Record year for residential developers

The residential market is doing better than ever: stable prices, record sales. Can the success of 2014 be repeated this year? Or was it just a one-time thing? By Beata Socha Last year proved to be one of the best years for the Polish residential market. Sales figures surged for most developers, even those that had seemed to be in serious trouble only a year earlier. Prices increased only marginally over the past year, which makes market players hopeful for the future of the market. As many as 11,200 apartments – a record high figure – were sold in Q4 2014 in the top six residential markets in Poland (Warsaw, Kraków, Wrocław, the Tri-City, Poznań and Łódź). Throughout the entire year, 43,000 newly-built apartments were sold in the six biggest markets, which is 20 percent more than the previous records in 2007 and 2013, according to residential real estate research firm REAS. “We can see three kinds of clients now. There are the newcomers, that is, people who are looking to buy their first apartment. There are also those who are looking to upgrade their current living conditions. They put their plan on hold during the crisis but are now back in the game. And finally, there are well-to-do people who buy apartments as a form of investment. They have been on the fence too, waiting to see if the market has reached its bottom, and now they are likely to start buying again,” said Arie Koren, CEO of developer OKAM. Demand drivers Yet, one cannot discard the two major underlying factors for the increase in apartment sales last year. First, the launch of the government subsidy program MdM (“Apartments for the Youth”) in January 2014 drove up sales of apartments, particularly in cities where the imposed price ceilings were more or less on par with market prices. The program’s introduction in January increased sales in Q1 2014, as “in cities, where MdM price limits were especially favorable, some buyers put their investments on hold in 2013 and made the purchase in the first quarter of 2014,” said REAS president Kazimierz Kirej-czyk. The second main driver shaping last year’s residential demand was the “S” recommendation, which is gradually decreasing the maximum loan-to-value ratio (in 2014 it was 95 percent and starting 2015 it is 90 percent). This prompted clients with less than 10 percent of the price to purchase an apartment by the end of 2014. “Such an extraordinary coincidence will not happen again. We expect a drop in the number of transactions compared with 2014,” said Kirejczyk. “The situation should start improving in the second quarter of the year, especially if the price ceiling in the MdM program continues to rise in Warsaw, Wrocław and Kraków.” Developers’ view Developers seem prepared for the revival of the market. Last year, they introduced 47,500 apartments to their sales offer in the six largest markets, nearly 50 percent more than a year earlier. They are also planning ahead – during the first eleven months of 2014 they launched construction of 64,300 apartments across Poland (33 percent more year-on-year) and obtained permits for another 70,700, a 41.2 percent increase y/y, according to preliminary data compiled by statistics office GUS and cited by REAS. What could stir things up is the new regulation that is currently being prepared. The new law will shut down escrow accounts for developers, which means that they will not have access to money paid from bank loans until the apartments are delivered. Currently, developers receive the financing in portions, after each stage of the construction is completed. This could prove to be a hardship for smaller developers, but even the larger ones might decide to start building their investments sooner, before the new law kicks in. “The offer will once again increase unreasonably quickly, and if demand starts to waver at the same time, it could put pressure on prices,” Kirejczyk explained. Better investment What also increased last year’s sales figures was the number of apartments purchased as a form of investment. “Record low interest rates, stable prices and rents make renting out an apartment more profitable than deposits or other safe investments,” he added. Analysts from domiporta.pl say that the return on such an investment increased quite significantly over the past year and now stands at some 4.33 percent, significantly more than interest rates on bank deposits (currently up to 3 percent) and treasury bonds (2.43 percent). Investors can get the highest return in Gdańsk (4.82 percent), while an apartment in Warsaw brings in 4.47 percent of net profit (after tax and all fixed payments and assuming that the apartment remains vacant for 1.5 months each year). “Small apartments are considered a safe investment because the purchase price is one of the lowest, while the liquidity of such an apartment is high, so if there are any problems, you can sell it fast,” said Maciej Górka from domiporta.pl. Those interested in buying apartments for rent must however be aware of the growing competition on the market. The state Apartments for Rent Fund has earmarked PLN 5 billion for entire apartment blocks in major Polish cities. The fund has already purchased its first property – an apartment block in Poznań with 124 units. Once investment is completed, the fund will have between 2,000 and 5,000 rental apartments at its disposal. These apartments will be rented out below market prices which may in some areas lead to a slight decrease in rent rates. However, some claim the fund will also lead to an increased interest in renting out as opposed to buying apartments. Compared to Western Europe, Poles are still reluctant to live in rented apartments and prefer to buy instead.