the salaries increase of building workers who remain in Poland.

A long list of novices
As has proved to be the case, the benefits to be gained from residential projects outweigh the risks. Poland is attracting more and more real estate development companies. At the top of the list of these are firms from Spain and Israel, with the Irish and British also being a significant presence on the market. "The majority of them plan long-term investments for many years," claims Magda Zakrzewska from Knight Frank. According to Artur Pietraszewski, a specialist at Reas Konsulting: "The most common way of entering the market is to form a company from scratch. Another method is to establish joint-venture companies with Polish partners, such as Fadesa and Prokom Investments. A third option would be to take over an existing company with a well-known logo and a reputable brand. However, this method is rare, as there are no companies for sale."
Another recent phenomenon is that of housing projects carried out by developers specializing in commercial projects, such as TK Development, Ghelamco and Hines.

A slice of the pie
New companies from abroad and developers already established in Poland (who have just started to be active in the housing industry) are not the only players on the list of novices. Another important group are investors - both institutional and private ones. Their presence on the market not only shows that rates of return are attractive, but is also a sign of the growing maturity of the Polish residential sector. 
One of these many investors is the US-based Heitman, active in Poland since 1995, but previously specialising in purchasing commercial properties. In 2004, Heitman - on behalf of its Heitman Central European Property Partners II fund - signed a joint venture agreement with the Israeli firm, Engel General Developers, to carry out residential projects worth EUR 240 mln in the Czech Republic, Poland and Hungary. One  visible example of this partnership is the Le¶na Polana housing estate in Z±bki near Warsaw.
Another investor from the list is Lehman Brothers Real Estate Partners. This firm is cooperating with the London-based developer Angel Investment. Its Polish branch, Angel Poland Holding, has several housing projects in Kraków and other cities. "Many funds are interested in entering this market, so Lehman Brothers is not the only investment company we are cooperating with," claims Shachar Samuel, one of the major shareholders of Angel Investment. "The group includes other private and institutional investors, but I cannot reveal their names."
The most recent entry on to the Polish market in this category, although differing slightly from those mentioned above, comes from Italy in the form of Pirelli Real Estate. This company has chosen to make its presence felt in Poland by purchasing 75 pct of the shares of Pekao Development (the rest is still in Pekao Bank\\\'s portfolio) to form Pirelli Pekao Real Estate.
"We are going to invest our own money as well as funds from investors cooperating with us, e.g. Morgan Stanley or Merril Lynch, as the local market is too small for them to operate in individually," said Olivier de Poulpiquet, Pirelli Real Estate\\\'s general manager of investment and asset management.
According to the strategy adopted by Pirelli Real Estate, led by its \\\'brains\\\' and CEO, Carlo Puri Negri, Poland will be supplied with funds from so-called \\\'opportunistic investors\\\', who accept a higher  investment risk. "We do not fear a slump in demand. However, the procedures for preparing investments or obtaining the necessary administrative decisions are still obscure," Mr. de Poulpiquet explains.

Poles fight their corner
The other market participants fighting for their slice of the pie are funds registered in Poland and managed by Arka, Skarbiec and BPH. All of them have staked their business on the residential sector, e.g. Arka is involved in a housing project developed by Salwator in Kraków; Skarbiec is cooperating with Prokom Investments in Warsaw\\\'s Wilanów district. They are now planning more joint undertakings. 
"Capital is not a problem now, but what is hampering activity is the lack of projects money can be invested in,\\\' believes Reas Konsulting\\\'s Kazimierz Kirejczyk. "An increased inflow of resources has been maintained since May 2004. The chances of the trend increasing depend on the economic situation. If Poland moves in the right direction, large amounts of money will be coming in."

Dearer, but more flexible
The rapid and unpredictable stream of investment capital is not the only source of financing for housing projects. At present investors are competing with the increasingly available and steadily improving bank offers. "Financing from investors is more costly, but easier to obtain. Banks are offering 80-85 pct of the resources, with the remainder having to be obtained from somewhere else and paid for," explains Shachar Samuel, Angel Investment\\\'s representative. 
Reas Konsulting\\\'s specialists are unanimous in their opinion that funds are more flexible, but, as they point out, developers still prefer loans. "There is fierce competition in the banking market. Banks are willing to cooperate with developers, as the strategy enables them to reach individual customers buying flats built as in particular projects as well. In this way they can kill two birds with one stone," Mr. Kirejczyk observes.

Magda Konstantynowicz