Building socs outraged over housing bill
Four building societies, Schwabisch Hall, LBS Munster, BHW Holding and Wustenrot, said last week they would pull out of Poland if Parliament passes a bill that would cancel a previously passed law governing the creation of a housing-loan market.
The four societies, which came to Poland in the last two years and have spent millions of dollars setting up their operations, are currently lobbying MPs to bounce a draft bill currently in committee. That bill overrides existing legislation and would force building societies to offer their services through an existing bank. None of the four building societies have any banking presence in Poland, and they were not required to under the old law.
"That's a scandal," said Jacek Furga, former president of Fundamenta, the building society of Schwabisch Hall and Bank Gospodarki Zywnosciowej (BGZ). "In a civilized world one can't just cancel the adopted law just like that."
If Parliament doesn't reject the bill, the building societies have threatened to sue the Polish government for losses they would incur a cost they estimate to be DM 100 million. "We haven't made a final decision yet," said Manfred Reischke, Schwabisch Hall representative. "But we are considering such a move."
Under the original law governing the development of building societies, institutions were supposed to act as long-term savings banks that would eventually issue low-interest housing loans. The idea is that individuals build up equity in a housing account for a period of at least three years, and then the bank turns around and issues a longer-term, low-interest loan equal to a multiple of that equity. At the same time, the government also pitches in by adding a subsidy to an individual's account, with the idea of encouraging saving.
The program was necessary because only a scant mortgage market exists, and mortgage loan rates are high at around 20% with the longest maturity being 10 years.
The ultimate goal of the building society approach was to stimulate the building of new residences as well as the refurbishment of older flats, which in turn would help curb Poland's housing shortage. The idea followed in the footsteps of Germany, Austria and the Czech Republic. Building societies came to the Czech Republic seven years ago and already have more than 2 million members, or one-fifth of the population.
While the "housing" societies created under the draft bill also focus on individuals building up equity and banks issuing low-interest loans, the new plan does not call for a government subsidy. The only government support individuals receive under the "housing" plan are the tax breaks they would earn for buying a house or apartment. The other main difference, and the point that building societies object to most strongly, is that the "housing" societies fall under a bank.
So far only three banks: Bank Pekao, Bank Przemyslowo-Handlowy and Bank Slaski have established "housing" societies. During the last two years, all three of the banks combined had 47,000 members.
"I'd say the main difference is that 'housing' societies offer tax reliefs for housing spending," said Leszek Pawlowicz, professor with Gdansk Banking Academy and researcher with the Institute for Market Economics, "while building societies are related to certain subsidies from the state budget."
The potential size of those subsidies is partly why the government, particularly the Finance Ministry, is suddenly backing away from the building-society approach, Pawlowicz said. Under the original plan, the government would cough up a subsidy equivalent to 30% of an individual's total savings. The Finance Ministry has balked at that figure, saying that the potential outlay is too burdensome for the national budget. (See the WBJ, June 22-28, 1998).
"Right now, the (Finance) Ministry says the building societies in general would be too much of the burden," said Tadeusz Grotowski, who the building societies have charged with negotiating with the government. "The ministry claims that during the first 12 years, budgetary spending would reach zl. 70 billion ($16.67 billion). Our estimates say about zl. 8 billion ($1.9 billion)."
Officials with the Finance Ministry were not available for comment last week.
Moreover, according to calculations put together by the building societies and the Institute for Market Economics, by the 10th year of their activities, the stimulation the loans had given the residential housing market would actually increase tax receipts for the government to the point that such revenue would actually be larger than the cost of the subsidies, Pawlowicz said. He estimated that government revenue would actually be zl. 4 billion ($952 million) higher than the cost of the subsidies.
"The problem is that the Finance Ministry thinks only of what the budgetary spending will be," he said. "But they forget about the revenue the system would bring."
The change, of course, spells large potential losses for Fundamenta, the joint venture between Bausparkasse Schwabisch Hall and Bank Gospodarki Zywnosciowej (BGZ). Fundamenta applied for a building society license two years ago, and by June 1998 employed 60 people, the company said. The company had also invested DM 20 million-DM 30 million into computers and office equipment. Six months ago, when work on the new law started, all four societies suspended their activity and fired most of their staff.
Grotowski last week said he still hoped, however, that Poland would not adopt the new law and the building society program could go forward as initially planned.
"I hope building societies will become a part of the housing-financing system," he said.
