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The Warsaw Voice » Real Estate » May 28, 2008
The Real Estate Voice
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CEPIF 2008: Real Estate Fair a Success
May 28, 2008 By Michal Jeziorski   
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The fifth Central-Eastern European Property and Investment Fair, CEPIF 2008, held in Warsaw May 14-15 proved a success. Although it lasted only two days, the exhibition confirmed and strengthened its leading position among real estate events in the region.

CEPIF is the largest property and investment fair in Central and Eastern Europe, not much smaller than Expo Real in Munich or Real Vienna. It is an excellent venue for establishing new contacts and an opportunity to take part in lively discussions and listen to experts talking about their fields of expertise at numerous conferences. This year, the event drew hundreds of developers, real estate agents and administrators, investors, local and regional authorities, architects, financiers, lawyers, engineers and analysts-all of the market's leading players. During the two days, more than 100 exhibitors showcased their latest proposals. These included leading companies active in the region, rapidly developing cities, and even whole countries. Exhibitors were most interested in setting up large stands enabling them to arrange the space with great flexibility. The biggest stands included those of the Russian Federation, the City of Warsaw, the City of Cracow, and a Spanish architectural studio debuting in Poland, Giner & Bono Arquitectos. Large stands were also occupied by Grupa Kapitałowa Salwator, Metropolis Nieruchomo¶ci Komercyjne, Jones Lang LaSalle, Verity Development, Wings Development, PKP SA Biuro Nieruchomo¶ci and GOS mbH as well as the Association of Polish Cities, the Lubuskie Province Marshal's Office, and the Wielkopolska Enterprise Development Agency.

CEPIF owes its growing popularity among real estate professionals primarily to its broad formula, which encompasses not only a commercial trade fair for professionals but also specialist conferences and seminars on various topics. Many of the meetings involved fierce though substantive disputes between speakers, allowing participants to gain an insight into the full spectrum of real estate experts' opinions. As before, this time too the CEPIF Conference boasted a roster of high-ranking speakers.

The first day of the CEPIF 2008 Conference was devoted to describing the situation in the leading segments of the regional real estate sector: residential (chair: Robert Chojnacki from the redNet Property Group); office (Brian Burges from Savills); warehouse (Tom Listowski from CB Richard Ellis); hotel (Alister McCutchion from Jones Lang LaSalle); and retail (Renata Kusznierska from DTZ).

On day two, the speakers focused on issues related to sustainable development (presentation by Claire Lowe from BRE Global and a discussion with Aleksandra Zentile-Miller from Chapman Taylor International Services as the moderator); strategies for investing in the region (discussion with Przemysław Kozdoj from Allen & Overy, A. Pędzich law firm as the moderator, presentation of the point of view of British investors by Neil Lewis from the Visium Group); and strategies for investing further afield (again Chojnacki from the redNet Property Group); and Poland and Ukraine's preparations for the European soccer championship in 2012 from the real estate sector's perspective (Alex Kloszewski from Colliers). There were 14 seminars that allowed participants to expand their knowledge on selected issues currently at the focus of interest of the real estate community.

Demand still high
The most popular event was a conference on the prospects of the residential market's development in Poland, prepared by Robert Chojnacki, chairman of the board at the redNet Property Group. While the peak bullish period on the residential market may be history, conference participants said, the market is likely to continue to grow rapidly at least until 2014, especially when measured with the number of completed housing units. The highest profits will be recorded by developers from the luxury apartment segment, while problems are in store for those whose expensive apartments only pretend to be luxurious. Demand for new apartments depends on several factors. First, there are needs, and these will be impossible to meet over the next few years-because the country is about 1.5 million housing units short today.

When it comes to housing, the average saturation level in the European Union is just under 500 apartments per 1,000 residents, whereas the figure for the Polish city of Wrocław, for example, is just 372 apartments. This is slightly more than in Cracow and Poznań, and far less than in Warsaw (414) and the Tricity of Gdańsk, Sopot and Gdynia (392). Second, there is the financial capacity required to satisfy the needs. Third is the willingness to satisfy them. Needs should be understood in a broad sense-as both the purchase of an apartment for oneself or one's close relatives, and the purchase of an apartment as an investment. The baby boomers born in 1974-1984 will be interested in buying their first home. After that, unless foreigners start thronging to Poland, society will inevitably age, leading to a market slump. On the other hand, in a longer-term perspective, the low quality of housing will play an important role; replacement demand will grow, as the life span of old prefabricated concrete apartment buildings is limited.

Popular-standard apartments at affordable prices will be an attractive segment. Unsatisfied housing needs are a sufficient guarantee that such projects will be a success, even with growing supply. In the future, problems will start with selling expensive homes of poor quality, from the middle segment (usually in quite good locations), unjustifiably called luxury apartments. The market will verify the quality of these overpriced products, and their prices will fall. "Until now buyers snapped up everything straight away because prices were going up month by month," Chojnacki said. "Now buyers will start paying much more attention to the quality of a facility: its location in terms of geographical directions, sunlight, views or functionality. This will be true mainly of premium-class buyers. Developers will make the biggest profits in the segment of luxury apartments meeting the requirements of buyers who will be more discerning and demanding." In 2002, when the Polish real estate sector was going through yet another in a series of slump years, redNet predicted a boom that was supposed to peak in 2006-and that's exactly what happened.

Time for luxury homes
Despite relatively high housing prices, there are segments that are still largely underpriced. This is not the segment of the cheapest real estate, but exactly the opposite-luxury apartments. The development of the luxury home market in Poland began in the late 1990s, when the standard of many new buildings significantly exceeded that of the popular segment, both in terms of finishing and price. The first such projects were built in Warsaw, the city that usually defines the development trends of the Polish real estate market, and then gradually started appearing in other cities popular among foreigners, such as Cracow, Wrocław, Poznań and the Tricity. At the same time, the lack of a precise definition of a luxury apartment meant that the differences between segments became blurred, with developers abusing the term in order to justify the high prices of the homes they offered. As a result, some estimates say the luxury apartment segment accounts for about 10-15 percent of the market involving new residential space. If we take the proper requirements a luxury home has to meet in terms of the standard of the building and the apartment itself, then the share of luxury apartments in most cities will not exceed even 1 percent of the market.

This means that the needs with regard to living in luxurious surroundings are still unsatisfied. The question remains open if Poles will be able to afford a genuine, and thus expensive, luxury apartment.

Analysts say that societies around the world are becoming increasingly affluent. Though the salaries of top-ranking employees in Poland are still lower than those in countries at a higher level of development, they are growing all the time. Analysts at the redNet Property Group say that luxury apartment prices in Poland would have to increase by about 198 percent for their accessibility to drop to the level observed in Britain. Though the prices of luxury homes in Poland are much higher than the average price of housing, their potential for growth has yet to be exhausted.

Where to invest
Some experts say that people should postpone buying a home because prices will drop. No great reductions should be expected, however. Over the past year 80 percent of newly completed apartments were located in six conurbations-Warsaw, Cracow, Poznań, the Tricity, Wrocław and ŁódĽ. Today investors are focusing on smaller towns as well, those with a population of 100,000 to 500,000. It may be worth considering an investment in cities such as Lublin, Koszalin, Bydgoszcz, Toruń or Gorzów, which today are relatively cheaper than the largest cities but where prices could well go up in the future. An equally good investment could be to purchase land, but primarily in smaller localities, for instance within a 30-km radius of a large city. Apart from construction plots, there is growing interest in farmland. Buyers are counting on the status of the property being changed from agricultural to residential, which would increase the value of the plot. The price difference is in fact enormous. In ŁódĽ, for example, one square meter of a construction plot costs about zl.350, dropping to zl.120 in localities near ŁódĽ, whereas the cost of buying an agricultural plot is about zl.20 per square meter.

Polish investors wanting to make money on real estate are increasingly eyeing attractive locations in other countries. As Chojnacki said, "Bulgaria and Romania were very popular among investors after European Union accession. It quickly turned out, though, that real estate prices were initially quite high when the supply of housing was low, so the return on real estate was not as good as in Poland."

Meanwhile, Slovakia could become a veritable El Dorado for investors. Last year this country had the highest economic growth in all of Europe, at over 14 percent. This fact cannot go unnoticed. Next year Slovakia will be in the euro zone, which is sure to raise housing prices. Localities attractive to tourists are especially recommended. In Poland's most popular mountain resort of Zakopane, the average price per sq m of residential space is zl.10,000 to zl.15,000. In an attractive Slovakian tourist destination you can find a 40-sq-m luxury apartment for about zl.6,200 per sq m. Prices for tourist apartments in the Slovakian Tatra Mountains are bound to grow. Other recommended investment options include Turkey, Egypt, India, Brazil and Ecuador. That's what the free market and globalization is all about-the whole world is open to investors.
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