Barren land

No data exists on how much land prices have fallen. 
We can only guess the extent, since we are awaiting the signing of the first transactions since the crisis began

Emil Górecki

All the land market experts who agreed to talk to us about this issue agree that land prices are slowly dropping, but none has been able to support their claims with hard facts. And the reason for this is that it still seems to be too soon into the economic crisis to close any deals. According to Maciej Wójcikiewicz, director of CB Richard Ellis’ valuation department, referring to a plot in the Młociny district of Warsaw put up for sale at 30 pct below the price offered a year ago: “Buyers are not buying and sellers continue to have excessive price expectations. Most major developers have established land banks, and plots will become cheaper. I’m sure that last year’s lowest price level will be seen as excellent in 2009.”

Maciej Gnoiński, board consultant of J.W. Construction, highlights another price shaping factor: “There are notably less buyers on the market, which is particularly true of foreigners. But now things have literally come to the crunch. Forced by the market situation, these aggressive operators are now looking to sell off land at prices which might only have been possible several months ago.”

In attempting to save their skins, some companies will sell portions of their real estate portfolios at a discount. These transactions will certainly influence the prices of other plots. Mariusz Motty, president of the Kanceleria Motty advisory firm, estimates that this could amount to as much as a 50 pct price reduction. According to him: “The information I have concerns around 100 plots with building permits and plans, being put on Warsaw’s property market in deals agreed between developers. The majority are owned by small amateur developers, who counted on the high rate of growth continuing. These small projects are unsellable today.”

Living with what once was

The land market is still living on transactions which were finalized even a year or two ago. Fresh deals in Warsaw are now few and far between. The companies that used to purchases plots with such gusto are now mostly having to face up to serious difficulties. The price of all the irrational behaviour during the boom period might even be bankrupcy. In the view of Mariusz Motty: “Some preliminary contracts are unlikely to be finalized today – even if it means forfeiting deposits.”

Having said that, Poland’s situation is much better than in many other CEE countries. Poland is still registering positive economic growth, EU funds keep flowing in, foreign capital still wants to invest here, while many highly-skilled workers are available. All this is not to suggest that Poland is immune to the effects of recession. Chris Conner, director of DTZ’s investment consultancy department, feels that: “The situation should not be expected to improve into 2009. I think the market will pick up around May or June, but this will only be the first signs of improvement to come, although for those who want to buy plots at crisis prices, the best time is from now until mid-2009.”

Unconfirmed hypotheses

Since no transactions are currently being finalized, the only evidence that prices are falling comes from bidder expectations. According to Mariusz Motty: “The best example is plots for housing, which could not be sold a year or 18 months ago. Potential customers are today offering substantially lower prices of as much as 20 pct. This is likely to be the fate of plots for commercial projects.”

Costs also suggest that the prices of plots will drop. The demand for homes and commercial real estate is huge, while bank financing costs have shot up and construction costs have remained almost the same – as have the prices of building materials. Hence the only factor which could cut construction costs is that of land.

Many international companies experiencing problems will have to sell some of their assets to focus on their most important projects in order to survive. For them the CEE region enjoys no priority status when they are currently being pushed from pillar to post in their native Spain, the UK or the US. And this is why they are selling up. In Chris Conner’s opinion: “The talks I have had with colleagues from other European estate agencies indicate that land prices may be around 40-50 pct lower than earlier valuations, until capital begins to reappear on the market and a new growth cycle can begin.” But a new type of investor will soon be appearing on the market, reveals Mariusz Motty: “I know of several companies which plan to start new businesses to buy up properties from endangered developers. These are strong, well-known companies, generally doing business outside the real estate market. They still do not want to officially reveal themselves, although they possess large and real capital and knowledge of the problems experienced by the developers who are having to sell up. These are speculators with the very highest credentials.”

Time to settle accounts

Developers have begun to study their projects with greater care. This is why they will choose well-situated plots at prices which are not exaggerated. Projects that have already started should still be completed on time, although the restricted access to loans to both customers and developers is already leading to the postponement of planned projects. The demand for plots has, thus, come to a temporary halt. However, small developers will have to find capital to pay off debts and have already started to sell off properties. J.W. Construction’s consultant reveals that: “Our company has built up quite a large land bank and does not intend to enlarge it in the immediate future. I must admit we are receiving many more offers to purchase than a few months ago. They often come together with development conditions and even building permits.” 
   He does admit, however, that the company is also inclined to sell some of the plots it holds in its portfolio. Dom Development has also stopped buying land. In 2009 the company wants to save PLN 1.5 bln, of which as much as PLN 852 mln was initially reserved for land plot purchases.

But where are those sales taking place?

Those ready to make real estate purchases and who want to invest in the order of EUR 150 to 250 mln are also beginning to enter the scene. Mariusz Motty reveals that several spectacular investments are to be made in Warsaw city centre, although the current situation has hindered the final stage of negotiations.

Maciej Gnoiński is not forecasting a large fall in land prices: “There will be fewer homes, while the demand for them continues to be strong. The stock of unsold apartments will soon be exhausted and the need for development sites will rise together with prices for them.” Plots for commercial projects should also not lose out, with price reductions – if any – being rather of a temporary nature.

However you look at events, there is no sign of a wave of developer sales, apart from an increased interest. Maciej Wójcikiewicz adds that: “There is still an excessive gap between buyer and seller expectations, although companies which want to make their presence tangibly felt in Poland are appearing. It is they who will be the first buyers.” ν