Happy days are here to stay?

The S&P500 index in the US hit new highs on seven occasions in 2021, while for Western Europe’s major stock exchanges it was also a peak year, as they gained several dozen per cent over the period. Against this backdrop, however, the Polish stock exchange was not so impressive, but the WIG 20 did rise by 20 pct in 2021 – although Warsaw has nothing much to boast about when compared to Prague or Budapest in terms of annual returns. The beginning of 2022 also turned out to be a very optimistic time for Polish investors. Despite the looming threat of surging inflation and the great unknown of how the economy is set to fare, investors are clearly living in the moment. The figures for the end of the year, including industrial production, construction and retail trade, show that the Polish economy was in superb form, as GDP grew by more than 5 pct. And an inflation rate of almost 9 pct in December and the hikes in interest rates of the last few months did nothing to dampen this enthusiasm. Rising prices are a problem across the globe and so it’s likely that most of the world’s central banks at some point will have raise the price of money – and the most important of these will be the Federal Reserve in the US.

For the moment, however, the mood of investors remains buoyant. The latest wave of a new variant of the coronavirus actually failed to put a serious dent in the economy. Despite the increased number of infections, economies in the US and Europe have kept motoring on, giving a welcome New Year boost to the trading floors. Overall, 2021 was also a very good year for the Warsaw Stock Exchange, which over the last few years has been somewhat out of step with the wave of global optimism. The main indices rose by around a solid 20 pct, but the WIG Budownictwo index of construction companies was a little weaker, mainly due to the fact that the index’s rapid growth in the first three quarters of the year was squandered in the final three months.

The WIG Developers index rose by more than 20 pct over the year to finish a little over 3,000 points, but its historic high was in November, when it reached 3,200 points. However, the mood was dampened by the worsening inflation figures, suggesting that a rise in interest rates is on the cards and that the economy will cool over the longer term. Prices going up also means rising wage demands and increased costs. For these reasons, analysts are not expecting to see such vigorous index growth in 2022. Choosing the right companies to invest in is going to be crucial. Those developers – and especially residential players – that believe in their own potential should be interested in corporate bonds. Many companies are planning to issue further tranches and the experts think that when interest rates rise, the annual investment returns for bonds in this sector could approach 10 pct. Housing prices should not grow so quickly and developers are likely to concentrate more on catching the eye of funds interested in investing in the PRS market. Last year, such funds were already reaping the benefits of this.

The confirmation of residential developers’ very high sales figures came in at the end of the fourth quarter. Records were broken again and again as an unprecedented number of apartments were sold. Dom Development signed off deals for 4,066 units – 8 pct higher than in 2020, which was also a good year. These results also included the figures of Sento, a Kraków-based developer that was taken over by Dom Development last summer. The company is apparently feeling unruffled by the current economic challenges or the prospect of interest rate hikes, which would shrink the demand for mortgages. The developer claims that it is insulated by its market niche, since it builds a higher standard of homes for wealthier buyers. Moreover, it points out that more than half of its units were sold for cash in Q4 2021. But it is not only the likes of Dom Development that have recorded impressive growth. Murapol increased its sales by 67 pct (4,532 units), although these figures also include 1,700 institutional rental apartments. Again, the economic situation has by no means been raining on the parade of the residential sector. More plots are soon to be added to the PLN 200 mln of land that was bought in 2021. Institutional rental sales have also been pushing up Atal’s figures, which rose to over 4,000, but on a much smaller scale (just over 100 apartments). The developer saw its value grow by 36 pct in 2021 and believes such results can be repeated in 2022.

The fine economic weather and the unwavering optimism that prevails have also turned residential developers into targets for takeovers. After the Robyg Group was purchased by TAG Immobilien in December, London-based private equity firm Metric Capital Partners, which has over EUR 3 bln
in AUM, made a bid for Develia. Develia’s main shareholders are pension funds and the company itself is valued at PLN 1.5 bln. The fund’s bid was the lowest legally possible price (i.e. as determined by the company’s average share price over the last six months). Develia, which increased its sales in 2021 by 41 pct to almost 2,000 units, is notable not only for its recently much improved sales figures but also for regularly paying dividends.

(Mir)