We use cookies to make sure our website better meets your expectations.
You can adjust your web browser's settings to stop accepting cookies. For further information, read our cookie policy.
IN Warsaw
Exchange Rates
Warsaw Stock Exchange - Indices
The Warsaw Voice » Real Estate » January 7, 2009
You have to be logged in to use the ReadSpeaker utility and listen to a text. It's free-of-charge. Just log in to the site or register if you are not registered user yet.
The Driving Force Behind Poland's Economy?
January 7, 2009 By Andrzej Ratajczyk   
Article's tools:

The ongoing financial crisis led to the postponement of many construction projects in Poland last year. Will the Polish construction industry sink further into recession this year or could it become the driving force behind the economy?

The Polish construction industry did not fare well in the second half of 2008. After several boom years, the construction market visibly slowed, which resulted in fewer housing completions.

According to Poland's Central Statistical Office (GUS), the number of housing completions fell in November 2008 by 18.2 percent compared with October, and by 6.2 percent compared with November 2007.

Despite worse results in the last few months of 2008, the whole of last year was not bad. In the first 11 months of 2008, a total of 134,802 new housing units came onto the market, or 15.7 percent more than in the same period in 2007. However, the outlook for the residential construction sector for the next few months is not that good. People are not rushing to buy property because of what is happening on the financial markets, and thus developers are halting many projects and are having problems with selling housing that has already been built.

Experts say it will become increasingly difficult to obtain bank loans. Banks, because they are working in line with directives from their foreign head offices, have introduced credit limits for whole sectors. It is possible that a limit will be imposed on loans for the construction industry this year. This would result in the postponement of some projects.

Credit restrictions would affect the residential construction sector the most. Those investors that are pressing ahead with their projects despite the crisis could stand to gain.

Experts say that the crisis on financial markets will probably slow down the sector's development. This means that production in the construction sector will grow by 15 percent year-on-year and not by the 20 percent that was optimistically predicted several months ago. According to the experts, this difficult situation could be improved by restoring trust in banks. Banks must be more willing to lend to both businesses and individuals. Perhaps the answer is a guarantee fund that would stabilize the market.

A decrease in housing demand also has its advantages-lower prices. In the next few years the price of much new housing will continue to fall. According to a report from analysts PMR, prices fell by some 10 percent on average in 2008. The residential real-estate sector in Poland is expected to grow until 2010 on a wave of high sales volumes on the primary market in 2006-2007, which will result in an increase in new housing, according to PMR. The analysts also say that the current problems faced in selling new housing units will force developers to cut back on planned projects, which may result in a distinct reduction in the number of housing completions from 2011 onward.

According to PMR's data, in 2008 housing completions numbered almost 170,000, a figure that is expected to rise to more than 200,000 in 2010. Because of falling demand, many developers will soon decide to postpone planned projects, but this will not adversely impact the number of housing completions until 2011.

"In 2008, developers for the first time completed more housing than private investors," says PMR building sector analyst Bartłomiej Sosna, the author of the firm's report. "In the long term, this trend in the construction industry will clearly strengthen, particularly after the end of the slump in the primary market."

According to Sosna, with supply outstripping demand, the price of the majority of housing will continue to fall in the next few years. Transaction values for the whole of 2008 fell by some 10 percent. Keeping in mind the high price of land, labor and construction materials, as well as rising inflation, it is unlikely that housing prices will suddenly fall by over 20 percent since this would pose a threat to developers' margins, Sosna says. "Such discounts would only be possible on individual units that are badly laid out or are the last remaining within a given location," he adds.

Large firms were the worst affected in the last construction-industry recession that took place in 1999-2003. Small firms were able to ride out the recession better since they could get involved in much smaller housing projects. According to market experts, it is now the big firms that are in a much better situation because they can depend on infrastructure projects, such as roads, which are co-financed by the European Union. Meanwhile small firms are already feeling the results of the financial-market crisis because developers are postponing projects.

Prof. Zofia Bolkowska, who works at Warsaw's University of Management and Law (WSZiP) and is a member of the Polish Construction Industry and Trade Chamber (PIPHB) says, "In truth the construction sector remains relatively highly profitable, but the number of firms in the red is increasing. Already one in four polled businesses are not making a profit."

But the construction sector is not just about housing, says Bolkowska. Infrastructure and road projects are now the driving force behind the sector. The construction industry is facing a huge challenge tied to the Euro 2012 soccer championships that Poland is hosting together with Ukraine. Poland must have not only roads but also stadiums and hotels.

According to Helena Wasilewska-Trenkner, a member of Poland's Monetary Policy Council (RPP), one of the conditions necessary for attaining the target for GDP growth in 2009 is the rapid commencement of infrastructure projects and other undertakings related to Euro 2012. Previously these investment plans encountered problems because of a shortage of construction companies capable of carrying out the work but now these problems should disappear, Wasilewska-Trenkner says, because of a slump both in the construction sector abroad and on Poland's housing market.

The postponement of many construction projects carried the threat of a sudden rise in job cuts. But this is not yet happening. According to the latest forecast from recruitment firm Manpower, in the first three months of 2009 employment in the Polish economy could rise by 12 percent. The months after that will show if Poland is immune to the crisis or whether it will be affected later on. Interestingly, the construction sector is the most optimistic, according to Manpower, expecting a 23-percent increase in employment in the first three months of 2009.

Poland's largest construction firms have set their sights on infrastructure projects. Poland's regional development minister Elżbieta Bieńkowska recently said that Poland would be spending the funds allocated to it from the European Union budget for 2007-2013 faster than in the past. Bieńkowska said the 67 billion euros that Poland has at its disposal are funds for investment, and the whole sum is earmarked for boosting the economy. It is now a matter of "absorbing this money into the economy quickly" and using it for public projects because this is also a way of "improving the situation" in both the construction industry and other sectors, Bieńkowska said.

According to the Gdańsk Institute for Market Economics (IBnGR), in the next few years the construction sector will remain the fastest developing segment of the Polish economy, though it will grow at a slightly slower rate than earlier expected, and domestic demand and investment will boost this growth. Added-value growth in the construction sector will measure 12.5 percent in 2008 and 8.9 percent in 2009. Experts warn, however, that the financial crisis may become a significant threat to construction-sector development, which is partly financed by bank loans. "Limits posed on the supply of loans and difficulties in obtaining them could reduce demand for building services, particularly in residential and industrial construction," says the IBnGR.
© The Warsaw Voice 2010-2018
E-mail Marketing Powered by SARE