Departing from the plot

Investment land trading has not, after all, died. Reports of its death have been greatly exaggerated - or so those working on this market claim. In fact, 2012 was quite a good year for the segment. According to estimates by Colliers International, the volume of transactions came to around PLN 1.5 bln for the entire year, an improvement on the 2011 result, when investors spent app. PLN 1.2-1.3 bln on purchasing investment land. This year is also promising a transaction volume close to last year's result. Interestingly, the increase in turnover is largely the result of a change in the strategy of sellers, who have become more flexible in their negotiations. This has borne fruit in the form of lower prices and has revived this segment of the property sector.

The day of the vulture?
Does the increasing transaction volume for investment land herald a thaw on the property market? Not exactly. Investors and developers continue to struggle due to the fallout from the credit crunch: limited access to project financing, uncertainty on the residential market, worries about the future of the economy... these are just a few of the factors that are still discouraging us from looking into the future with an optimistic eye. According to Colliers International's data, land suitable for residential and office projects is the most popular - in 2012 almost 85 pct of the PLN 1.5 bln invested was in those two sectors, while 10 pct was for land suitable for retail projects, and only 5 pct for warehouses. Nearly 85 pct of the number of transactions were in Warsaw. Analysts also point out that the situation of some developers is forcing more and more of them to sell their investment plots. Sometimes they do this of their own accord, and sometimes they are forced to do so by the banks. For example, the site on ul. Hoża and ul. Mokotowska was sold to Wisła by Mardex for PLN 58 mln in 2007, for the exorbitant price per sqm of PLN 31,000. Now Wisła has entered liquidation and its heavily mortgaged properties have been put up for sale for PLN 19 mln. Property market specialists expect that similar cases will follow. In our conversations with residential developers, someone even said that now is the day of the vulture - a time of aggressive funds on the lookout for weakened developers and prepared to negotiate prices without mercy. "Distressed properties are indeed turning up on the market. There are lots of plots whose sales are being forced by the banks. My estimate is that the banks, directly or indirectly, now hold plots worth app. PLN 800 mln that are earmarked for sale. However, these are not plots that have already been acquired by financial institutions. The sales of such assets take place by mutual agreement and often involve very discreet operations. In my opinion banks in Poland are approaching this in a very reasonable manner," comments Daniel Puchalski, the head of the investment land department at Colliers International.

Costs and prices pushed up
Recent changes to the annual fees for perpetual usufruct rights have also been prompting sales. "Even though the percentage rate remains unchanged, the value of investment land has increased considerably over the last seven to eight years and this is now the basis for the fee calculation. The payments for perpetual usufruct rights remained unchanged for many years, but now local councils, which are being increasingly active in the search for sources of funds in taxes and local fees, are taking advantage of the increase in the values of documented current transactions and re-estimating the plot values on the basis of these. I know of examples in Warsaw where the new annual fee is nearly ten times higher than it had been just previously," observes Karina Kreja, the director of the development consulting department at CBRE. "The perpetual usufruct right is a problem for both the seller and the buyer. Investors prefer full ownership. Transforming perpetual usufructs into full ownership involves certain costs - which could amount to as much as 30 pct of the land value or even more in certain cases. Such plots are the toughest ones to sell when it comes to retail and residential transactions. For logistics, perpetual usufructs are out of the question," adds Daniel Puchalski. However, the greatest stimulus for reviving the investment land market has been the price reduction. According to Colliers International's data for 2012, the cost of land earmarked for residential construction was reduced by around 7 pct in Katowice and 8 pct outside the centre of Warsaw. In terms of transactions for land earmarked for office projects, the largest price reductions were registered in Katowice (12 pct), the TriCity (10 pct) and Wrocław (11 pct). "Land prices are under pressure because apartment prices have been dropping while the prospect of an increase of rents for offices and large-format retail areas is not good, either," comments Daniel Puchalski.

Sellers and buyers
What are investors looking for? "Usually plots with a clear planning status - included in local zoning plans or that have been given final site development conditions decisions. Large plots that require a multi-stage approach need to wait for a long time before they can find buyers, because the 'land bank' times have finished and developers are not willing to build large property portfolios these days. The sale of land is usually associated with the possibility of a quick project launch. Nowadays investors want to exit an investment or have a finished product that generates revenue within three to five years," claims Karina Kreja. The latest transactions on the market seem to confirm this. Irlandzka Grupa Deweloperska has sold a plot at ul. Grzybowska 78 in Warsaw to an SPV company of the Golub GetHouse Property Fund FIZ fund. The new owner is planning to use the long undeveloped land straight away, announcing that it plans to begin the development of an office tower within the year. The situation on the land market is also creating favourable conditions for companies that want to strengthen their position on the market. This is the case with the Polish branch of Batipont Immobilier, which is looking for areas for its next projects. "We are looking for plots suitable for retail, office, hotel and residential projects. However, we are cautious when it comes to choosing the locations. Careful investment is what counts these days. As far as retail is concerned, we are looking for areas suitable for convenience centres. The office facilities we are planning are projects with areas of 15,000-20,000 sqm in major Polish cities, such as Warsaw and the TriCity. We have already carried out a number of residential projects in these markets. However, we are not ruling out purchasing plots in Poznań, Wrocław and Kraków either," declares Andrzej Wójcik, the general director of the Polish branch of Batipont Immobilier. Does he share the opinion that developers are finding it much easier to negotiate these days? "Indeed, it is a good time for land purchases. However, this should not be about 'annihilating' land owners. I think it's a time for balanced negotiations. Both parties to the transaction need to be satisfied. It's good that property owners are open to substantive discussions. However, there is of course still a group of owners who could be described as imprudent," says Andrzej Wójcik, who goes on to add that buying land speculatively seems risky today. "This is a time of sensible planning for developers. Purchasing land and starting a project as quickly as possible seems to be the best strategy," he says.