Rebuilding the market
Now, the government has proposed new legislation to make building procedures simpler and more secure, but while some hail the changes, others are worried it will bog down developers with increased costs.
With demand on Poland's real-estate market still far outstripping supply, the Ministry of Construction has been under pressure to help increase the speed at which projects are completed, by simplifying Poland's construction law. The Ministry has finally unveiled the long awaited-plans and says the proposed changes should make for a quicker construction process by reducing administrative hassle.
"These changes will help to increase a number investments," Andrzej Aumiller, Minister of Construction, said confidently.
Firstly, the proposals would allow developers to construct single-family houses on plots included in the proper spatial development plans, without waiting for construction permits. The proposals also look to clear up current regulations concerning inspection schedules, which developers find inconsistent and confusing. Two technical inspections on all construction projects would be introduced. The first inspection would occur after a project's foundations have been completed, while the second would take place after the entire building has been completed. The review would be conducted by an independent inspector, registered with the Ministry of Construction.
Changes needed
Though some developers have expressed their fears that such procedures will increase investment costs - which would eventually be borne by the customer - the director general of the Polish Developers' Association, Jacek Bielecki, admits that the changes are needed.
"The required inspections are something we can cope with, if they will be done in an efficient way and according to a commonly known timetable," he says. Bielecki even argues that the additional costs could pay for themselves in savings to developers.
"If the process is efficient, then these costs will replace significant expenditures that developers currently bear due to the long period of time spent waiting for supervisory decisions," he explains.
Additional controls
Tomasz Błeszyński, an independent real-estate analyst, is also convinced that the proposed regulations are a step in the right direction. He says developers, pushed by a very high market demand, attempt to build projects as quickly as possible, which can have a negative impact on the quality of a project.
"Additional controls will have a positive effect on Poland's construction and real-estate market and will establish an additional guarantee for customers," he says.
The proposals should give customers a greater degree of peace of mind when it comes to where their money is going as well. Currently, when a customer invests his or her money in a particular project, developers sometimes spend those funds on propping up other projects instead. The Ministry of Construction has prepared a draft law which would create special fiduciary trusts to insure that clients' money is spent as it should be.
"This is not a new solution, since on the North American market this kind of mechanism for consumer protection has been in place for many years," says Błeszyński.
The Ministry proposes creating two kinds of trusts - open and closed. In the case of open trusts, a developer would receive funds only after a particular phase of a project is complete, whereas the closed trust would allow a developer to collect the funds only when the entire project is complete. As a consequence, developers would have to posses their own sources of financing to fund their projects, and costs for customers would increase, as they would finally bear the cost of the trusts' maintenance fees.
"There were suggestions about establishing such a market tool about two years ago, however the industry's feedback was skeptical as developers were concerned about increasing costs of projects," says Błeszczyński. However he emphasizes the advantages of introducing such a regulation in Poland, saying that increased control over the flow of developers' funds is needed, as is insurance for customers that their money will be used properly.
Developers' worries
Still, Bielecki says that any plan forcing developers to pay more for banking services would be detrimental to the industry.
"Using an insurance company could be an alternative that would help in reducing costs, but according to the Ministry's proposal, banks will be given a monopoly on this kind of service."
Błeszczyński maintains that the issue of growing costs is not a problem, as establishing such trusts could improve a developer's reputation.
"[Having such trusts] would prove a company's credibility, as well as help it in receiving loans for its investments, as banks would find such projects more secure," says Błeszczyński. "The issue of increasing costs does not really exist, as commission for such a trust would not be significant."
Bielecki agrees that there is a need to settle the issue of funding security of real estate projects, but the issue should be regulated in a way that would make all market players feel secure.
"The proposed regulation is very tough on developers and deprives them of significance," said Bielecki. "Moreover, I believe that this kind of law should be consulted with all interested parties, which include developers and not only with banking organizations."
