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The Warsaw Voice » Real Estate » November 5, 2008
RESIDENTIAL market in Cracow
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Time to Negotiate
November 5, 2008   
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Apartment prices are still high in Cracow and the exclusive homes that are springing up all over the city keep pushing up the average price. Individual buyers, however, have more scope to negotiate prices.

Cracow, the main city of Małopolska province, is the second largest city in Poland, and plays a key cultural and economic role in the country. It has a population of 757,000.

For residents and investors
The REAS housing market consulting company estimates that Cracow is Poland's second largest market in terms of the value and number of new apartments. Still, the number of apartments available does not match the needs of Cracow residents. Between 1997 and 2005, the number of new apartments completed in Cracow ranged from 3,000 to 4,500 annually, and the figures changed dramatically every year. That changed suddenly in 2006, when 6,600 new apartments were delivered, breaking the previous record set in 2001 (data from REAS).

Analysts from the Emmerson real estate services company say that in the second quarter of this year, over 160 projects were under way in Cracow, comprising over 18,300 apartments. Most of the apartments are being built in the district of Podgórze, mainly near Gobrzyńskiego, Lubostroń, Chmieleniec, Grota Roweckiego and Bartla streets. Many projects are also under construction in the Krowodrza district. Almost all apartments built in the Śródmieście district are premiums apartments, while standard ones prevail in projects built in Prądnik Czerwony.

Prices on the rise
Apartment prices in Cracow in 2007 rose faster than wages. In the fourth quarter of last year, an average monthly salary was enough to buy 0.38 square meters in an average price apartment in Cracow. In the first quarter of this year, the trend showed some signs of reversal and the ratio changed to 0.43 sq m. REAS reports that since Cracow is a popular tourist destination, the relatively high demand and price increases in 2005-2006 were considerably influenced by those who bought apartments as an investment and as a form of property speculation.

Another prominent trend in Cracow are large discrepancies between the prices of different projects. Despite growing numbers of moderately priced apartments, the Cracow average is being constantly pushed up by premium apartments. According to a report from Emmerson, the average per-sq-m price of an apartment in Cracow in the second quarter of this year was zl.8,780. The Śródmieście district was the most expensive at zl.12,000 per sq m, Krowodrza was close to the Cracow average at zl.8,486, while Podgórze and Nowa Huta were cheaper at zl.7,793 and 6,492 per sq m respectively.

A view over Wilga River
In March, the Budimex Nieruchomości company delivered its Nad Wilgą housing estate, located by the Wilga River in the Łagiewniki district, less than five kilometers from the Main Market Square. Comprising 149 new apartments, the fenced complex sits on Do Wilgi and Cegielniana streets. The residents can stroll along the river bank on a promenade built especially for the project. Only a handful of apartments are still available, and their prices range from zl.7,350 to 8,400 per sq m.

Apartments in prewar tenement houses
Cracow has retained more residential buildings from before World War II than any other major city in Poland. A lot of the buildings, however, fail to comply with contemporary housing standards and need considerable investment. This opens a lot of opportunities for developers who deal with redevelopment.

Verity Development has recently started renovation of a building at 8 Rakowicka St. in the very city center, just 530 meters from the Old Town. The building from 1911 will undergo a general overhaul and parts of it will be enlarged. The second floor will house high-class office space, service shops will be located on the ground and second floors, while the floors above will be occupied by luxury apartments. The entire floor space in the building is 1,930 sq m and if the works proceed as planned, the tenement house will be open for occupancy in the first quarter of 2010.

Towering skeleton
By 2012, GD&K Group and Verity Development are planning to complete the redevelopment of the TreiMorfa tower, formerly known as the NOT building (from the Polish Federation of Engineering Associations, or NOT) and tellingly nicknamed The Skeleton by locals. It is the tallest building in Cracow and is situated on a centrally located 14,000-sq-m plot of land, less than 500 meters from the Kraków Główny railway station, right next to the Mogilskie Traffic Circle near the University of Economics. The investors are planning to convert the property into a complex of multi-functional buildings comprising apartments, modern offices, exhibition space, restaurants, underground parking lots and a sports and entertainment center with a nightclub, swimming pool, fitness club and spa. The entire floor space of the complex will be 60,000 sq m.

The building near the Mogilskie Traffic Circle has a rather turbulent history. The construction of this 92-meter tower started in 1975, and the contractor was the Mostostal company. The 24-story shell was built in four years as a pioneering project in Poland. It was to house a convention center, a section with service outlets, a hotel, and a café with an observation deck. The project was then put on ice in 1979 for financial reasons and despite lots of ideas and designs, the building has stood uncompleted until now.

M.F.


Expectation on the Housing Market
Comment from Mikołaj Martynuska, director of the Residential Department at CB Richard Ellis:

The situation on the housing market in Cracow could be described as replete with a sense of expectation. The market has now stabilized after several years of fast development and rapid price increases in 2005-2006, followed by a fast increase in supply to a record-breaking 6,600 apartments in 2006. In the past two years, the supply has been relatively high, by Cracow's standards, and the number of projects about to be launched remains high. At the same time, supply is being corrected by factors such as a declining sales rate and growing costs of construction and financing. Granted that and the fact that prices started settling at the beginning of 2007, one may expect that developers will be much more cautious when considering new projects. Like in other Polish cities, hardly anyone buys apartments under construction for speculative purposes any more and demand from end users is being met at a much slower pace because of diminishing inflation pressure, anticipation of a correction and growing costs of taking loans. At the same time, the correction of prices of new apartments, anticipated since the middle of 2007, has not occurred yet and instead developers are coming up with all kinds of enticements, such as discounts of several percent, complete kitchen fittings and a free parking space.

The difficult situation on the financial markets around the globe and increasingly expensive financing may keep the demand from households at low levels in the near future. On the other hand, banks are announcing more restrictive policies in granting new loans, which may result in higher interest in buying new apartments before these restrictions take effect. Lower personal income tax rates as of the start of 2009 will boost the real buying power of the public and that too may stimulate the demand among more affluent buyers. Nevertheless, the shaky macroeconomic situation is likely to make people put off their decisions to buy an apartment, making the first half of 2009 a rather tough time for developers. That, in turn, will lead to a decline in supply and thus help the market recover its balance. Companies with a high potential will seek to take advantage of the situation and put new projects on the market in time to coincide with the "supply gap."
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