Flat market or just a pause for growth?
With Warsaw's population steadily increasing and the past year emerging essentially as a buyer's paradise, experts are predicting a slight change in the coming 12 months. According to a recent Knight Frank Nieruchomoci residential market overview, the residential housing supply in Warsaw has risen across all sectors of the market during the past five years, achieving the record level of more than 16,400 units in 2001.
But it looks as though the tables may soon be turning, with the supply slowly running out and the demand for new residential space quickly increasing as many Varsovians choose to leave their high-rise apartments behind.
Though the supply has reached its highest level in a decade, it has slowed dramatically, failing to match the rapid expansion of previous years. Mortgage systems were expected to take off to a far greater extent than they have so far and combined with the recent economic downturn, the optimistic forecasts of the previous years have been curbed by less expansive plans.
According to a REAS Konsulting report on Warsaw's residential market for 2002 and 2003, more than half the housing units currently under construction in Warsaw are located in just three districts: Ursynów (21%), Białołęka (20%) and Praga Południe (11%). Ursynów's absorption rate remains the lowest, with only 10% of units unsold. The differences between top- and bottom-end prices in Warsaw can reach from 60% to 100% depending on the location within a district. Experts have also observed a positive tendency of setting more realistic prices reflecting the project's standard and location.
In the first nine months of 2002, new apartment completions in Warsaw were down 30%, the first time in five years that residential unit completions in Warsaw declined year-on-year. The market survey predicts that fewer new developments will actually tighten the market and cause a pick-up in sales during the next 12 months.
REAS Konsulting research also shows that now is a good time for banks to lend money to residential developers. Banks were previously reluctant to lend money unless a certain proportion of projects were pre-sold. Now, according to real estate agents, the popularity of mortgage loans is increasing, thereby providing a substantial part of the means of transaction financing. If these means of financing were to gain popularity with the younger generation, who are just setting out on their professional careers, the housing situation in Poland would not only change, but also undergo something of a revolution. It looks as though this could be facilitated faster than anticipated with the proposed law on subsidised fixed-rate housing loans, which establishes rules and procedures for such government loans, fixing their interest rates at 8%. With złoty interest rates being slashed by 12% in the last 18 months, some experts are sure 2003 will see a turnaround on the market.
What remains a major concern is the fact that it is the high-value apartments that will be left on the market, as demand picks up. There are worries that developers will take advantage of the dwindling supply, marking up the prices of their luxury developments, while other experts believe the developers will be more concerned about their future investments.
"Developers are experiencing problems with sales of top of the market apartments," said Małgorzata Koprzywa, director of the residential department at Ober-Haus real estate agency. "I don't think they will continue with the construction of high-end apartments; they will rather focus on building small, affordable apartments."
According to Knight Frank Nieruchomoci, no evidence was found of any significant reduction in prices of high-value apartments, though developers are currently more flexible in negotiating sales conditions.
Koprzywa confirmed this view.
"There will not be a decrease in prices for housing in good locations, and the developers refuse to go to any lengths to sell their products," she said. "They are willing to wait. If their project is good, they will wait for the client." Concessions are being made only on the sales of apartments in excess of 100 square metres, she added.
The major cause behind such policies is the fact that very few developments in Warsaw are being constructed with bank financing. Developers, therefore, feel little external pressure to reduce prices and increase sales to repay loans, and prefer to wait for the clients and reap in all the benefits.
Although there is very little labour mobility (about a million people moving internally over the best part of a decade, and just 23,368 officially leaving the country to pursue life abroad in 2001), Warsaw real estate agents are now noticing an influx of out-of-towners. Many worry that with the drop in the number of foreign executives, as firms shift to employing nationals, the number of vacant apartments on the market will increase. Although this is true, experts point out that most expatriates rent rather than purchase residences, which means that the apartments will either re-emerge on the rental market or will be welcomed as additions to the sales market which, as predicted, will suffer from a supply shortage next year. On the other hand, those who will leave the country in order to pursue careers abroad upon EU accession will either rent their apartments here or will sell them.
Koprzywa believes that there is an increasing interest in such offers.
"There are a lot of people coming to Warsaw and the demand for apartments, not necessarily new ones, is very large," she said. "The majority of the buyers are from outside Warsaw and since they consider renting too expensive, they decide to buy. Most of them take mortgage loans in order to finance the payments."
According to recent market reports, competition on the residential market and a situation where a developer has to secure project financing has already started verifying the quality of the developers operating on this market. It is expected that this process will intensify over the next 12 months.
Purchasers are also becoming more demanding as their price sensitivity increases, and attention to other criteria such as developers' credibility, payment structures, mortgage assistance and maintenance costs, gain prominence. Long gone are the times of paying for one's apartment before its construction had even commenced. Currently, the demand on the residential market is being driven by purchasing power rather than buyer preferences. The wealthiest Varsovians acquire small apartments in prime developments for investment purposes, to rent or use as second homes.
The last year has seen more developers engaging more of their own equity as well as securing bank financing for projects, which will increase development risk and reduce profitability. Financially weak developers and those seeking higher returns have left the market or will be forced to do so in the near future.
One aspect that still worries developers is that fact that many people still prefer to build their own homes, believing that it would be cheaper than buying one from a developer. Even though this may be true in some cases, the cost does not include the time spent on such a project. On the other hand, although residential developments have come a long way since their early days in the beginning of 1990s, major constraints for this sector, particularly in suburban areas, are road conditions and infrastructure limitations. The prices of some luxury developments outside Warsaw, which can be as high as €1,500 per square metre, will continue to encourage build-our-own solutions.
But it looks as though the tables may soon be turning, with the supply slowly running out and the demand for new residential space quickly increasing as many Varsovians choose to leave their high-rise apartments behind.
Though the supply has reached its highest level in a decade, it has slowed dramatically, failing to match the rapid expansion of previous years. Mortgage systems were expected to take off to a far greater extent than they have so far and combined with the recent economic downturn, the optimistic forecasts of the previous years have been curbed by less expansive plans.
According to a REAS Konsulting report on Warsaw's residential market for 2002 and 2003, more than half the housing units currently under construction in Warsaw are located in just three districts: Ursynów (21%), Białołęka (20%) and Praga Południe (11%). Ursynów's absorption rate remains the lowest, with only 10% of units unsold. The differences between top- and bottom-end prices in Warsaw can reach from 60% to 100% depending on the location within a district. Experts have also observed a positive tendency of setting more realistic prices reflecting the project's standard and location.
In the first nine months of 2002, new apartment completions in Warsaw were down 30%, the first time in five years that residential unit completions in Warsaw declined year-on-year. The market survey predicts that fewer new developments will actually tighten the market and cause a pick-up in sales during the next 12 months.
REAS Konsulting research also shows that now is a good time for banks to lend money to residential developers. Banks were previously reluctant to lend money unless a certain proportion of projects were pre-sold. Now, according to real estate agents, the popularity of mortgage loans is increasing, thereby providing a substantial part of the means of transaction financing. If these means of financing were to gain popularity with the younger generation, who are just setting out on their professional careers, the housing situation in Poland would not only change, but also undergo something of a revolution. It looks as though this could be facilitated faster than anticipated with the proposed law on subsidised fixed-rate housing loans, which establishes rules and procedures for such government loans, fixing their interest rates at 8%. With złoty interest rates being slashed by 12% in the last 18 months, some experts are sure 2003 will see a turnaround on the market.
What remains a major concern is the fact that it is the high-value apartments that will be left on the market, as demand picks up. There are worries that developers will take advantage of the dwindling supply, marking up the prices of their luxury developments, while other experts believe the developers will be more concerned about their future investments.
"Developers are experiencing problems with sales of top of the market apartments," said Małgorzata Koprzywa, director of the residential department at Ober-Haus real estate agency. "I don't think they will continue with the construction of high-end apartments; they will rather focus on building small, affordable apartments."
According to Knight Frank Nieruchomoci, no evidence was found of any significant reduction in prices of high-value apartments, though developers are currently more flexible in negotiating sales conditions.
Koprzywa confirmed this view.
"There will not be a decrease in prices for housing in good locations, and the developers refuse to go to any lengths to sell their products," she said. "They are willing to wait. If their project is good, they will wait for the client." Concessions are being made only on the sales of apartments in excess of 100 square metres, she added.
The major cause behind such policies is the fact that very few developments in Warsaw are being constructed with bank financing. Developers, therefore, feel little external pressure to reduce prices and increase sales to repay loans, and prefer to wait for the clients and reap in all the benefits.
Although there is very little labour mobility (about a million people moving internally over the best part of a decade, and just 23,368 officially leaving the country to pursue life abroad in 2001), Warsaw real estate agents are now noticing an influx of out-of-towners. Many worry that with the drop in the number of foreign executives, as firms shift to employing nationals, the number of vacant apartments on the market will increase. Although this is true, experts point out that most expatriates rent rather than purchase residences, which means that the apartments will either re-emerge on the rental market or will be welcomed as additions to the sales market which, as predicted, will suffer from a supply shortage next year. On the other hand, those who will leave the country in order to pursue careers abroad upon EU accession will either rent their apartments here or will sell them.
Koprzywa believes that there is an increasing interest in such offers.
"There are a lot of people coming to Warsaw and the demand for apartments, not necessarily new ones, is very large," she said. "The majority of the buyers are from outside Warsaw and since they consider renting too expensive, they decide to buy. Most of them take mortgage loans in order to finance the payments."
According to recent market reports, competition on the residential market and a situation where a developer has to secure project financing has already started verifying the quality of the developers operating on this market. It is expected that this process will intensify over the next 12 months.
Purchasers are also becoming more demanding as their price sensitivity increases, and attention to other criteria such as developers' credibility, payment structures, mortgage assistance and maintenance costs, gain prominence. Long gone are the times of paying for one's apartment before its construction had even commenced. Currently, the demand on the residential market is being driven by purchasing power rather than buyer preferences. The wealthiest Varsovians acquire small apartments in prime developments for investment purposes, to rent or use as second homes.
The last year has seen more developers engaging more of their own equity as well as securing bank financing for projects, which will increase development risk and reduce profitability. Financially weak developers and those seeking higher returns have left the market or will be forced to do so in the near future.
One aspect that still worries developers is that fact that many people still prefer to build their own homes, believing that it would be cheaper than buying one from a developer. Even though this may be true in some cases, the cost does not include the time spent on such a project. On the other hand, although residential developments have come a long way since their early days in the beginning of 1990s, major constraints for this sector, particularly in suburban areas, are road conditions and infrastructure limitations. The prices of some luxury developments outside Warsaw, which can be as high as €1,500 per square metre, will continue to encourage build-our-own solutions.
