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Home > Polish Property and Real Estate Articles > Polish Property, 08 and Beyond
Polish Property, 08 and BeyondArticle added on: 2009-01-22 |
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For months now commentators have been waiting for the global credit crisis to make its impact felt on Polish real estate in the same way that it has affected the rest of the worlds developed countries. So why has it seemingly escaped and what does the future hold? There certainly seems to be little change in values. Quarter 1 of 2008 saw the average price per square meter of a Polish apartment at 8,063 zloty. One year later, while nations such as Britain have seen property prices fall by 10 or more percentage points, the figure is 8,475 zloty, or 5% up. Even Krakow apartments, which many believed could not possibly rise any further, saw a 9% increase. Lublin flats, long tipped by some analysts and long ignored by international investors, rose an exceptional 22%. We can explain some of these figures away quite easily. Foreign buyers have made up a very small percentage of purchases due to the permit system so there is not the same wholesale and widespread panic selling that can be found in some emerging markets such as Bulgaria. There entire neighbourhoods belong to overseas investors and agents such as Knight Frank report a glut of foreign vendors trying to offload their brick and mortar assets. The credit crises is also affecting most those whose lifestyle was built on debt, something most Poles have avoided. As an example at the end of 2006 the residential mortgage debt to GDP ratio in Poland was 8% compared to 83% in the UK, and Polish banks remain as prudent (some might say as difficult) in their lending as they ever were. And of course while many countries are looking to bring forward public spending plans to soften their recessions, Poland already has such an investment in place and underway thanks to billions of Euros promised from the European Union. This has ring-fenced large sections of employment not reliant on the peaks and troughs of private business. So economically the country is strong and well positioned to handle the world wide financial turmoil but prices have risen dramatically over the past few years and developers have been building at an incredible pace. With our without a credit crises some have been raising concerns. Katarzyna Kuniewicz, a consultant for REAS, recently pointed out, “In Krakow at the end of H1 2008 there were over 7,400 apartments [available] in 229 investments” which is a large supply for any market to absorb, and a situation reflected across many major cities. It should theoretically lead to lower or stagnant values. The reality is that at least some of the price increases are artificial. Developers, for example, have often looked to add features rather than reduce the sales value. Thus one year ago a 200,000 zloty apartment was just that, today it might list for 210,000 zloty but include a free parking space, cellar storage area, perhaps even a part fit out of the shell. There is also some suspicion that many sellers have increased asking prices only to discount them in the final negotiation. REAS claims transaction prices are 400-800 zloty per square meter lower than the listing price. RedNet believe prices agreed at the end of 2008 were about 8-10% lower than the asking price. Then there is the question of what exactly has risen or fallen. There is general agreement that developers have been building too many large luxury apartments when the market, driven by young professional singles or couples, actually wants small basic units. More often than not it is these high end offerings that are lingering, unsold. So although there has been an increase in property values the situation is not as clear as it may seem and this has crucial implications on the future that actually point to rapidly rising prices within the next 36 months. The credit crunch, coupled with the wrong type of unsold stock, will create a black hole in supply. In the immediate term major developers such as Dom Development and JW Construction have both announced there will be no further discounting on their unsold apartments as this would affect their return on investment. Normally they would take credit to start their next projects while waiting for vacant flats on completed developments to sell through. But here the global financial crisis can be felt. In October JW Construction announced that it was having difficulty raising funds and so “does not rule out the option of financing construction projects in progress with its own capital”. In the same press release they stated “it will also be necessary to reschedule commencement dates of new investment Project”, and they are not alone. So if the next 12 months sees few starts then 2010 and 2011 will see few completions even though the economy is forecast to continue growing throughout this period. Small apartments, already in short supply, will become even harder to find. Demand will once again overtake supply and prices will be on the increase. Around this time we will also see a nearly complete motorway network, a greatly improved infrastructure at the local level and of course the beginnings of the run up to Euro 2012. It is little wonder then that A.T Kearney believe the Polish real estate market, far from being a bubble, “might experience a boom … in the near future”. In summary Polish property prices have outperformed most western and central European countries, simply by holding steady or even rising slightly. Although on the surface supply seems to be exceeding demand there is actually plenty of demand for small apartments and too great a supply of larger ones. The underlying economy remains sound, debt is low and vast funds are already earmarked or in use for public sector projects. Developers are, however, finding it difficult to obtain funds to start new developments so in the medium term there is plenty to suggest the country remains a solid choice for those in search of capital gain.
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