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The Warsaw Voice » Real Estate » March 5, 2008
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In Search of Luxury
March 5, 2008   
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Last year was probably the most interesting of the past decade on the real estate market. It started with a buying frenzy that continued for the first three months of 2007. Prices rocketed in big cities and developers appeared to feel confident that even at astronomical prices, apartments would keep selling like hot cakes forever. Then in the summer they slowly sobered up when it turned out there was a price limit above which demand not only slowed down, but almost came to a halt.

It is estimated that in the fall of 2007, the number of transactions on the real estate market dropped to just 30-25 percent of that at the start of the year. Still, the crisis which many observers had been warning of never came. Prices did cease to soar, and those that fell came down only a little, if at all. Everybody held their breath waiting to see how things would develop.

It is hard to pinpoint what exactly caused the stagnation. To say the prices had shot up to a point where people were no longer able to afford apartments is perhaps the most important part of the truth, but not the whole truth. The unique thing about the real estate market is that you make an investment rather than an ordinary purchase like a car, furniture or an exotic trip. Every buyer hopes their investment will appreciate with time, no matter if the apartment or house they buy is for investment purposes or not. With that in mind, it becomes clear that one of the main reasons for the dwindling demand was a lack of confidence in further price rises.

In January, the fluctuations in prices of real estate differed significantly from one city to another and so it is hard to identify the overall trend in Poland as a whole. In Cracow, the start of 2008 carried on the trends from the last three months of 2007. In January, apartment prices in Cracow dropped by an average of 2.4 percent compared to December. A slight decrease of 1 percent also occurred in Wrocław.

Even though prices stabilized, if not dropped, in the past few months, you might say owners of real estate were feeling very optimistic in January. Contrary to earlier expectations and the months of stagnation on the real estate market, average prices offered by developers increased in most Polish metropolitan areas. The rises totaled 2 percent in Warsaw, 1.8 percent in Wrocław, 0.7 percent in Cracow, 0.8 percent in Gdańsk and 2.1 percent in Gdynia.

January's slight increases in average prices may have been influenced by the situation on the stock market. Investors who had allocated their funds in real estate were triumphant when compared to investors in the stock exchange.

Data for one month is obviously insufficient to beat the drum about another tide of rising prices, especially because the U.S. and British markets for real estate are still sending out unsettling news of plummeting prices and ongoing recession. While there are no direct links between those markets and the real estate market in Poland, the global economic interdependencies as well as a possible shift in the attitude of potential investors make dynamic price rises on the Polish market pretty unlikely.

Unlike the major cities, towns and cities with average apartment prices between zl.4,000 and 5,500 per square meter are showing no signs of the springtime thaw. The prices in Szczecin, Toruń and Lublin remained comparable to those from December 2007, with differences of less than zl.100 up or down. In January, the average price on the secondary market rose the most in Opole (5.9 percent), while the biggest decrease of 3.4 percent occurred in ŁódĽ, making it the cheapest metropolitan area in Poland.

Back in Warsaw, January brought slight increases by 0.1 percent, or around zl.12 per sq m. The Warsaw market has repeatedly proved to be a reliable barometer of changes that occur across Poland, but one month is too short a time to confidently come up with forecasts.

A closer look at how apartment prices vary in different districts of Cracow shows that the average price change (in percent) across the whole city is not a precise indicator of the actual situation. The variations are quite considerable in some parts of the city and for example, an 8.2-percent price increase in the Old Town reflects the specific nature of the neighborhood, where even a handful of very expensive luxury apartments on the secondary market can cause an evident rise in the average price. Prices remained stable in the districts of Dębniki (a slight decrease by 0.3 percent) and Nowa Huta (0.2 percent up), while in Podgórze and Pr±dnik Biały the prices varied a lot (1.3 percent up and almost 2 percent down, respectively). Prices also rose in the Krowodrza district, totaling 0.8 percent since December. The price variations do not reveal any uniform trend in the city as a whole, but they show that forecasts of rapid falls had little to do with reality.

Analyses of the market in Warsaw reveal a steady level of apartment prices. In selected Warsaw districts, the prices in January only changed by around 1.5 percent up or down in comparison to the previous month. One notable exception was the district of Wawer where a rise of over 5 percent occurred. While the prices declined in Mokotów and the adjacent Ursynów district (1.2 and 0.1 percent respectively), they rose in the northern district of Białołęka (1.3 percent) and other parts of the city situated east of the Vistula River. In January, one square meter in Praga Południe cost 1.2 percent more than in December.

Prices in Wrocław and Cracow behaved similarly in the Old Town (Stare Miasto) districts of the two cities. In both Wrocław and Cracow, the districts saw very high price increases, which, however, did not reflect the actual situation on the local markets for real estate. When you look at January price changes in individual districts, you will see the change from the prices in December reached 2.1 percent at the most (Psie Pole in Wrocław). The price variation in Wrocław was thus closer to that in Cracow than Warsaw. A look at the former administrative division of Wrocław shows that prices declined in eastern and southern parts of the city, while the city center and northwestern Wrocław saw rising prices.

Luxury apartments
Luxury apartments in prestigious neighborhoods are still highly popular. Some regard them as a way to invest capital and either wait for the value to further increase or turn them into money-making machines they can rent to business travelers and rich people who do not fancy hotels while staying in a given city for a while. Other people buy such apartments for their own use.

Regardless of whether luxury apartments are situated in a downtown area or a quiet suburb, it is the prestige and sense of high value that matter. The "apartament" tag (used in Polish to mean luxury apartment) is more and more frequently given to apartments with an enhanced standard in newly constructed buildings. Budimex has named its new residential quarter Apartamenty Murano despite the fact that only a small part of the apartments will really have a high standard, costing more than zl.18,000 per sq m.

Another popular category of apartments are luxury residences in old, renovated tenement houses in expensive locations such as Nowy ¦wiat Street in Warsaw, the Main Square in Cracow and the Old Town in Gdańsk. The investor plays the decisive role in such cases. New owners usually buy such apartments for their own use and so the apartments undergo meticulous renovation to match the personal tastes of the owner and interior designer. The apartments seldom end up on the secondary market and so it is hard to estimate their real value, which frequently exceeds the market value. Once you install a jacuzzi and air-conditioning inside a historic tenement and spend zl.500,000 renovating and furnishing your apartment, there is no way getting the money back in case you wanted to sell the apartment, as the price gets too high.

Spectacular projects like Złota 44 in Warsaw attract the most attention. The Orco Group ventured into buying a building at 44 Złota St. only to demolish it and build a breathtaking residential tower on the site. Everything about the building will be expensive, big and modern. Orco is building another two other projects in Warsaw. One of them is Casa Verde and will go up between Rakowiecka and Bruna streets, close to a tramway terminal. This L-shaped residential building, with two six- and nine-story segments, was designed by the Rhode Kellermann Wawrowsky studio. Through gaps between older apartment blocks along Boboli and Batorego streets, the view from Casa Verde will open to the vast green areas of the Pole Mokotowskie park, hence the name which means "Green House" in Spanish. The building will house 102 apartments sized from 32 to 150 sq m. The top floors of the six-story segment will be occupied by penthouses with terraces up to 60 sq m.

Luxury apartments are not exclusive to Warsaw and for example, Opal Property Developments, a subsidiary of Australia's Meydan Group, is building loft apartments in ŁódĽ. The exclusive homes in the historic former spinning mill of manufacturer Karol Scheibler are a hit on the local market. The advertising campaign involved popular actor Borys Szyc and all apartments sold out instantly, long before the first residents moved in. The company will now convert warehouses on Tymienieckiego Street in ŁódĽ into more apartments and service facilities. The developer also owns a historic weaving mill, former power plant and former industrial facilities which used to be part of the Scheibler manufacturing empire. In total, Opal Property is planning to redevelop around 22 hectares of land in the heart of ŁódĽ. The company also wants to invest in Poznań by redeveloping buildings of the former Modena factory in the Jeżyce district.

Another foreign developer in ŁódĽ is Bud Italia. The Italians will renovate a historic bath house at the intersection of Nawrot and Wodna streets and convert it into luxury apartments. The two-story building, constructed in the 1920s, consists of two parts connected with a rotunda. It stood abandoned for many years.

Investing in Polish real estate
"You have to do it with care!" says Robert Chojnacki, president of RedNet Property Group. Before you invest in real estate in this country, listen to forecasts critically and pick property carefully or seek new investment opportunities abroad. After joining the European Union, Bulgaria and Romania were very popular with investors on, but it was quickly obvious that despite a large supply of apartments, real estate prices already started from a high ceiling, which did not give big returns from properties as had been the case in Poland. On the other hand, Poland's close neighbor, Slovakia was forgotten. Today it turns out to be an investment El Dorado. In Zakopane in southern Poland, a square meter costs zl.10,000-15,000 on average, twice as much as in Warsaw and three times more than on the Slovak side. It is obvious that the cost of tourist apartments in the Slovak Tatra Mountains will have to rise. The fact that Slovakia will have the euro next year increases the potential for price rises. That will no doubt contribute to increasing apartment prices in that country.

Of course, there is more to investment opportunities than Slovakia and one should look further afield as well. The RedNet Investor Club recommended its members to invest in Axis Crown in Malaysia. Situated in a prestigious Kuala Lumpur suburb, the development found buyers in no time and the market watched with interest the effect it would have on the Malaysian economy. After the first six months, prices of local properties are 20-25 percent higher than the initial Axis Crown offering and a repeat of this result is expected in the near future. This means that investors who decide to sell the property after completion will have earned at least 50 percent on the investment. These who wait for larger increases will draw considerable profits from rentals, which can cover the cost of credit. The profits can reach even 7-9 percent of the investment value.

Small cities and towns
Developers are increasingly willing to build in small cities and towns, according to Ober-Haus Real Estate Advisors, a real estate consultancy company. The cost of building residential space in small towns is much lower than in large cities, due not just to lower labor costs but also much lower land prices.

One example is Brzeg, where construction and sales of apartments and houses will start in March as part of three new projects. The first is Słoneczna Aleja (Sunny Avenue), a complex on Słoneczna Street offering apartments from 60 to 140 sq m (split-level) and semi-detached houses of up to 200 sq m plus a plot of 500 sq m.

The second project involves the modernization of former barracks on Wileńska Street, creating a total of 11 apartments. The building's assets include tall and bright rooms and a unique brickwork facade.

A new residential building with underground parking spaces will be built on the same street. It will house 15 apartments with modern design, from 40 to 78 sq m, from studios to three-room apartments, each with a balcony. Prices start at zl.3,700 per sq m, gross.

Developers are beginning to invest in small cities and towns, even those with a population of less than 100,000. Poland has many towns where no new houses have been built since 1989, except council housing or homes built by Social Housing Associations (TBS).

The appeal of a given location depends on factors such as the distance from a large city or place of employment. Efficient transportation links with a nearby large city are important. Good locations include Żyrardów near Warsaw, Pruszcz Gdański near Gdańsk and Bochnia and Tarnów near Cracow. The Lofty de Girarda (De Girard Lofts) project in Żyrardów (also handled by Ober-Haus), for example, is located just a 30-minute commuter train ride from Warsaw, or 40 minutes by car.

More and more people are deciding to move to smaller towns, where they can find cleaner air, peace and quiet and a new quality of life. Many local projects offer original architecture, lofts in Żyrardów or the former barracks in Brzeg being good examples. At the same time, housing prices in small towns are often 50 percent lower than in large cities.

Hottest apartments in January

The KRN.pl website reports the most popular advertisement in January was one for a two-room apartment in the Bieżanów-Prokocim district. Potential buyers were probably attracted by the apartment's reasonable price of just over zl.6,000 per sq m as well as the quiet neighborhood. The area is not built-up very densely, which was clearly an asset in this case, as were large green areas and good access to the Wielicka Street thoroughfare. The visitors to KRN.pl were hardly guided by the standard and technical condition of the apartment, as it is situated in a 1970s ten-story apartment block built of prefabricated concrete and offers a moderate standard.

Like in Cracow, the most viewed ad in Warsaw was one for a two-room apartment. Situated on Nugat Street in the Ursynów district (Imielin), it had undergone general overhaul and cost a little over zl.8,300 sq m. The apartment is fully furnished, with a fully equipped kitchen and paneled floors. The standard can be described as good. The average secondary-market price in Ursynów is around zl.9,200, which suggests the price made the offer particularly attractive.

In Lower Silesia, the most popular apartment was a three-room home located in a duplex with a yard, in the Fabryczna district of Wrocław. The apartment is 83 sq m in size and costs almost zl.500,000 (negotiable price). The standard is described as good and the neighborhood as very attractive. The average price in Fabryczna in January was zl.6,763.

K.B. / Source: KRN.pl
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