Hope returns

The positive signals being sent out by central banks, including both the Federal Reserve and the European Central Bank, have been gratefully received by the market. With the prices of fossil fuels having stabilised (both natural gas and coal are cheaper than before the outbreak of the war in Ukraine), inflation forecasts have fallen. As it turned out, the prospects both for the global economy and for individual countries are now looking better. The International Monetary Fund has raised its global GDP forecast as well as its forecasts for the US, Germany and China. Analysts have pointed out that the situation in the US is better than expected, as unemployment has stabilised and that the risks of a serious recession have receded. China, meanwhile, has lifted its Covid restrictions, which had inflicted so much damage on its economy, while in Germany the reason for the improvement has been the fall in fossil fuel prices – in particular, the price of natural gas. Many forward indicators, such as the now upwardly-mobile PMI, seem to show that the eurozone is going to avoid a serious recession and might even exhibit a little growth. Combined with inflation, which in most cases has been brought under control, this has encouraged the belief of investors that this will be a better year than the last one. For the Polish economy, which has been impacted by double-digit inflation and a military conflict on its doorstep, its 5 pct GDP growth in 2022 (according to Statistics Poland’s recently published figures) has made quite an impression, even though admittedly this was really due to the first quarters of the year, but the slowdown since then has been on the gentle side. The economic growth could come in as high as 1 pct, although the IMF is predicting a figure closer to 0.2 pct.

The end of the year saw a massive fall in consumer spending in Poland, while construction and assembly shrank back too, but by much less than expected. The latter phenomenon was due to the low temperatures, but also to the fewer construction launches and specialist commissions. According to Statistics Poland, construction work was launched on 115,000 apartments in Poland – 30 pct down on 2021 and a full 11 pct lower than in the pandemic year of 2021. This fall is above all down to the tightening of the financing market as higher interest rates and more stringent loan requirements from the supervisory banking authorities resulted in dramatically weaker mortgage figures for December. Both the number of contracts signed and their overall value collapsed by more than 70 pct compared to December 2021.

When it comes to construction launches this year, forecasts put the figure at around 70,000 apartments, which would be bad news for both developers and general contractors alike. The market for houses looks similarly awful, where the figures for construction launches and building permits have both fallen. This harsh situation is confirmed by rynekpierwotny.com, which has analysed developers’ sales reports from 2022. With the exception of Murapol (whose figures were down by less than 1 pct), the slump has been as much as 55 pct. External analysts also point to the fact that apartment prices have nonetheless fallen on a quarterly basis even though this has been minimal and on a year-on-year basis prices have still risen. The market leader, Dom Development, saw sales fall by 24 pct. Murapol ascribes its rather unique results to its recent diversification, since it now operates in 15 cities, and to the fact that what it offers (compact apartments) is well-tailored to the market. The company is hoping the economic situation does not worsen this year, but nonetheless is pinning its hopes on PRS funds, which it hopes to supply with 10,000 apartments by 2026 in expectation that the PRS share of the market grows from its current 1 pct. All those counting on the PRS effect, which might be able to help resi-developers get through a difficult period, could be rather disturbed by the persistent rumours that the government is preparing to tax companies and individuals that treat apartments as an investment commodity. According to leaks, this tax could be levied on funds operating on the PRS market.

However, not all residential developers have fallen out of favour with investors. One example is Develia, whose stock price has risen over the last few months by several percentage points and this is despite the fact that the company failed to close a number of expected contracts in 2022 with PRS funds. However, some developers have taken to drastic measures and have decided to wait out this poor economic period by limiting their new constructions to zero. This is now the policy of Lokum, a resi-developer operating in Kraków and Wrocław. Although it is now sitting on an attractive land bank and holds several building permits, the company is now going to wait it out until the market recovers. The analysis of Polish bank PKO BP is that the home-buying market hit rock bottom back in Q3 2022 and that purchasing power will soon make a comeback, although much depends on whether the government (and there will be parliamentary elections this year) decides to launch a programme to encourage home purchases. We will have to wait for more details about this scheme, which are likely to be revealed during the election campaign. When it comes to the retail development sector, it’s worth highlighting the plans of EPP, which owns the largest portfolio of shopping centres in Poland. The group has announced that listing on the Warsaw Stock Exchange would be the next natural step in its development, even though any final decision to do so depends on whether legislation is introduced to govern the operations of REITs.

(Mir)