Home is where the profit is

The increasing interest of foreign buyers, and easier access to mortgages, has sent demand soaring ahead of supply, and real-estate agencies are finding it tougher to locate properties for investors.

Pearls in the pile

There are a large number of apartments for sale on the Warsaw market, and while most agents will acknowledge that there is an awful lot of second-rate housing stock, "there are also gems," says Magdalena Cicharska, managing director of Prestige.pl. "Sometimes people are in a hurry and offer well-equipped apartments at a very good price. They have to move to a different city and sell a new apartment, even one which is not finished. Although there's still a lot of money to spend, it is a real bargain."

Many such apartments are above the zł.1-million mark. Offers such as these account for 10-12 percent of the market, whereas the demand for apartments in this price range is slightly smaller, and reaches some 5-10 percent, with actual transactions in this sector accounting for five percent of the real-estate market's deals.

According to Leszek Baranowski, director at Bracia Strzelczyk Real Estate, what people plan to do with the properties has changed. "Many people want to buy them, improve their standard and either sell soon or rent them out for a couple of years," he says.

The rapid price growth and the availability of relatively cheap loans have made property a very attractive investment vehicle. "It's profitable to take a mortgage and purchase an apartment just for two or three years. The rent to property-value ratio proves that apartments still have profitability. Prognoses assume an eight to 10 percent annual price growth. There are expensive properties where an investment of only zł.100,000-200,000 can generate up to 50 percent return on equity," says Cicharska from Prestige.

The ideal home

The most frequent expectations among home buyers are newly developed units of 50-100 sqm within the city center and with easy access to public transportation, preferably the metro, convenient layouts, garages or parking lots, greenery, and recreation facilities. Prices range from zł.4,000-5,000 in the outskirts to zł.21,000 in the most expensive development, Belvedere Residence. "There's a tendency to invest in new developments because of a higher standard and the sense of security. The neighborhood is specific and, apart from that, there are usually security guards and monitoring," says Rafał Ignaszewski, sales director at Emmerson Real Estate.

Although the number of new developments grew by 20 percent in 2005, compared to 2004, the number of new building plots is rapidly decreasing and, according to Baranowski from Bracia Strzelczyk, not many new developments will be launched in central Warsaw. "Developers have started entering protected parts of the city and even these plots are about to run out," he says.

Most of the new developments are currently under construction in the outer parts of the city, such as Ursynów, Bemowo, Bielany on the left bank of the river, and Białołęka and Targówek on the right bank of the Wisła. Bemowo and Bielany have attracted a lot of interest, especially as Warsaw City Hall plans to expand the Metro line to these areas.

Buy in bulk

On the other hand, hardly anything is being built in Żoliborz and Wola. The most interesting new developments are on sale or under construction in Mokotów and Saska Kępa in Praga Południe.

These central locations are targeted by foreign 'wholesale' investors, who often buy 50 percent of a new development at a discount and sell the properties for a handsome profit when construction finishes.

Seconds please

The result of the high demand, a small number of interesting locations on the market, and the influx of investors from abroad, is that more people are turning to the second-hand market. "Investors from Great Britain and Ireland are sometimes more interested in stylish old buildings in good condition. They don't usually discuss the price, [and instead] try to estimate the buildings' potential, even if it needs renovating," says Baranowski.

The most-wanted locations are the same: Œródmieœcie, Upper Mokotów, Old Żoliborz, and Old Ochota. "Aleja Szucha, Rondo Unii Lubelskiej, Krakowskie Przedmieœcie, Nowy Swiat and Park Łazienki are in great demand. People query about Żoliborz, but because of a limited number of properties there the rotation is very small," says Emmerson's Ignaszewski. Bracia Strzelczyk's Baranowski recommends apartments built in the 1950s and 1960s that are close to Trasa Łazienkowska with a view on Park Łazienki, or the city center, especially apartments near Park Morskie Oko from before the Second World War. "Generally Moko-tów, close to the center [with its] rich infrastructure and parks, and ul. Marszałkowska, which is back in fashion," he adds.

From rags to riches

Second-hand buildings and apartments, however, differ in standard. Some need thorough renovations, other have marble staircases and are fully furnished and equipped with the latest fixtures and fittings, such as Jacuzzis, swimming pools, gyms and even remote-controlled digital paintings with changeable images.

Generally, the standard has improved and the majority of apartments have well-fitted bathrooms and kitchens. One major contradiction is that the ugly glum exterior of apartment blocks built in the 1970s and 1980s often mask luxury well appointed interiors, according to Baranowski. The price per sqm of second-hand buildings is often lower than that of new developments, and investors might look beyond the aesthetic drawbacks of a communist-era block in the hunt for a real bargain.

Analysts are not unanimous about the price-growth dynamics on the Warsaw residential market. Some calculate 8-10 percent, other say 15 percent or even more, but they all agree on one thing - the market is shrinking. "There are fewer interesting offers on the market and they have already reached the prices of the future," says Emmerson's Ignaszewski.