It’s been a long hot summer

In July, the WIG 20 soared higher than the US Nasdaq, having reached levels unseen in Warsaw for 17 months. In Germany, the DAX hit a record high, while that other New York index, the Dow Jones, also edged towards its own highest ever level. This was influenced by the relatively good Q2 results publication season, both in the US and Europe, raising hopes that the worst scenarios might have been averted. The International Monetary Fund’s latest economic forecasts paint a picture that is far from rosy, but that nonetheless provide some cause for optimism. For some they are good, for others bad. The US economy has been doing better than the eurozone, but the second half of the year is not about to bring any radical shifts with it. The eurozone, meanwhile, has been having to contend with high inflation and worsening economic prospects, particularly in the case of Germany. Even though the forecasts for 2024 are looking better, the Germans are going to have to face a deeper recession than expected, according to the IMF’s analysts. To round up our look at the economies around the world, it’s worth mentioning that the economic activity in China remains sluggish as it faces falling exports and imports as well as deflation, with the authorities having announced a stimulus package to spark the economy back into life.

Over the most recent period, the WSE enjoyed solid growth – and this was particularly true of the sector indices. By August 11th, the WIG Nieruchomości had risen by 46 pct since the beginning of the year, while the WIG-Budownictwo rallied at the last moment to perform even better mainly due to the rapid rise in the share price of Budimex, which was mainly due to this company’s inclusion on the MSCI Poland index, which is to take effect from September.

Meanwhile, the state-subsidised mortgage scheme that has been introduced has prompted the prices to spike of both homes and the shares of residential developers. Indeed, housing demand, which remained subdued in the spring in expectation of these loans, has now risen higher than the supply – and this can be seen in the prices. According to a JLL report, the market had already begun building up steam in the second quarter, when sales rose by 57 pct y-o-y and 35 pct q-o-q. The prospect arises, therefore, that with the stabilisation of interest rates in Poland (as well as the announcement that they are to be lowered in the autumn, which may be due to the upcoming parliamentary elections) and with the loosening of mortgage lending rules and the health of the economy, that this programme might overheat the market. The third quarter could be even better when the number of new homes approaches the record of more than 19,000 units, which was recorded in Q1 and Q2 of 2021. Even though more (with an increase of 46 pct y-o-y in Q2) are coming onto the market, the supply gap could widen. According to data provided by business journal ‘Parkiet’, Q2 was already a success in this regard, with the bigger developers generally seeing double-digit y-o-y growth, and only a minority seeing a slight shrinkage.

Resi-developers are still able to raise funds – not only through corporate bond issues, but also through share issues. Atal, which has seen its share price soar over the last few weeks to historic highs, has held a share issue directed to select investors worth PLN 252 mln. The capital thus raised is to be used to increase the company’s land bank and finance more projects. Such developers have also not been having any problems with raising money on the bond market. Marvipol is planning a bond issue worth PLN 300 mln and Echo Investment has raised PLN 50 mln with a large reduction, which confirms the huge scale of the current demand. Cavatina, meanwhile, has issued bonds worth EUR 5 mln. On the Catalyst market, on which corporate bonds are traded, several bond issues are being carried out by resi-developers that are not listed on the WSE but that are seeking to raise funds for further developments.

Developers are preparing for the market to bounce back – and not only financially, but also organisationally. For example, Echo Investment has moved its entire residential business into its subsidiary Archicom. What was once a relatively small Wrocław-based company, has thus become one of the largest developers in Poland since Echo acquired an 89 pct stake in it.

The WIG-Budownictwo has also been having an exceptional streak, having reached its highest level in 15 years. However, the hard economic data does not give all the grounds needed for celebrating this. In the first half of the year, construction and installation productivity rose by 3.8 pct, but sales came in at PLN 65.3 bln. This compares with sales of PLN 140 bln for the whole of 2022 and PLN 117 bln for 2021. The largest sales growth this year has been for infrastructure and specialist construction as well as state-financed public projects. Experts believe that this year total sales will amount to less than last year’s figure of PLN 140 bln by quite a few percentage points; but a rebound is expected in 2024 or – for some in this segment – in 2025. The prospects for construction firms in the energy sector seem the most promising, relatively speaking, due to the need for investment in renewables and transmission networks. The reconstruction of Ukraine also holds out some hope, but this is conditional on the war ending and governmental support. The World Bank estimates the cost of this at over USD 400 bln, with half of the required investment to go into transport, accommodation and energy. (Mir)