Dialling 999

Governments are doing their best to support those looking to buy their first residential properties. Is this going to be enough to bring the market back to life?

Mladen Petrov

Evo Morales, the leftist president of Bolivia, is known for his wedding presents. Newlyweds in Bolivia don’t even have to invite the president to the wedding in order to receive one of his lavish gifts. “Every newly-wed couple should be given a flat by the state,” the Bolivian president recently declared. Additional information on the ambitious plan is yet to be disclosed, but the government earlier granted 20-year low-interest mortgages for up to USD 15,000. A few thousands kilometres away from Bolivia, in Poland there is the ‘Rodzina na swoim’ scheme. This allows families and single parents to apply for a subsidy for the purchase or construction of their first residential property. The state-guaranteed loan is issued for eight years in Polish złoty at lower interest.

Dreams come true

After making sure it qualifies for the programme, a young family can go apartment-hunting. Some 20 pct of the 10,000 flats being offered on the tabelaofert.pl website can also be purchased with the support of the government. Developers estimate that Warsaw is a city with only a small number of subsidized flats on offer, as only 10 pct of the new homes qualify for the scheme. The maximum price per sqm in Warsaw has been set at PLN 7,240, with the programme having kicked off at the beginning of 2009. What do the developers have to say about it?

“Government-subsidized programmes represent a short-term solution. I don’t think that a large number of developers are going to drastically change their upcoming projects or artificially lower the prices so the new projects can meet the programme’s requirements. It’s not worth it,” argues Matthew Freney, president of the Warsaw-based MT Development company, the developer of two projects participating in ‘Rodzina na swoim’ – Poezji III and Krzyształowa Aleja. Around 50 flats are for sale under the scheme, with 20 pct of these already having been sold.

Jarosław Szanajca, president of Dom Development and the Polish Association of Developers, agrees with his colleague and adds: “The idea behind the programme is very good, but the realization has some significant flaws. It basically favours the secondary market as this is where 75 pct of transactions take place. What is happening now is that those who have purchased a large number of flats for investment purposes are now selling them for a good return. On the other hand, if the scheme was restricted to just the primary market, it could ensure that a large number of jobs are safe and this would have a positive impact on the economy in general. ‘Rodzina na swoim’ has the potential to be something more than a social programme. It could also be an anti-crisis measure. But it isn’t – yet.” 

 Dom Development has around 500 apartments on offer in four projects in Warsaw under the programme. Since the beginning of the year, almost 60 flats have been sold. “That is a rather small number given that we have so many flats for sale under the scheme. I assume our competitors with smaller projects are selling even less, and that is understandable. As far as I know, on the secondary market it is quite a common practice to lower the price of the flat. In that case the buyer pays the rest of the real price under the table. We as developers don’t want to do that,” Mr Szanajca says.

Is the secondary market posing a real threat for developers? “The real question is, are there are enough homes on the market to meet the demand? It has been estimated that currently there are around 70,000 new flats on the market. Around 50 pct of these are below the required maximum of 70 sqm, but naturally not all of them meet the price condition. There are a large number of mid-priced flats on the market, but are developers eager to lower the prices further from PLN 8,000? The answers really tend to vary,” explains Aleksander Skirmuntt, director of New Investments at the Emmerson real estate services company. According to him, in the long run the available stock of new homes qualifying for the scheme might turn out to be insufficient, especially given that “right now buyers are getting much more for their money, an important incentive when considering buying flats on the secondary market.”

Mixed feelings

According to Matthew Freney, schemes such as ‘Rodzina na swoim’, although bringing no significant change to the market, still have some positive effects. “We are seeing a pro-active government, which is looking to help first-time buyers. They are afraid to take this first step, but the governmental rebate provides them with more confidence,” Mr Freney comments.
  Not everyone, however, finds their first home on the prime market. Some young families want to stay as close as possible to the city centre, and thus don’t even bother to visit new residential projects in Bemowo, Białolęka, Targówek and Tarchomin – the Warsaw districts where the majority of the projects qualifying for subsidies are located. Those, however, who are ready to make an exception for projects in the outskirts, such as in Wilanów district, face other problems. There are basically no flats smaller than 70 sqm – and so they are some  way above a young family’s price range and not eligible under the scheme’s conditions.

Good news, bad news

Nine months after its official start, ‘Rodzina na swoim’ is becoming more popular with first-time buyers. In July, 3,405 loans with a combined value of PLN 605.4 mln were granted, while in June the number of approved loans stood at 3,105. Bank Gospodarstwa Krajowego (BGK), the bank supervising the scheme within its Subsidies Fund, claims that since the beginning of the year a significant increase of the programme’s outreach is apparent. At the end of 2008 the Polish government put aside PLN 2.2 bln, with this money being designated for 18,000 loans. The limit, however, has already been reached: so far 16,000 loans worth PLN 2.7 bln have been issued.

That, however, doesn’t mean ‘Rodzina na swoim’ is to be put on hold. Currently the bank is working on a new plan, that will enable the running of the programme past the end of 2009. The revised plan is to be presented to the Ministry of Infrastructure, which is to decide on additional financing. The bad news? These loans are getting more expensive. After having recognized the increasing interest in the programme, the participating Polish banks eventually started to increase the interest rate on such loans. In February, Bank Pocztowy’s interest was 1.3 pct, while today those looking for such a loan at this bank would have to pay 3 pct interest on it.

  Developers also have some objections to the rules of the game. Recently the Polish Association of Developers and the Polish Bank Association submitted to the Ministry of Infrastructure a document called ‘Recommendations for the residential market in Poland’. The way the two organizations see it, the programme should be limited only to new flats, thus bringing the construction and development sectors back to life, with the governmental help only being available during the market downturn. The developers, backed up by bankers, also insist that single people, not only single parents with children, should be eligible to participate in the scheme too. So far the ministry hasn’t commented officially on these proposals. 

Limited help

Since the end of July, a similar government-guaranteed mortgage scheme has also been introduced in Romania. The first data from the scheme has been welcomed with some relief and raised hopes that the ‘First Home’ (Prima Casa) programme will help troubled developers in selling their empty new flats. The recently-held Project Expo First Home Fair in Bucharest provided one such opportunity for this. The fair attracted over 15,000 visitors looking for affordable properties.

The Romanian government has designated USD 1 bln for the programme, which has forced developers to adjust to a new market reality. South Pacific, a developer of upmarket projects in Bucharest, recently decided to enter a lower market segment. In Bucharest the company is to develop Avalon, a residential complex which will also contain 36 apartments eligible for purchase under the scheme. The company’s reps, however, are keeping their feet on the ground when it comes to ‘First Home’. “The general feeling amongst developers is that this programme is not going to solve all the problems. The fund set up by the state is rather small. The EUR 60,000 limit set by the government mostly favours those looking to purchase old flats,” feels Mike Hapoianu, sales manager of South Pacific.

   After the scheme officially got under way, around 10,000 loan applications were submitted to the four participating banks, with 25 pct of the applicants reportedly being turned down. The buyers must make a down-payment of 5 pct of the purchase price of a home that costs EUR 60,000 or less, or a down-payment of EUR 3,000 plus the difference between EUR 60,000  and the price of a home that costs more than that amount.


   It is too early to say what the effect of the scheme has been, but according to market players ‘First Home’ has brought some confidence back to the market. But voices warning that the programme can only be a short-term solution can also be heard. According to the programme’s critics, it is not going to help the market in the long run, unless the banks start offering competitive products too. And the chances of that happening in Romania, at least for the time being, are slim. Meanwhile, the Romanian government has declared that if the scheme turns out to be a success, it will also be continued over the next year.

Renting hell

In Bulgaria the situation is slightly different. “Luckily, the Bulgarian residential market wasn’t that overheated when the financial crisis broke. But still, developers are already offering alternatives to bank loans, which still are very hard to obtain,” comments Tatiana Emilova, manager of the residential brokerage services of Colliers International Bulgaria.

Why are developers the only ones helping out buyers? Well, at least up until now the government wasn’t interested in doing so. “Things have changed significantly,” Tatiana Emilova argues. “Now 30-40 pct of the property’s value is to be covered by the buyers themselves, which diminishes the chances of young people buying their first flat.” On many occasions developers have tried to encourage the government to take steps necessary for resolving the difficulties of young adults, but with no response. Meanwhile, sales of flats, according to recent H1 2009 research, have dropped by 42 pct across the country. Over the same period, there were 320 pct less mortgages granted by Bulgarian banks in comparison to H1 2008. Among the proposed measures are tax exemptions for buyers and partial state-guaranteed loans.

Plan B and C

A group of experts have been working on a number of solutions, which up until now have remained unused. “The real question is who will help us to bottom out and leave the crisis behind,” asked Rosen Plevneliev, the president of the Lindner Immobilien Management development company during a crisis-dedicated conference held in April in Sofia. His company, developing the large-scale Residential Park Sofia project, was one of the first to introduce the rent-to-buy solution to the Bulgarian market.

Developers suggest that the state should earmark EUR 1 bln for a fund to help first time buyers and developers. A significant amount of this money is to be designated for affordable mortgages with a 4 pct interest rate, instead of the 10-11 pct currently being demanded by the banks. Making the new government listen now seems within the realm of possibility. After the July elections, Linder’s Rosen Plevneliev became the minister of regional development and public works.