Gov't-subsidized housing loans aim to stimulate the construction industry

A government bill aiming to subsidize fixed-interest housing loans to help homebuyers and boost the construction industry has not won over developers and analysts. They complain that the draft, which will move to the Sejm this week, will do little to improve the harsh borrowing climate that is barring the way to a resurgence in housing construction. Many Poles cannot afford new homes. As a result, the first five months of this year have seen the number of completed homes plunge by 16% year on year, and the figure is set to decline with the number of construction permits down by 40% in the same period, according to the Infrastructure Ministry. The government program will not generate sufficient demand to stimulate the creation of new stock, threatening a housing shortage within the next two years, said Marek Dąbrowski, president of Warsaw housing developer Polish Real Estate Fund. "To quote Shakespeare - it's much ado about nothing," Dąbrowski said. "The program is designed in such a way as to create a lot of noise but for as little cost to the government as possible." Housing demand began to stagnate in early 2000 as grim prospects for the domestic economy made Poles insecure about their ability to repay long-term loans. The high level of vacancies caused by poor demand is currently the biggest problem facing the domestic housing sector, said Bartosz Ostafiński, an analyst at Beskidzki Dom Maklerski. "The demand barrier comes from our current economic situation and the price of homes relative to the earnings of the population," Ostafiński said.

During the next five years, the Infrastructure Ministry wants to encourage homebuyers with 20 to 25-year loans, to be issued by commercial banks, backed by a government subsidy designed to fix interest rates at 8% on złoty-denominated loans. The program could swallow up to zł. 600 million ($143 million) by 2005. The offered interest rate reduction will not be enough to push sales and stimulate new construction, Dąbrowski said. "At the present time, the interest rate on złoty-denominated loans is around 10-11% … so they are relatively close to the 8%." Dąbrowski said. "I think that the number of these loans will be minimal, which means that the actual impact on the economy will be negligible." While the Infrastructure Ministry would like to see 35,000 homes taken up each year as a result of the program, house completions fell by 34,300 year-on-year in the first five months of 2002 alone, the ministry's figures show. Since stagnated demand has pushed the number of construction starts to a five-year low and developers need two years to place new stock on the market, analysts anticipate that the depletion of existing stock will lead to a housing shortage in the next two years. "As those units are absorbed over time and fewer units are coming into the pipeline, our conclusion is that at the end of next year or early in 2004, assuming the economy picks up, we will see a bit of a problem situation back to what it was in 1997 when people were lining up for units," said Richard Quigley, the vice president of Warsaw real estate consultancy firm Reas Konsulting.