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The Warsaw Voice » Real Estate » February 4, 2010
The Real Estate Voice
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Banks Should Stop Vicious Circle
February 4, 2010   
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Demand has to pick up and banks must start lending money to buyers before developers start new projects, Jacek Bielecki, chief adviser to the Polish Association of Developers (PZFD), tells the Voice's Magdalena Fabijańczuk.

What will happen to the prices of homes this year? Can buyers still expect a drop?
Prices of homes are a secondary issue and depend on factors that are difficult to measure and predict, for example prices of building materials, building services and land, and the ratio of demand to supply. While we are able to predict the prices of building services to an extent, the costs involved in buying building plots are currently much more difficult to assess. The most unpredictable, however, is the ratio of demand to supply and here we are still waiting to see what banks will do. At present, the situation on the residential market depends largely on banks. Meanwhile, the financial sector is itself uncertain what state it is in and is sending out mixed signals. One day they say that the number of loans will go up by 50 percent compared to the previous year. The next day banks say they prefer to rein in lending and stay on the safe side, even if that means lower profits.

But shouldn't the reduced costs of building materials and labor lead to a drop in home prices in the long run?
Cheaper materials and labor may have an impact on the prices of homes on which construction will start in spring. But such projects will be few and they will not have any significant impact on the market.

So what's the advice for prospective buyers: buy or wait?
2010 is a good time to buy. If homes get cheaper at all they will do so now. By the end of the year developers will have adjusted to people's purchasing power in Poland. By December everything should be clear. The situation on the market should be evident by that time.

Is the reappearance of order on the market a sign that the crisis is ending?
There was no crisis on the real estate market. We saw a slowdown but not a recession. The market did not collapse and there were no mass bankruptcies. Developers have emerged from the past year or so in a stable way and with good prospects for the future. And it should be noted that Polish investors behaved differently than in most of Europe. They reacted flexibly to signals of a slowdown-they immediately stopped all new projects. The first of the new projects were launched only in the last quarter of 2009. More starts are planned in the second quarter of this year. But I would like to see the amount of these kept as small as possible.

Why? Don't you think that new projects drive the economy?
Of course I like to see new projects, but it is important to have the right sequence of events. Demand has to pick up first. The attitude of banks has to change and this should be reflected not only in what they say, but also in what they do. If banks start lending money to buyers, developers will certainly meet the demand, coming up with a larger number of new projects.

Isn't it true that buyers don't have much to choose from at the moment because new projects were frozen over the last year or so?
In Warsaw, there are around 1,800 completed apartments available to buy. That's a lot, although it is clear that these are not the most attractive apartments-otherwise they would have been sold earlier. There is a shortage of small apartments up to 50 sq m. Why? Because three years ago people had access to loans and wanted to buy larger apartments. And such apartments were being built. Meanwhile, it takes around three years to prepare a project and two years to carry it out. This amount of time is needed to plan and build new homes.

Warsaw's suburban areas could provide an alternative if they were well connected to the capital. Unfortunately, they are not. For example, in a town like Piaseczno, to the south of Warsaw, home prices are lower and you can find quite a wide selection of smaller, two-room apartments there. But that does not help because the authorities don't feel the need to improve public transport from these towns to Warsaw. I think the problem is simply their lack of willingness.

Whether we call what happened last year a crisis or slowdown, 2009 marked a turning point. What lasting changes did it precipitate on the residential property market?
A new rule is that no developer will dare to start a project if they have not secured external funding. This is about lenders again. With their procedures, banks have created a vicious circle. A developer seeking funding to start building a housing estate is required to prove they have sold up to 30 percent of the apartments. But the same bank will refuse a home loan to a prospective client if at least 30 percent of the project has not been carried out. Additionally, even if the developer gets the loan, the contract includes dozens of clauses the bank may use to withdraw funding at any stage of the project. This has to change. After an investor has received funding they have to be sure that they do indeed have the money and can use it to build.
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