Inside the Lokale List
By : Greg Goodale
Recent research that plots a decade of rapid growth in housing development will only add to the sector's woes during the next few years, according to developers.
A recent report by Denmark's European Construction Research (ECR) (http://www.worldconstruction.com/) predicted the housing market will grow significantly, fuelled by Poland's economic development, and assuming annual gross domestic product of about 5.5%.
The report estimated that by 2010, home building will reach an annual level of 248,000 units, worth about $6.6 billion, against 81,979 officially registered homes in 1999, worth about $2.7 billion.
"Total construction in 2010 will be about 112,000 single- or double-family houses, against about 46,300 homes in 1999, inclusive of non-registered single- or double-family houses," the report said. "Apartment houses will experience the strongest growth, from a level of 48,700 completed units in 1999 to 130,000 in 2010."
Poland's growing wealth will be supplemented by bank loans with gradually falling inflation and interest rates, the report said. But it predicted that in the coming year there will be no significant fall in interest rates due to a tightening of fiscal policy to prevent a negative balance of payments and to stem inflation.
The report estimated that a breakthrough in bank-loan financing will not come before 2005, when a lower and stable interest rate will be a lever for mortgage credit as an important financing source. The widespread privatization of housing blocks facilitated by the Cooperative Housing Act is set to provide a broad section of the population with private property. Loan financing will be supplemented to a large extent by the release for sale of existing apartments, which can be used to finance the purchase of housing.
But for Krzysztof Daroszewski, chairman of Gdansk housing developer Polnord-Dom (http://www.polnord-dom.com.pl), the report falls short of its predictions. "With the completion rate of 70,000-80,000 new homes a year and demand estimated at 1.5 million-2 million, we face the prospect of spending some 20 years to satisfy this demand," Daroszewski said. "With the prospect of having to wait four years before things get moving, 2005 does not inspire much enthusiasm."
However, Daroszewski said the upside of this expansion would be a positive effect on the new-build market. "If unemployment falls, people earn more and have the ownership right to their cooperative homes, which they can buy for a small percentage of their value," he said. "They will try to change their standard of living and housing, and this will lead to a decline in prices on the secondary market as a result of increased supply. This will have a positive impact on the new-build market."
The ECR report said homebuilding is strongest in Warsaw and Krakow, which have had a large housing demand, partly from an influx of highly trained people and partly from students.
Andrzej Dadello, chairman of Wroclaw-based residential developer Howell (http://www.howell.pl), said the current experience of developers is different. "Krakow has around 6,000 empty homes at the moment and a lot of new development," he said. "People are finding it increasingly difficult to sell their homes. A location has to have long-term prospects.
"We think the Krakow market may currently be more difficult than the Warsaw market. We see Wroclaw and Poznan in a very positive light and these are definitely areas that we will invest in again."
To accommodate the needs of an increasingly wealthy population, developers entering the market will have to overcome a long series of obstacles, Daroszewski said. This is especially true for certain administrational offices in particular areas. "Thanks to the support of our parent company, Polnord, these matters are easier," he said. "There are occasional problems in cooperation with the administration, often requiring special relations and individual treatment. This makes things difficult for outsiders."
Dadello said Howell had problems when entering Poznan. "Poznan isn't well disposed to the entry of external investors," Dadello said. "There are significant bureaucratic barriers (and) favoritism towards Poznan firms."
ECR predicted that despite falling interest rates the difficulties associated with financing housing construction will remain as real interest rates stay high.
"Interest rates will start to impact construction when credit is available at below 15% for home buyers," Daroszewski said. "The climate in the construction industry would improve significantly if housing loans for individual buyers were available at below 10%."
Poland's European Union (EU) entry may create further complications in meeting demand. "In the long term toward 2006-2007 (there will be a) growing requirement from the EU for protection from soil pollution safety and that building grounds are not polluted." the report said.
Daroszewski said EU entry may cause problems for smaller developers, but consumers will benefit. "Another impact of Poland's EU entry will be that large European developers will enter the market," he said. "Developers backed with major capital will be able to compete much better than local companies, as they will face much lower financial costs. The normalization of construction and the standardization of norms governing property will certainly benefit the buyer by making it easier to compare prices. I see no reason to worry about them, as they are a way of introducing order to the market."
