House hunting
Lokale Immobilia looks at the advantages and dangers of investing in the residential market, and asks the experts what investors should be looking for
Investors, both Polish and foreign, have already smelled blood in the residential market in Poland, with flat prices continuing to spiral upward. In one month alone - from February to March - the average price per sqm in Warsaw grew by 8.6 percent to zł.5,415, whereas Wrocław recorded 4.2-percent growth to zł.4,548. Over the course of the fourth quarter of 2005, the average price per sqm in Warsaw grew by about 6.3 percent, and the year-on-year growth was 12.4 percent.
Safe bet
Examples of some attractive developments which generate value themselves are also telling. The price growth in Marina Mokotów in Warsaw between November 2005 and April 2006 was 48 percent. During the same period, the price growth in Miasto Przyszłości (The City of the Future) in Kraków reached 64 percent.
Price growth, however, is not the only factor to attract investors to the housing market. Investing in flats is much safer than playing the stock market. Secondly, one does not need to be a millionaire to successfully invest in real estate. Banks, being now extremely open to the residential market, offer easy access to mortgages. Houses also offer guaranteed liquidity - flat buyers will always be there, as shelter is one of the basic needs humans have to satisfy.
Exercise caution
Investing in flats also poses pitfalls, especially if the investor is an amateur or pioneer on the market. The president of RedNet Property Group, Robert Chojnacki, points out that investors have to be aware that flat prices are not growing in every sector. "The threats of investing in flats include choosing a developer with a bad reputation or the wrong development," he says, stressing that these risks result from lack of knowledge of the market. "Inexperienced investors have to be careful about the threats connected with signing contracts as well as about other legal aspects, such as a title to the land or building permits."
"Why should somebody buy a flat from me in the future at a higher price?" is the question an investor must ask himself in the first place, according to Chojnacki. The most obvious reason is that a flat is a product as any other, prone to the demand and supply interdependence mechanisms. The current trend of demand outstripping supply is expected to continue for the next few years, especially since the bulk of Poland's existing dwellings are the panel blocks of flats built in 1960s and 1970s, whose technical lifetime is an estimated 60 years. Additionally, society, especially in bigger cities, is getting richer and thus, wishes to improve its living conditions. At this point, however, Chojnacki warns that the levels of demand and supply are not the same everywhere, which investors have to take into consideration when choosing the place for their investment.
Golden rules
The golden rules for investors are to select locations with limited supply, such as Sopot, which is limited by the sea, a national park and Gdynia. The area for potential supply thus being limited makes Sopot one of the most expensive cities to live in. "Avoid locations that could increase supply quickly, such as Wilanów in Warsaw," advises Chojnacki. "Look for locations with high demand," i.e. areas with infrastructure investments. Warsaw's Ursynów district is such an area, where flat prices grew after the underground linked the area with the city center. Further factors that are likely to boost demand are the changing image of an area, such as revitalization projects popular in Łódź and Kraków, and job opportunities created by new investments, like in Wrocław. Investors should also avoid low-demand locations, such as Katowice and Łódź, where ten years ago lack of jobs created negative migration.
Best locations
According to Chojnacki, the ideal location for investments at the moment is Wrocław. In the future, places such as Poznań, Tri-City, Łódź and Katowice will gain importance. When it comes to segments with the highest potential of growth in Warsaw, the City Center, Mokotów, Ochota, Żoliborz and Ursynów are best for short-term investment, Wola, Bemowo, Bielany, and Włochy are good in mid-term, whereas Wilanów, Ursus, Białołęka and Praga Północ are ideal in long-term perspective.
Rate of return
Foreign analysts see Poland as the most attractive country in the CEE region. "The reason why investors want to invest here is that the markets present good potential return at a relatively low risk," says Neil Lewis, a specialist on investment in foreign residential markets from Property Securities. "Poland has probably the most sophisticated financing system in the region," he says. He predicts that Poland and the whole region will soon see a boost in rental markets. "Banks will shortly no longer offer 100-percent financing for house buyers and people will have to move to the rental market."
How long will Poland be a paradise for investors? Lewis stresses that the residential market in Poland has just emerged, with some areas developing faster than others. "The price growth we have seen in the last few months will be observed in the next 12 to 18 months but will not be there for ever. In the next five years investors will still be interested in Poland."
