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The Warsaw Voice » Real Estate » March 5, 2008
The Real Estate Voice
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What's in Store in 2008?
March 5, 2008   
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Experts at the research and development department of Emerson real estate services company outline their views on what will happen this year:

After a rapid rise in real estate prices in Poland's largest cities in 2006 and the first quarter of 2007, spring and summer last year saw a clear downturn in the market.

Prices in both the primary and secondary markets started to fall. A correction to the huge price hikes was inevitable, but it should not be viewed as a market crisis but rather as a natural development phase.

The fundamental question asked by buyers and developers alike is how to interpret the situation and determine the degree of the current correction. In our opinion, real estate prices in Poland's biggest cities will stabilize in 2008.
  • The housing market is a highly individual one. Apart from the law of supply and demand and short-term factors, the Polish market is governed by structural factors such as the need for some 1.5 million new homes. Moreover, the proportion of newly built homes in Poland is small, with just 20 percent built after 1990. Then there are demographic trends. Poland's baby-boom generation is just now reaching adulthood.
  • Housing supply will clearly increase in 2008. We estimate that as many as some 180,000 new homes will come onto the market.
  • In our opinion, there is no danger of a real threat to the Polish mortgage sector. It is true that we are witnessing rising interest rates and that the credit boom has temporarily slowed. The National Bank of Poland hiked interest rates four times in 2007 and intends to continue its current policy in 2008 when rates could rise by as much as one percentage point. However, in the long term further growth in mortgage lending volume is likely. A positive factor will also be Switzerland's stable interest rates. We do not foresee changes to these in the near future.
  • Poland's mortgage portfolio amounts to over 8 percent of GDP, compared with over 50 and even 80 percent for developed markets.
  • With rapid wage rises, taking the market as a whole, the credit worthiness of Poles is increasing.
  • Good forecasts for the Polish economy mean that in all probability we can expect further growth in the mortgage market, albeit not as dynamic as in recent years.
  • We predict that banks will introduce a tighter credit policy for granting mortgages because Poles have few savings and the cost of money in the international market is spiraling upward.
  • In our opinion, the majority of developers offering homes for sale can afford to reduce their prices by a maximum of 10 percent without incurring losses. Such a lower price will cut a developer's margin but still allow for profits.
  • There exists an unfulfilled potential in Poland's housing market, which means that demand for homes has abated only temporarily. The high prices of land and construction mean that developers will not be able to lower their prices by much. The exceptions are only those developers who already own land, having purchased it earlier at a lower price, and who can thus afford to pass on the saving to their customers. But Poland has very few such firms.
  • Based on the current drop in housing demand, the visible reluctance by Poles to purchase until the market situation is clearer and the expected rise in the supply of newly built homes, we believe that 2008 will be a period of consolidation and stabilization of house prices.
  • A possible fall in prices may appear regarding buildings in less desirable locations, where drop in demand is the steepest. The situation in Poland is different from city to city. A drop in prices is likely in those cities where prices spiraled upward the most and where developers are the most active, for example Cracow or the Gdańsk-Sopot-Gdynia tricity area. However, it is worth underlining that a drop in house prices will be just a correction and that in the long term prices will rise again.
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