Home and dry
Lokale Immobilia talks to Peter Gage Morris, the regional director of real-estate company Ober-Haus, about the market's prospects, the rental situation in Warsaw, and how to avoid poor housing stock.
Few agents are as confident about the product they are selling as Peter Gage Morris.
"By investing in Central Europe and in Warsaw I'm sure that [property investors] are making absolutely the right decision," he says. Since coming to Warsaw four years ago, he has seen property prices soar, but Gage Morris says that all the indicators point towards further growth.
"If something costs EUR 10,000 [zł.38,000] in the west and EUR 5,000 [zł.19,000] in Spain and EUR 1,500 [zł.5,700] here, there is going to be convergence. Look at the stock market - it went up by 80 percent last year. There will be convergence in pricing because salaries here are going to go up; it might take 20 years."
Mortgage madness
Last year saw an explosion in the amount of mortgages granted, but the level of borrowing in Poland is still far below European levels, leaving room for further growth. "There was EUR 5 [zł.19] billion in home loans given out last year, up from EUR 3.75 [zł.14] billion in 2004. Total outstanding mortgages is EUR 11 [zł.42] billion, which is about six percent of the GDP of Poland," says Gage Morris. "In the EU it's around 48 percent. Central European levels are about 20 percent, and Poland is in or near last place, maybe Bulgaria is behind it. If you go from six percent of GDP to 20 percent in the next two years that would be another EUR 20 [zł.77] billion in mortgages. Think what that will do for the property market," he says.
Population is also one of the key argument's in Gage Morris' arsenal, and he is skeptical of the government's figures. "The official statistics don't show much growth but if you go around any office and ask where people are registered, 40-45 percent of them aren't registered in Warsaw, they are still registered in whatever town or village they come from. I think the city is growing at 50-100,000 people a year.
"Warsaw's population is just four percent of Poland's population; find me another city, a financial and political capital, that has less than 15 percent," he adds.
Artificial highs?
Many analysts fear that property investors, from Ireland and the UK in particular, are snapping up any available property and driving prices up to artificial levels, but Gage Morris says the role these speculators play is overemphasized.
"Last year probably about 600 or 700 apartments were sold to the Irish. This is six to seven percent of the market, it's not like they are buying half of the flats that are coming on to the market. [The units are] not being kept empty, they are being fitted and rented out to the local population at a decent rent, because the landlords only want to make five or six percent yields [and profit mainly from] the capital appreciation. Most [apartments rent for] between zł.1,000 to zł.1,500 a month, which is reasonable."
Gage Morris also scotchs any notion of the rental market being weak as "absurd."
"Everybody here bought when it was zł.3,000 a sqm but when its zł.7,000-8,000 people get priced out of the market," he says. "A lot of people plan to come here for two years to improve their résumé and then go back to Kraków or wherever, but they never go back. I'm a property expert and I've been renting in Warsaw for four years. I should know better."
Gage Morris claims that a general perception that property is overpriced in Warsaw is also shoring up the rental market. "About 30 percent of people on the street think that prices are too high and they are going to go down. Bankers that lend to the Irish, for example, monitor the portfolios and they tell me that 90 percent of apartments [bought by Irish investors] are rented out."
Join the queue
One thing is certain on the real-estate market - supply is failing to keep pace with demand. "Ninety percent of delivery this year is pre-sold," says Gage Morris. "Internal demand is exceeding supply, never mind the extra people coming in every year. When you go to buy from developers there is usually a queue of people in front of you putting a reservation down."
This is pushing many people towards the secondary market, but with the majority of apartments built during the communist era, investors and home-buyers need to be careful.
"The secondary market [prices are] going up at the same rate as the primary market. The price differential between a communist building and a new build is 20-30 percent, which doesn't make any sense. It's not just that communist-era buildings are old, it's an inferior product," Gage Morris says. "If you could buy a Russian Lada or a brand new Toyota and the price difference is 20 percent, you go for the more reliable modern version. Seventy-one percent of the housing stock was built during the communist era. Relative to new builds there is no reason to buy it as an investment. It's going to deteriorate at a rapid rate, [and] it costs 20-30 percent more to maintain an old building."
The perfect catch
Gage Morris advises sticking to the capital and new builds for a safe investment. "The best price growth is in Warsaw due to the growing population. Warsaw is the most overcrowded city in Europe. You have the largest pool of renters, yields are at six to eight percent with annual capital average growth of 10-15 percent for the next five, even 10 years.
"Lease to the local market," he says. "Buy bread-and-butter flats in Mokotów, Żoliborz, Powile. Go for new builds only, with the exception of city-center buildings built in the 1950s in the area along ul. Marszałkowska, for example." A location near the Metro is always a definite plus for properties. "Prices are 30 percent more for apartments within one city block of the Metro stop in Ursynów," he says.
