Steepest Growth Will Come to Residential Construction

No one can deny that the Polish construction industry is booming, assured
growth of production and assembly output in the upcoming years – writes PMR in
its newest report. Non-residential construction is poised for double-digit growth.
Nevertheless, it will be outpaced by residential construction as the most rapidly
developing segment of the Polish construction market.

No one can deny that the Polish construction industry is booming, assured
growth of production and assembly output in the upcoming years – writes PMR in
its newest report. Non-residential construction is poised for double-digit growth.
Nevertheless, it will be outpaced by residential construction as the most rapidly
developing segment of the Polish construction market.

Developers will be the prime originators of growth on the residential construction
market. A growing number of companies are undertaking the construction of homes
for sale, as confirmed by the rising number of construction permits issued for this type
of investments. Today, one in every three new homes in Poland is completed by a
developer. The ratio has been rising steadily in the recent past. “In the coming years,
we will continue to see increases across the board, in the number of home completion,
issued construction permits and home starts. The largest and most economically active
cities – Warsaw, Krakow, Wroclaw, Poznan, Gdansk as well as Lodz and Katowice – are
most attractive,” Szymon Jungiewicz, the report author and PMR construction market
analyst, stated. “Over the last few years, housing prices have been surging in these
agglomerations; this trend will continue in the near future,” Mr Jungiewicz added.

The widening gap between surplus demand for and insufficient supply of new
housing as well as high real estate prices guarantee high rates of return on residential
development projects. According to the report authors, there are several factors that
will additionally stimulate demand for housing in the largest Polish cities, such as the
further dynamic development of the housing loan market, the prolongation of the
preferential 7% VAT rate in residential construction after 2007 and the mechanism for
reimbursing VAT input in the price of construction materials purchased by individual
investors for own housing needs.

In the past two years, non-residential construction was the locomotive of
the Polish construction market, primarily thanks to commercial real estate projects,
including industrial and warehouse buildings and commercial and services facilities.
According to the PMR report, the segment will continue to experience dynamic growth
in 2006-2007. Thereafter, the annual momentum will weaken slightly, to approx. 5-
6%. “A certain deceleration in non-residential construction growth will be a natural
consequence of the current market boom,” Szymon Jungiewicz explained.

Unfortunately, such factors as administrative turmoil, which has caused delays
in the implementation of the national road and motorway construction programme,
and the incomplete use of EU funds reserved for Poland, will mean that the Polish civil
engineering sector will expand at below potential in 2006. In the opinion of PMR, the
segment will grow by only 5% in comparison to the previous year. The report authors
believe that the situation will stabilise in the upcoming years and Poland’s capacity to
harness the available EU funds will greatly improve. The changes will bear fruit in the
form of dynamic, approx. 15%, increases in civil engineering works.

Other interesting data from the report