A spring in investors’ steps

Stock market report
The feeling that inflation has peaked and that the financial banking crisis is now behind us has encouraged share investors to buy. Furthermore, the mood among Polish constructors and developers has been good – for the former, this has been due to the sector’s good prospects, while for the latter it is because of the revival of the mortgage market and governmental measures to support credit-based home purchases

Following the travails of the banking sector in early March, investors were soon able to get over their fears of another financial crisis and concentrate on such good news as the steady growth on the main stock market indices across the world, which persisted into early April. Although there were signs of a correction at the beginning of the month, investors clearly judged (as did economists) that the most threatening global inflation worries had passed. Hope has arisen that the tightened fiscal policy cycle is coming to an end and that in the longer term interest rates will be lowered. And while financial institutions have downgraded their global economic growth forecasts, such corrections are now minimal – and their predictions for inflation are that it will be lower than last year. For the Polish stock market, the last few weeks have been very good. The main indices rose, but the scale of this growth was surpassed by the sector indices.

The residential development sector, which has been waiting for the situation to improve, was provided with confirmation that it has in the last few weeks. While it remains true that the y-o-y fall in demand (as reported by BIK, the Polish Office of Credit Information) in the number of loan requests submitted remains worryingly high at 57 pct, in the monthly figures there are nonetheless signs that the market is gradually recovering. Since the low of August 2022, demand has grown by as much as 90 pct. The number of mortgage loans granted is also rising. Analysts believe that this thaw is due to the relaxation of some of the financial oversight restrictions imposed on bank assessments of creditworthiness and that it is also a consequence of the announced launch of the government’s cheap credit scheme. All of which means that home buyers have greater room for manoeuvre. The situation from the banking point of view looks a little worse. Research published by the banks indicates that the mood of buyers is actually deteriorating when it comes to assessing their needs and ability to take out loans.

For residential developers, the star of the Warsaw trading floor remains Dom Development – its shareholders were delighted by its record results in 2022 as well as its highest-ever dividend (along with its guardedly optimistic comments on its Q1 sales and predictions that it would at least match its figures from last year). The company has not ruled out further cooperation with PRS investors after having sold 400 apartments to them in 2022. With revenues of almost PLN 2.5 bln, a profit of PLN 410 mln, margins for development operations above 30 pct and no net debt, the largest developer on the WSE has been making quite an impression. As a result, it came as little surprise that the company’s share price grew by 70 pct since October, or that its sales figures showed a 20 pct rise.

The optimism can even be felt among other residential developers. According to data compiled by portal, Q1 sales across the market are down on a year ago, but only by 3 pct. Some developers, including Dom Development and Marvipol, have actually sold more homes than they did a year ago. Moreover, sales have increased by 20 pct since Q4 2022. Analysts have been toning down their optimism, but the recovery is a fact, although it is still mostly being driven by cash sales (over 60 pct of the volume). On the other hand, the PRS market, which was supposed to offset the slump on the B2C market, has completely slowed down.

The improving economic conditions can be seen not only in the raw data, but also in the declarations of those in the market who have great hopes for 2023. Lokum Deweloper has stated that it should return to the same level of sales as in 2021 (in other words, an increase of 60 pct on 2022). Echo Investment also believes in the growing positive trend seen in Q1 (Archicom forms part of this group). Sales in 2022 were down by 50 pct at 1,500 units for the group, which is currently targeting sales of 3,000–4,000 apartments per year. Echo is also expanding in the rental segment through its Resi4Rent brand, which currently has a portfolio of 3,000 apartments. Atal (which also saw sales fall by 50 pct in 2022) is another that is confident that the market will bounce back in Q2 2023 and is ready to offer apartments in all seven of the regional markets in which it operates. However, it is being very cautious about its sales predictions – Atal is targeting the same number of apartment sales as was sold last year. The lower sales figures should not impact its profitability – the company has managed to raise its gross margin from sales to almost 30 pct while also increasing its gross profit. Murapol is also planning to sell apartments in similar numbers to the previous year, because – just like Atal – it still regards the market as being very challenging, particularly when it comes to access to loans and the predictability of their instalments. But it is not only developers who are enjoying the interest of investors. The construction company index has been performing surprisingly strongly since the beginning of the year. Budimex – the driving force behind the index – has now been joined by Murapol, which over the last few weeks has recorded historic highs while its six-month rate of return has risen to significantly higher than 100 pct. This is the result, among other factors, of analysts’ recommendations in the light of the company’s burgeoning order book, the vast majority of which comprises road projects. Budimex has also recently announced that it has secured further infrastructure contracts (including tenders won and contracts signed) and has seen its share price rise, pushing up the construction index to levels that haven’t been seen for over ten years.