You don’t always have to hit the bull’s eye

Small talk
Maciej Bałabanow, the manager of PFR TFI’s Foreign Expansion Fund, which has recently expanded into Germany, tells us about the state of the Polish and European construction markets

What is the state of the Polish construction market? How much impact are the rising prices of materials having?

Maciej Bałabanow, the manager of PFR TFI’s Foreign Expansion Fund: The Polish construction market, especially when it comes to residential development, is at an interesting moment – you can definitely see a lot of demand coming from at least two sources: ‘life’ demand, related to the fact that people are moving to larger, more comfortable apartments. On the other hand, there’s also ‘deposit’ demand – that is, the inflow of funds to the real estate market that had probably previously been held (for example) in bank deposits. With interest rates remaining at virtually zero, real estate investment can still generate returns many times higher than other kinds. We should also remember that Poland still has limited housing resources compared to the rest of the EU. We have about 400 homes per 1,000 inhabitants, while the EU average is 435. Also, in Europe, despite the increase in prices and the limitations related to the pandemic in 2020, the demand for housing grew in most markets. This has opened up excellent opportunities for the further development of our construction industry. This isn’t the first time that the Polish construction market has been faced with rising prices. It seems that it is able to efficiently transfer price increases to other ‘recipients’ – such as by indexing the prices of signed contracts. The question remains: how will the rising costs translate into the final demand? It would seem that this depends on the market segment – for example, in logistics, it can be assumed that the growing share of e-commerce will guarantee demand that is largely resistant to costs. For the residential sector, on the other hand, we have low interest rates and a more affluent society, so home prices will rise. I am citing these examples to emphasise that we should take a wider view of the state of the market.

What are the possibilities for securing supply chains and achieving low-emission production?

Foreign expansion has many benefits. One of these is the diversification of supply sources. We have seen that by acquiring foreign entities, supply chains can be secured for the long-term – such situations have recently been seen, among others, in the steel industry – as well as the microprocessor segment. For example, electronics and automotive manufacturers have learnt the hard way how important relationships are for maintaining production continuity when supply chains are interrupted. The shortage in the supply of microprocessors has prompted many companies to ensure they have more resilient supply chains. Until now, vehicle manufacturers have had direct supply contracts with raw material producers, such as precious metals (e.g. platinum, palladium). In the light of all the disruption, they have had to make efforts to develop direct relations with producers, including semiconductor manufacturers. Until recently, low-emission production seemed only to relate to social responsibility practices, but market analysis points to the fact that in the near future, especially in Europe, where there is a strong emphasis on sustainable production issues, it will also turn out to be the most cost-effective approach. It is certainly also a promising trend for investors. According to the Market Research Future report, the global market for green buildings is expected to grow at a rate of around 14 pct in 2020–2027. In the US, by 2019 the construction sector was already responsible for two-thirds of the decrease in total carbon dioxide emissions.

Prices have surged and everyone is waiting for the market to collapse. When do you think we should expect this? And how could its effects be minimised?

The recent fluctuations in the prices of building materials are due to several factors. The prospect of the market crashing is not necessarily a likely scenario, especially if we consider several factors. First of all, in their pandemic recovery plans virtually all countries intend to increase investment, which will result in additional demand for materials and services. In the energy sector, the costs related to CO2 emissions have increased significantly – from EUR 25 per tonne of CO2 at the beginning of 2020 to EUR 50 today – which has resulted in higher energy prices in Poland. At the same time, the development of renewable energy production capacity has accelerated globally, which in turn generates an increase in investment in infrastructure and pushes up the prices of (among others) steel. On the other hand, materials whose prices have been temporarily disrupted by Covid-19 or other one-off factors are likely to return to normal. Therefore, I wouldn’t bet on a market collapse.

You are a keen shooting enthusiast. Does training yourself in this way help you to hit the bull’s eye in business?

Shooting is a sport that definitely improves your ability to concentrate and your precision. It also gives you an insight into your psychological state, because by looking at your results you are given a quick and accurate picture of how well you are concentrating. Nevertheless, one of the most important lessons to take away from this sport is about making mistakes – you don’t always have to hit the bull’s eye to be successful. To a large extent, you just need to be good and consistent – that is, to consistently hit 8 and 9 repeatedly and sometimes, if you succeed, also 10. That’s definitely all that’s needed to achieve your goals.

Interview: Anna Korólczyk-Lewandowska