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The Warsaw Voice » Real Estate » January 30, 2008
The Real Estate Voice
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Time of Stabilization
January 30, 2008   
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Jarosław Szanajca, chairman of the Polish Union of Developers and president of Dom Development company, talks to Konrad Bagiński.

Last year developers and the entire construction market were hit by a shortage of construction materials. This was mainly due to an unseasonably warm winter that allowed builders to continue their work on construction sites. This winter has been equally mild. Does this mean we are facing a similar crisis?
Not on such a scale though certain symptoms of "surplus" demand can already be noticed. This year again the winter has not interrupted construction works, but there is no danger of a crisis comparable to that a year ago. At the most there may be a slight increase in building material prices as construction companies have started to respond to temporary product shortages.

Last year ended with a slowdown on the residential market. In your opinion, in what direction will the situation develop this year?
Prices are the best indicator for the market. During the last quarter, they stopped growing. Detailed statistics show that they have been hovering by no more than 0.1 percent either up or down. What's going to happen next? As I watch the market and my own company, I can see there's still demand for apartments. The prices are stable, but it seems that after some time they will start going up. In our company, transaction prices have been growing systematically. After the madness that we witnessed in 2006 and early 2007, a calmer period was inevitable.

Of course, the situation also depends on the local market. Paradoxically, in Warsaw the boom was not as significant. Over the 18 months, prices in the capital grew by some 60 percent, while in many smaller cities the increases were up to 120-130 percent. On these markets, we can expect a bigger correction; the more the prices jumped, the bigger the correction may be. In Warsaw, demand is still strong.

Many analysts compare the Polish residential and construction market to that in Spain several years ago. Spain also recorded a construction boom and rapid price growth. What does this mean for Poland?
After Spain entered the European Union, apartment prices doubled there over four years. Next, the market grew dynamically, and it was a very stable growth. If you compare that situation to what happened in Poland, where prices doubled over just two years, accompanied by a stagnation on the market and rapid economic growth, the present stabilization will probably last around a year-which means prices may go up again in the third quarter.

So the present stabilization should have no major impact on projects being planned or carried out at the moment?
This is what we think, since an investment project lasts several years, not a few months. But of course no one knows for sure. We will see in several months.

Is the shortage of staff-brought about by the massive emigration of Polish construction workers after the country's European Union entry-a big problem for developers?
It is a problem, but not a big one, since companies have learned how to handle this. The companies we work with have invested in professional training, which soon produced results.

Probably we are not in for another big wave of emigration. Wages have grown significantly in the construction sector, and work conditions have improved substantially.

Has the Polish residential market been spurred by financial transfers from those working abroad? Are they investing in apartments back home?
Absolutely. They are certainly investing, but that is difficult to measure since no one keeps such statistics, and we do not know where the money for apartments comes from. The National Bank of Poland analyzes transfers of money from Poles abroad and the ways in which this money can be invested, and these are surprisingly large amounts.

Is Poland still an attractive market for foreign investors? Are foreigners still buying apartments in Poland?
They are less eager to do so now that the market has slowed down. Short-term speculative capital has started to avoid us and went to Bulgaria and Romania instead. Meanwhile, major investors who tend to make long-term investments have become more active.

Will small developers go under?
This reasoning is mistaken. It doesn't matter if a developer is big or small. What is important is whether they manage their business rationally so that slower sales do not lead to bankruptcy. There may be trouble for ad-hoc developers who seek to cash in on the development boom and work according to the rule, "I happen to have a land plot, so I'll build apartments there." Meanwhile, contrary to how it might seem, a developer's business is a very difficult business.

What are the main obstacles to carrying out construction projects in Poland?
First of all, there are too many complicated legal regulations. There are numerous regulations concerning land development, construction law, construction supervision, requirements to obtain permits and official approval. Going through this obstacle course is a real ordeal. The dramatically low quality of work in public administration is another problem. There is a lot of land in Poland, and Poles are excellent workers, and the quality of projects carried out in Poland is the best in Europe. The situation would be ideal if the laws and public administration improved.
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