Luxury homes attract buyers despite high interest rates
Katarzyna Michalska, a 30-year-old IT specialist at Weil, Gotshal & Manges legal firm, was tired of renting her home and decided she'd like to buy.
Initially, Michalska and her husband thought about buying a luxury apartment in Warsaw. "I looked for a nice, spacious flat in one of Skanska's (http://www.centraleurope.skanska.com) projects, like Rezydencje Wilanow, Galopu and Zajaczka," she said. "I also looked at the Przy Krolikarni development."
None of them took her fancy and after searching through all the apartment developments in the city, the couple decided to move to the suburbs. "We didn't want to bring up our baby in a block of flats," Michalska said.
She started to research the family residential market, but still remained unconvinced about what she'd seen. "We've been open to all the options, but somehow the developments we saw were not appropriate," Michalska said.
GTC's Konstancja housing project.
Then she saw an ad for international consortium Globe Trade Center's (GTC) (http://www.gtc.com.pl) Konstancja development, between the Wilanow district of Warsaw and the villa town of Konstancin. "Almost everything was fine, but the price was horrendous," she said.
Finally, Michalska was tempted by the U.S.-based AIG/Lincoln's (http://www.aiglincoln.com.pl) Kampinos development. "At first I was skeptical about the location, but when I saw it I knew this was it," she said. They decided to buy the house and landed a mortgage with a bank. It had taken three years to find a home of their own.
The luxury housing market
Michalska is one of many Poles now looking at the new type of development currently planned for the residential market: luxurious, organized, suburban communities on a large scale, targeting high-income couples with upper-management positions.
A number of scattered settlements are located in Jozefoslaw, Lomianki and Anin, but the Konstancja and Kampinos developments are different. "(Both projects) offer the concept of suburban, organized communities for middle and upper (income) buyers, which is new to the Polish residential market, but common in Western countries and has proven to be successful there," said Richard Quigley, vice president of REAS Konsulting, a Warsaw-based residential advisory firm.
AIG/Lincoln's Kampinos housing development.
The $20 million AIG/Lincoln Kampinos settlement is 17 kilometers west of Warsaw's city center. Construction began at the beginning of 2000, at the same time as GTC started its Konstancja project, which is about the same distance from the city. "It's worth comparing these projects," Quigley said. "They are a new phenomenon on the residential market, are of a similar type targeting the same clients, and conducted by reliable developers."
But according to Artur Pietraszewski, a marketing specialist at GTC, the size of the two projects differ substantially. "You can compare the standard financial procedures, but not the scale," he said. At 28 hectares, the GTC plot is significantly bigger than the nine hectares developed by AIG/Lincoln. In the first stage, Konstancja, to be completed this autumn, will offer 105 semi-detached houses in 47 buildings. In the AIG/Lincoln project, 31 houses are on offer.
Both companies provide three types of homes. AIG/Lincoln's homes, named after flowers, include the Fiolek (Violet), ranging from 164 to 176 square meters for a semi-detached, Konwalia (Lily of the valley), from 209 to 229 square meters for a semi-detached and the detached Sasanka (Buttercup) homes at 251 square meters.
Meanwhile, GTC offers a choice of detached homes from 212 square meters and 243 square meters, semi-detached from 125 square meters to 175 square meters and triplexes at around 130 square meters per unit.
Nevertheless, the difference arises when the size of an average plot is taken into consideration. The minimum plot in Konstancja is around 225 square meters, with the land priced separately from the building at $120 per square meter, whereas in Kampinos it's 540 square meters at $70 per square meter in the first phase of the development.
There are also significant contrasts in the pricing of the projects. Houses in Kampinos start from $650 per square meter while those in Konstancja begin at $970.
"It's business, developers try to make money and people pay for quality," said Brian Patterson, managing director of AIG/Lincoln. He said more people are now able to afford these kinds of homes. "We have to educate potential buyers that they can actually live in a house like this," he said. "Of course, it would be easier if mortgages were more popular."
To help with financing, both AIG/Lincoln and GTC assist in obtaining loans for buyers. "The vast majority of our clients borrow money from the bank to cover the costs," Pietraszewski said. GTC works mainly with Deutsche Bank, which offers loans denominated in zlotys, dollars and euros. A down payment of at least 10% of the total cost of the investment is required. The company also has its own loan program. If a client makes a 50% down payment, GTC can offer them the other 50% for two years at 3% interest.
AIG/Lincoln works with several banks, including BRE Hypovereinsbank (BRE-HVP) (http://www.rhb.com.pl), Bank Slaski and GE Bank Mieszkaniowy (http://www.gebankmieszkaniowy.pl). "It's a tough decision to make and many people are afraid of a long-term commitment," said Piotr Kwadrans, a specialist at the mortgage loan department of BRE-HVP. Nevertheless, he said mortgage loans are becoming more popular as there are no other means of finance. BRE-HVP requires a 30% down payment, and loans can be granted in zlotys, dollars and euros. Patterson said that if a person can afford to make a down payment and earns over $1,000 a month, and has a working spouse, they can afford to take out a loan and buy one of his homes.
Many buyers are also looking at luxury housing as an investment for renting. "Many people purchase houses as an investment to rent out to foreigners," Pietraszewski of GTC said. He estimated that this was the case for about 20% of buyers.
Building your own
A key issue for many residential developers is that Poles have a tradition of building their own homes. "It's rooted very deeply," Quigley said. "People think it's much cheaper if they do it with their own hands, but this is not necessarily true." He said it's better to spend a little more money on a ready, solid project than to hustle with construction procedures, workers, building materials, etc. "It saves time and energy," he said.
According to Maciej Nowotny, who owns and runs the Poland Relocation Services real estate agency, Kampinos and Konstancja have special advantages. "Kampinos is unquestionably great because of its natural surroundings and clean air," he said. But he said a drawback is its lack of connections to Warsaw.
Meanwhile, for GTC's Konstancja project, the American School is building a branch close to the development, which has already attracted several expatriates. There are also plans for a country club and on-site shops and services. Both developments will be close to shopping centers.
AIG/Lincoln has sold 80% of the homes in its first phase. The second stage of the project started in March. GTC together with Unikat, a Warsaw-based real estate agency, has found buyers for 50% of the houses of its first phase. Pietraszewski hopes that the new promotion, which includes giving away new cars to tenants, will increase sales. "We offer two keys one to the house and one to an Opel in the garage," he said.
So far, the market has yet to determine if there is demand for such high-end projects. "It's too early to say whether these developments will be successful, but so far it looks promising," Quigley said. He said the market needs diversification, adding that it's a step forward even if it's risky. Quigley said both AIG/Lincoln and GTC are experienced developers and they must have conducted market research before they started. "A good product will defend itself," he said.
According to Nowotny, expectations of both companies might have been higher, but the overall market has recently slowed. Still, he said the projects are well placed and will sell. "The risk is higher, but the profits are too," he said.
For future residential developments, Quigley said standardized low-rise American-style residential areas could become popular. "They're bound to happen," he said, adding that in every market, whether it's office or deluxe apartments, there is a saturation point. "There is a limit for luxurious settlements, too, but apparently it hasn't been reached yet," he said.
