A place fit for the free to live in

“The porter watches over everything; He won’t let anyone get harmed; He will help anytime; O my God!” The song is about Michał Anioł, the concierge who ruled despotically over a newly-built block in an estate in Warsaw’s Ursynów district in the cult Polish comedy series Alternatywy 4. The show, which was produced in 1983 and first broadcast in 1986, actually best captures the essence of the Polish residential market following 1989. Although it will probably not mean much to Generation Y, my generation remembers those times all too well.

From scratch

Let’s start with the main problem in those days: the huge disproportion between the supply and the demand. The supply was basically low-quality blocks made from pre-fabricated elements. According to data provided by residential market consultancy REAS, more than 80 pct of the buildings completed in 1990 were built using pre-fab technology. These days it is apartments on estates built in this way that lose their value at the fastest rate. The residential market at that time lacked many of the features that seem essential to it now: banks offering mortgages, development companies, apartment sales procedures, construction specialists, sales staff… and the list goes on. “We were inventing everything from scratch – we had to draw up apartment sales contracts with the help of lawyers but without any template for doing so. In the years that followed many developers copied our solutions. It was a truly pioneering period, when it was difficult to avoid making mistakes,” recollects Sławomir Doliński, the founder and president of the supervisory board of Dolcan, which started out as Dolcan Plus in 1991. The company launched the construction of its first estate in 1992, in Warsaw’s Targówek district, but Sławomir Doliński had been running a construction company earlier, from 1986. What mistakes does he remember? One of them was the construction and sale of turnkey apartments at the beginning of the 1990s. “We were lacking experience and a point of reference; we thought at the time that this was what the buyers wanted. However, Poles, as became obvious over the next few years, preferred to fit out the apartments on their own. They were irritated by even the most trivial things, such as the grout lines in the tiling being too broad. Nowadays clients are more interested in turnkey apartments, but the finishing work still has to be strictly supervised by them,” explains the head of Dolcan. Sławomir Doliński returns to the topic of turnkey apartments when asked about market trends and the future of the sector in a dozen or so years. “I think that the market will stabilise over the next few years. Following the adoption of the development act, builders of individual projects have either already exited the market or will soon disappear. Moreover, the Polish tradition of constructing unfitted flats is one that simply has no future. In my opinion we will be building apartments that are ready to move into, just like they are in the West. Multi-family apartments will remain the most popular product, as it is still too early for the demand for detached houses to take off, due to the under-developed road network around the larger cities and the general income levels of Polish people,” he claims.

From one act to another

In 1994 the ownership act came into force defining the basic terms and regulations for privately owned apartments. This was in force until the end of April 2012, when a new act on the protection of buyers’ rights was passed, commonly referred to as ‘the development act’. “After I read through the development act thoroughly, what remains of my hair stood on end. Now I am informed that there will be an amendment to the act just two years after it came into law. The introduction of the obligation to operate trust accounts in times of crisis is entirely misconceived. Why does nobody consult developers when amending an administrative procedure related to building permits? I would much prefer it to be easier to move around and operate in the labyrinthine world of Polish regulations,” admits Sławomir Doliński.

From one crisis to another

Dolcan, just like the emerging and expanding market, then started developing outside of the capital city and its satellite towns, in places such as Lublin, Szczecin, Bydgoszcz, Częstochowa and Kozienice. Along with other some of the other developers, the number of which gradually increased from the mid-1990s onwards, the company survived the blow to the sector resulting from the abolition of tax relief on leasing apartments at the end of 2000, followed by the abolition of the so-called ‘large residential tax relief’ a year later and the abolition of the zero VAT rate on the sales of developed apartments. The next twist the market took came with Poland’s accession to the European Union. Poles were spooked by the very rapid increases in home prices fuelled by the economic growth and by the influx of EU funds and foreign investment. Speculative capital now entered the market in the form of a new crop of development companies and individual investors from Spain and Ireland. Poles rushed to the banks to take out mortgages denominated in foreign currencies (mainly in Swiss francs). “When I think of the first estates, which were built in 1993–1994, I remember that we sold them at app. PLN 2,000 per sqm. Nowadays the average price in our projects has jumped to app. PLN 6,000 per sqm. But what I can consider to be one of my successes is the fact that for over 20 years I have been providing jobs to a few hundred people and have continued to finance the Dolcan Ząbki sports team. It has been very difficult to keep the company afloat over the last five years, but fortunately this is now behind us. We are a company in a strong position and I hope that this is well regarded by the market,” the head of Dolcan stresses. And what happened over the last five years? The developer recalls 2009 when, following the burst of the American residential bubble in 2007 (resulting from the overselling of subprime mortgages) and the collapse of the Lehman Brothers bank a dozen or so months later, Europeans, including the Poles, were sucked into the turmoil of the global financial meltdown. The bold schemes that developers had had for residential towers turned into nightmares for some of them. Average prices on the primary market in Warsaw, which according to REAS’ data had soared from app. PLN 1,600 per sqm in 1994 to PLN 9,000 in 2009, subsequently plunged. Prices have now finally stabilised – in Q1 they averaged at PLN 7,881 per sqm. And developers have now recovered from the shock and adjusted their offers to clients’ present requirements (or the contents of their bank balances), offering more (rooms) for less (money).

Filtered market

The difficult 2009–2012 period has acted as a kind of filter. The spectacular bankruptcies of large investors has, thankfully, been avoided, even though many companies have come out seriously battered, such as Gant. Meanwhile, others have strengthened their positions. “The people who have had a significant influence on our sector? I think companies such as Dom Development and Jarosław Sznajca are good examples. I have been following his activities and I appreciate his normality, which is rare among people on the market, some of whom do not play fair,” says the head of Dolcan. “Another person worthy of respect is Jan Mikołuszko, the head of construction company Unibep, a person who has built and achieved a lot. We first started cooperating with him in 1990 when I was commissioned to build blocks for the army. I think that there are many people who have done a lot of good for the sector, and there are also many of those who have done many bad things – such as the legislators,” concludes Sławomir Doliński.

Kazimierz Kirejczyk, the president of the board of REAS

Turning points for the Polish residential market

The major events for the Polish housing market were:

– the introduction of residential tax relief and the act on the ownership of apartments (1994) – a foundation for the development of the sales and management of multi-family buildings

– the decrease in interest rates below 10 pct (2002), along with the growth of mortgage lending and the end of the price adjustment period. Also, the collapse of cooperative development

– the 2005–2007 period: the influx of foreign investors, mortgages denominated in Swiss francs, the price bubble and the largest volume of sales at the highest prices

– the crisis of 2009: the return of normal lending, the slow decline in prices and the painful re-adjustment of buyers’ aspirations to their realistic purchasing power