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The Warsaw Voice » Real Estate » January 21, 2009
The Real Estate Voice
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It's a Buyers' Market
January 21, 2009   
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The financial and credit crunch is forcing developers to come up with unusual promotional measures. Aleksander Skirmuntt, director for new investments at Emmerson Real Estate, talks to Magdalena Fabijańczuk about real-estate prices and rents and the Apartment and House Shop (Galeria Mieszkań i Domów), Emmerson's new initiative to promote residential sales.

What is the situation in the residential real-estate market in Poland? Can we expect housing prices to fall in the coming year?
Prices in good projects, such as in the center of Warsaw and in the Upper Mokotów area, have already stabilized. The value of property in worse locations, with poorer transport links with the center, continues to drop. This is particularly true of areas that were over-saturated during the housing boom of the last few years. One example is the Białołęka district, where the price for a square meter rose to as much as zl.8,000. A correction was inevitable and that is why today the same square meter costs zl.6,000.

During the last few months developers preferred to hide falling prices behind various promotions. A lower price, instead of tempting people to buy, often had the opposite effect. Potential buyers, having seen prices drop, were waiting for prices to drop even further and sales slowed. This is why a better strategy is to keep prices at a medium level but to be prepared for individual negotiations.

How will the crisis affect the number of new projects?
Those developers who had planned big projects of several hundred apartments for this year, have postponed their plans. They have been forced to do so by low housing demand and banks' reluctance to finance such large projects. However, small housing estates, with up to 100 units, are continuing to be built in those parts of the capital that have good transport links.

We need about 18 months to two years before the market has absorbed the over-supply of housing. Today there are some 20,000 apartments for sale in Warsaw alone. Developers are offering 13,000 of these, including 1,000 that are ready to move into. The other 7,000 apartments were previous speculative purchases that are now up for sale. In addition, new projects are coming onto the market all the time.

It is said that a time of crisis is a good time to invest in luxury residences. Is this the case now?
The price of expensive, luxury housing hides a much bigger margin than popular housing and this is why people can expect bigger discounts on luxury property. Wealthy clients continue to regard the luxury-housing market as a good investment for the future. And they are right. If today they purchase a penthouse with a 15-percent discount, they will make on the investment once the economy revives. Without a doubt the present is a buyers' market, and he who has cash, sets the conditions. However, care must be taken not to miss the moment when housing prices cease to drop, just as some speculative investors missed the moment when housing prices ceased to rise. The latter paid a premium and today will either sell without making a profit or may even need to take a loss.

How will the rental market behave in the current situation?
The rental market is starting to revive. If people cannot buy an apartment, because banks will not give them a mortgage, they must rent. They are forced into this situation. We are seeing much activity on the rental market, but despite this, rents, which rose sharply during the last 18 months, have already stabilized and must begin to fall. A potential tenant has a limited monthly budget that they can spend on rent. If they find that they can no longer afford to rent in Warsaw's Mokotów district, they will move to Bemowo, or even as far as Pruszków or Żyrardów. They will travel to work or study if they are unable to rent something nearer for a sum that they can afford. This is not a forecast because it is happening now. Apartments in good locations are standing empty because they are too expensive.

The rental market reacts much faster to a drop in demand and this is why I expect a correction in rents-especially as the supply of property available for rent will also increase in the near future. Many developers, wishing to ride the credit crunch, will complete and rent out their apartments. The cost of the actual real estate, and also the cost of its finishing, is lower for a developer than for a buyer. This is why a developer can offer competitive rents. Investment funds and property owners who purchased speculatively and did not sell in time will also put up their apartments for rent.

Developers are offering free extras such as garages, storage areas and kitchen fitting to tempt buyers. What kind of promotions are you suggesting your clients should employ?
Housing prices stabilized and sales slowed in mid-2007. Developers started to spend more on advertising in a bid to sell at the then going prices. By the end of 2008 demand had weakened so much that even increased spending on marketing was not helping. Developers then did the opposite and started to cut advertising budgets. But this is also not a good solution because in this sector if you do not advertise, you do not exist. So we proposed a new promotional idea to our clients. We created the Apartment and House Shop. In our office at 35 Wspólna Street we advertise numerous projects. Several developers share the cost of advertising the Shop in the media and thanks to this we are running a proper advertising campaign in the press and on radio and television.
Today a buyer is no longer under pressure for fear that housing will become more expensive and, as a result, real-estate sales agencies' biggest problem is to get potential buyers through the door. The Shop is designed to give clients the maximum benefit from a visit to 35 Wspólna Street. There they will find details of apartments and houses for sale throughout the whole of Warsaw. The Shop's staff can also advise on credits, investments and legal matters and opportunities for purchasing turnkey apartments and houses. Even if a Shop visitor has already chosen a bank or architect, they can look for free at other offers even if it's just for the sake of comparing prices.

How did you manage to persuade competing firms to have their projects advertised in the same place?
One of the assumptions is that projects advertised with us cannot be competitors, especially with regard to location. Developers can themselves ensure that their projects are competitive with regard to price or other added value. However, what is most important is to give a potential client information and this is exactly what we do. Real-estate market investors are finding it harder and harder to promote and sell their projects. Thanks to combined effort and a joint advertising campaign via the Shop, developers can reduce their marketing budgets somewhat and at the same time reach a greater number of potential clients.
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