International Property News

Poland's next property boom

20th July 2009

The papers in Poland, as everywhere in the world, have talked about plummeting property prices. But unlike the West they have had to look harder to find them. There are some neighborhoods where values have decreased or some types that are proving harder to shift, but overall prices have remained fairly static.

As a perfect example, prices per square meter of Polish property moved down two percent in the first quarter of 2009 according to Mamdom�s figures � that makes for good headlines. But year-on-year they are up 3.5 percent. This has been conveniently overlooked by the media, keen to be part of the global crisis.

However, there have been definite losers, and many are foreign investors who chose developments that were exclusively aimed at buyers from abroad. Oak Terraces in Katowice has lost an estimated 20 percent of its value, but not because the market is turning down � the original off-plan price was too high.

Puzzling trends

In general, however, the Polish property market has been reluctant to copy those of other countries and this has puzzled many observers. Suburbs such as Bemowo in Warsaw seem to be full of recently completed but unsold blocks that would normally send developers into outright discounting. Instead, REAS reports that in the first quarter of 2009 the price of new builds in the capital actually rose two percent. The reason behind the stability is three-fold.

Firstly, a vast number of new apartments awaiting buyers are the wrong type of apartments. Studios and one-bedroom apartments are, as ever, in demand by young professionals getting onto the housing ladder, but the two-, three- and four-bedroom apartments currently in the supply chain are proving of little interest � a classic mismatch in the market.

Secondly, the sellers are in no hurry because they don�t need the cash. Developers have found it hard to raise loans for new starts, which traditionally they would need to match with at least some of their own funds. No credit means no new starts, which means they have no urgency to improve their cash flow. Rather than discount new units to bring in money they can do nothing with, it is better to sit and wait.

Thirdly, many have also been cushioned by the commercial sector, which continues to grow as Poland�s economy seems almost impervious to the crisis that is afflicting the rest of Europe. Taking advantage of this, many buildings originally destined for the residential market are being converted, or partly converted, into offices. Larger apartments may not make for desirable residencies, but they do make ideal spaces for solicitors, doctors and other organizations struggling to find modern premises in central locations.

The result of all this is a massive reduction in new starts. REAS estimates the number of apartments whose construction began in Q1 of 2009 was five times lower than the same period in 2007 and three times lower than 2008.

Building a boom

In these actions developers are unwittingly helping to create a property boom that may be every bit as large as the last one. Fundamentally this is because there are still underlying issues in the country which have not changed.

Firstly, despite large-scale building programs, Poland still has some of the fewest dwellings per thousand inhabitants compared to any other country in Europe, including Bulgaria.

Secondly, Poland is one of the only European countries whose economy is still growing and whose wealth is still rising, so potential buyers do exist on a massive scale � they just need to feel confident that real estate is a sensible buy. At the moment few do.

This is partly because the global meltdown is unnerving and mortgage deals are expensive, but also partly because high-street banks are offering savers exceptional returns, sometimes as much as 10 percent over a six-month period.

In 2010, when world recovery is expected to begin, these buyers will return to the market en masse. They will find an acute shortage of supply while developers have nothing in the pipeline to relieve the situation. Starts in 2010 will, at best, reach the market by 2012. In the meantime as demand outstrips supply, prices will rise.

For now, unlike anywhere else in the world, property owners who sit tight in Poland can expect to reap significant rewards over the next five years.

Source: Warsaw Business Journal