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The Warsaw Voice » Real Estate » August 2, 2010
WARSAW RESIDENTIAL MARKET
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New Deal
August 2, 2010   
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A host of new and original housing projects are under development in the Polish capital. Developers and buyers are increasingly active, tired of the uncertainty caused by the latest financial and economic crisis. Everyone is waiting for the market to stabilize. Will it? It is anybody’s guess right now.

The price expectations of sellers and buyers have converged significantly; sales have reached a constant, satisfactory level; banks have liberalized their lending policies; and new housing projects are better thought-out and adapted to current buyer preferences, according to analysts from redNet Consulting.

Boom, crisis, what next?
Last year saw developers halting many ongoing projects and waiting for a better time to start new ones. Many apartments in Warsaw were still waiting for buyers, but on the other hand buyers—even those with money or the necessary credit rating—were waiting for their dream home. How was this possible? It’s simple: supply diverged from demand. During the earlier boom, developers built many housing estates for speculative buyers, those who did not buy apartments to live in them but to sell them at a profit. When the speculative market collapsed with the coming of the crisis, these homes were left unsold. Quantity-wise the supply was high, but things were much worse when it came to quality.

There was another problem as well. Before 2008, when banks were easily prepared to credit 100 percent or even more of an investment project, the average person could afford a bigger apartment, so bigger apartments were built. Meanwhile, the latest study by Home Broker shows that in Warsaw today, buyers look for apartments with an average area of about 50 square meters (on the primary and secondary markets), more than half of the prospective buyers want a two-room apartment and plan a budget of about zl.380,000 for it.

We have seen a boom, then a crisis, what’s next?

“The crisis was a bucket of ice-cold water for everyone: for agents forced to seek savings and find new sales channels; for buyers who hit a wall trying to buy homes; for developers forced to reduce instead of raising prices and to face up to the problem of growing costs of loans and unsold apartments,” says Aleksander Skirmuntt, member of the board at Emmerson real estate agency. “In October and November 2008 it was very hard to believe economists when they said that what goes up must come down, what comes down must go up. We can see now that they were right. There is talk of a second wave of the crisis, access to loans is still not easy, but everybody’s fed up with the crisis and now developers want to build while clients want to buy.”

More stable, no more discounts
The number of apartments on offer has started to rise again. Supply at the end of the second quarter this year stood at 15,656 units (source: Reas). Developers are starting new projects and want to sell their apartments—as they did before—at the “hole in the ground” stage. This is where the banks are saying stop; they refuse to lend money for a hole in the ground. Most of them agree to lend for homes at the “building shell” stage.

The most expensive districts are still Śródmieście, Mokotów and Ochota. According to the tabelaofert.pl web service, in the past six months an apartment in Śródmieście cost an average zl.14,000 per sq m, and an average of zl.10,000 per sq m in Mokotów and Ochota.

New apartments in Warsaw can also be had on the secondary market. Investors bought whole packages of apartments during the boom, before 2008. Average asking prices on Warsaw’s secondary market, according to Emmerson’s analyses based on data about offered units from the Gratka.pl portal, were as follows in April: over zl.14,000 per sq m in Śródmieście, zl.12,000 in Mokotów and zl.11,000 in Ochota. Asking prices are starting to draw level with transaction prices; nobody is offering discounts of over 10 percent—the most persistent negotiators manage to wrangle a few percent.

Analysts differ in their opinions on how housing prices will behave over the coming months. Skirmuntt says that as long as banks liberalize their policies, prices will go up. “Everybody says prices won’t rise because after the lesson of the crisis, developers will prefer to earn less but more safely—sell more quickly for a lower price,” he says. “I think, though, that everybody will soon forget the crisis and the desire for profit will prevail. Of course, we need to remember that not only developers influence prices, but plot owners and construction companies as well.”

Unpopular districts
Home Broker’s data on buyer preferences over the past year show that more than 17 percent of buyers wanted to buy homes in the district of Mokotów, more than 12 percent in Ursynów, and in excess of 8 percent in Praga Południe.

A different survey was carried out by Metrohouse real estate agency chain among its consultants. Analysts asked which Warsaw districts are most often rejected by people looking for an apartment on the secondary market. It turns out that Varsovians most often say no to Białołęka (57 percent). The main reasons are problems with getting to the city center, traffic jams and also the low prestige associated with living there. Incentives to buy homes there, on the other hand, include lower prices and a wide choice of apartments completed in the past few years. All this means that transaction turnover in Białołęka remains substantial.

Second place (52 percent) among unpopular districts went to Ursus, followed by Praga Północ (50 percent). A good location in terms of transportation, small distance to the city center and a diverse range of homes on offer are not factors that prospective buyers appreciate in this case. What wins are age-old stereotypes and the fact that these districts are widely believed to have higher crime rates than other areas of Warsaw. Would-be buyers are also put off by the poor condition of many buildings.

Varsovians still love Mokotów
This brief review of new projects has to start with Mokotów. Many Varsovians dream of living there and this is a long-lasting trend. The district not only has excellent transport links to the city center—buses, trams, the metro, but also lots of greenery. Many major institutions and embassies have their headquarters there. In Mokotów, you can choose to live in a luxury apartment, a villa, a prewar tenement house, but also a prefabricated concrete apartment block. One thing is shared by all real estate in Mokotów—high prices.

In November 2009, developer Eco Classic began the fourth stage of its biggest Warsaw project, the Hubertus estate at 1 Obrzeżna St. This new phase will deliver about 170 apartments ranging from 30 to 113 sq m in size and scheduled for completion in the first quarter of 2011.

In all, the six stages of the project will deliver a total of 1,200 or so apartments. Phase one, with 176 apartments, was completed in September 2008, followed by phase two with 270 apartments in August 2009. Phase three, with 162 apartments, was finished in the first quarter of this year. Prices in the project’s fourth stage range from zl.7,747 to zl.9,481 per sq m.

Early this year, another developer, Ghelamco, began work on its Woronicza Qbik project at the intersection of Woronicza and Racjonalizacji streets. The planned 350 apartments—183 two-story lofts and 167 single-story apartments—should be ready in 2012. The investor has planned homes of diverse sizes: from 32 to 206 sq m. Prices start at zl.8,500 per sq m.

Another company investing in Mokotów is Layetana Developments, the developer behind the Mozaika Mokotów estate on Cybernetyki Street. Stage one of this project consists of two seven-story buildings with 143 apartments and 14 service outlets. The developer will offer apartments ranging from 37 to 115 sq m for an average price of zl.8,500 per sq m. Completion is planned for late 2011. Layetana Developments Polska plans up to 800 apartments on its plot.

Office buildings redefine Wola
Many housing developers have chosen the Wola district whose assets include proximity to the city center and good transport links. Wola is changing, also thanks to investors building office premises there as an alternative to Śródmieście and Mokotów.

One of the largest residential estates in Warsaw will be built between Sienna, Kolejowa and Przyokopowa streets. The estate, called 19. Dzielnica (19th District), with 1,500 apartments, is scheduled to be completed late next year. Apartment sizes will range from 30 to 113 sq m, priced from zl.9,000 to zl.12,500 per sq m. The estate will also include stores, restaurants, promenades and green areas. Glazed walls will be a special feature of these apartments. The design of the estate, whose buildings will range from six to 10 stories in height, was the work of JEMS Architekci; the investor is Pro Urba.

Atlas Estates is also investing in Wola. This developer recently obtained an occupancy permit for stage two of its Capital Art Apartments and began handing the apartments over to their owners. At the same time, the company is starting the third and final stage of the project at 4 Giełdowa St. Plans provide for two nine-story buildings, D and E, with about 250 apartments and 12 service and office premises. Apartments will have from one to four rooms and will range from 33 to 123 sq m in size, including 10 penthouses. The project will be completed in 2012.

Bouygues Immobilier Polska is also shooting for 2012 as the completion deadline for phase one of its Villa Arte project on Jana Kazimierza Street. The whole project comprises three complexes of buildings with more than 700 apartments totaling about 45,000 sq m in area. Apartments will range from 24 to 88 sq m. The average price per sq m at Villa Arte is zl.7,500.

Life moves to Praga
The Praga Południe district has a population of over 183,000, second largest after Mokotów. It is made up of nine neighborhoods: Gocław, Gocławek, Grochów, Kamionek, Kępa Gocławska, Kozia Górka, Olszynka Grochowska, Saska Kępa, and Witolin. Praga Południe appeals to Varsovians seeking peace and quiet, greenery and, in the case of some of its neighborhoods, Gocławek for example—low-rise buildings. This is a section of the district where many “infills”—or projects designed to fill a gap between existing buildings—as well as small buildings with just a dozen or so apartments are built. Examples include projects by Egrib, a company that will complete a freestanding four-story building with an underground garage at 18 Wiarusów St., near Olszynka Grochowska, in the last quarter of this year. The project will include 15 apartments ranging from 27 to 76 sq m in size. The average price per sq m will be zl.7,200.

The same developer completed a similar, 14-apartment building earlier this year at 27 Prochowa St., not far from the Rondo Wiatraczna intersection. There is just one apartment left in this building—over 80 sq m with a large garden; prices range from zl.7,100 to zl.7,200 per sq m.

Developers constructing small multi-family buildings in Grochów include Grupa Inwest. Late next year this developer will complete its building at 47 Kordeckiego St. with 26 apartments costing between zl.6,790 and zl.7,990 per sq m. The investor plans to start two new projects in Grochów—22 apartments on Zgierska Street and 27 on Murmańska Street. Completion of the building at 6 Murmańska St. is planned for the spring of 2012. It will include apartments ranging from 28 to 105 sq m, at prices from zl.5,790 to zl.7,590 per sq m.

There is no shortage of large projects in Praga Południe, especially in the Gocław neighborhood. The sale of apartments began recently in stage one of the Młoda Praga (Young Praga) residential and commercial complex at 75 Ostrobramska St. On offer are 431 apartments from the so-called popular market segment, from 32 to 124 sq m in area, priced at zl.6,200 to zl.9,000 per sq m. The project will be divided into sections with enclosed courtyards, each with greenery and small architectural features including playgrounds for children. The investor is Nowe Ogrody, whose shareholders are Pirelli Real Estate and a multinational private real estate equity fund managed by Grove International Partners.

In the past year two new projects in Gocław were started by Dom Development, a leading developer on the Warsaw market. Stage one of Osiedle Saska, the company’s largest project ever, is located on Bora-Komorowskiego Street. It will include 470 apartments in four buildings. Completion is planned for the third quarter of next year. Apartments will range from 40 to 131.5 sq m, priced from zl.6,500 to zl.9,500 per sq m. Stage two will be completed in the last quarter of 2011.

A few months after Osiedle Saska, Dom Development began the Adria project on Jugosłowiańska Street. It will have 656 apartments in total, to be completed in three stages. Stage one, planned for the last quarter of next year, will comprise 256 apartments. The smallest one will be a 38.2 sq m apartment with one bedroom and a room combined with an open kitchen area; while the largest dwelling will have four rooms and a total area of 106.3 sq m. The price per sq m in stage one will be zl.6,690 to zl.8,800.

Genuine luxury?
Market analysts have tried on many occasions to determine and define what a luxury apartment building is. Theory is one thing; practice is another. If we listened to developers, we could find one or even several luxury apartment buildings in almost every district on the western bank of the Vistula river. Everyone wants to build luxury apartments, forgetting about categories like “improved-standard” apartments. There are quite a few of these in Warsaw, while genuine luxury apartments, according to Skirmuntt, are still in short supply.

“I don’t see buildings with a doorman or valet parking,” he says. “Then there’s hotel-like service—Platinium Towers is a project that meets this criterion—and cleaning services. Some interesting projects are emerging, such as Dom Development’s Apartamenty Grzybowska and Patria in the Powiśle neighborhood. Another thing always to remember is that, for example, a sleeping security guard, even in a beautiful reception area, can ruin a luxury apartment building’s image.”

Another project by Dom Development, called Rezydencja Opera, on Niecała Street near the Wielki Theater, is the most often mentioned as perfectly meeting the definition of a luxury apartment building.

Those buying a luxury apartment have to be prepared to pay much more than the average price per square meter in a given district. One square meter of apartment space at the Rezydencja Foksal project at 5/7/9 Kopernika St. can cost up to zl.30,000. The developer of this six-story luxury residential building is BBI Development. The company claims that Rezydencja Foksal will be one of the most prestigious buildings in Warsaw, due to its unique location and small scale—38 apartments, including 30 luxury dwellings. The average area of an apartment in this building is 150 sq m, and all of them will be 3 m high. The lower stories will be occupied by commercial premises: an office area with a separate entrance, three luxury boutiques and a restaurant.

In December 2009, Echo Investment resumed work—suspended during the latest crisis—on the Klimt House luxury apartment building in the old part of Mokotów, on Kazimierzowska Street. The project, with 60 luxury housing units, will be completed this December. Prices range from zl.15,000 to zl.23,000 per sq m, the upper limit being the price for a penthouse.

Who buys luxury apartments in Warsaw?
“The opinions of my foreign clients show that luxury dwellings in the centers of both European and non-European capitals are too expensive for young people,” says Skirmuntt, “so the investors are rich buyers who then rent them out. A similar trend seems to be present here. My guess is that about 50 percent of such projects located in the city center are bought as investments, for rental. Another type of luxury apartment buyer is the growing group of affluent people who feel they ‘should’ have a luxury apartment in the center. They don’t look at the price tag, only at the prestige of the project—a well-known architect and plenty of hype.”
Magdalena Fabijańczuk


COMMENTARY
Houses Cheaper Than Apartments per sq m
Bartosz Turek, real estate market analyst at Home Broker:

In terms of price per square meter, apartments are far more expensive on the primary market than houses. This often allows buyers to find a house for the price of a medium-sized apartment, even within the same district. It is even easier to exchange an apartment in Warsaw for a house outside the city. How big the house will be and in what condition depends on the distance from Warsaw that buyers are prepared to accept. In the nearest vicinity, especially west of the Vistula river, the cost is a minimum of zl.1 million for a house built within the last decade. This is the average price for a 100-sq-m apartment in a new building in districts such as Mokotów and Śródmieście or in the Kabaty neighborhood. As the distance from the city increases, the price steadily goes down. At 20-30 km from the city, the cheapest houses can be had for zl.700,000. Twice that distance reduces the purchase price by another zl.200,000.

Houses have another advantage over homes in apartment blocks. Home Broker’s data from 15 cities show that the average monthly maintenance costs for a house are zl.2.23 per sq m, while for an apartment this is zl.6.13 (based on the declarations of sellers). This means that a house is almost three times cheaper to maintain than an apartment of the same surface area. If we account for the fact that houses are three times larger than apartments on average, the maintenance costs of an average apartment (75 sq m) will be minimally lower than for a house (235 sq m).


COMMENTARY
Secondary Market: No Major Changes
Marcin Jańczuk, Metrohouse:
Prices continue to stabilize on the Warsaw real estate market. Though reports point to small fluctuations in asking prices in individual districts—by anywhere from 1 to 2 percent either up or down, compared with the previous quarter—this data does not say much. You can’t judge based on that just how lasting the present stabilization trend could be. The minimum asking price increases in some districts—such as Wilanów—are the effect of the current structure of housing supply rather than a harbinger of any change in the trend. Whereas unfinished apartments in the form of “shell units” delivered by developers dominated on the market until recently, today apartments on the secondary market are of a higher standard. Unlike two or three years ago, the current supply of housing is not dominated by “shell-unit” apartments.

In the first quarter, the median price per square meter in Metrohouse’s secondary-market transactions was zl.7,700, and the second quarter saw an increase by zl.160. To understand this rather unexpected growth of the median price, we need to analyze the transactions. The first quarter saw a relatively high average size of purchased apartment, at 60 sq m, while the second quarter saw an increase in the number of transactions involving apartments from the “popular market segment.” The average sold apartment was 52 sq m in area, which marked an increase in the price per sq m in the period in question. Price growth was also affected by a relatively large number of one-room apartments hitting the market; these usually have a proportionately higher price per sq m. We don’t expect the summer vacation season to bring any major changes on the Warsaw market for resale apartments.


COMMENTARY
The Worst Is Behind Us
Marcin Krasoń, analyst at Open Finance:
Since last fall the mortgage loan market has undergone a steady process of liberalization. Just about everything is changing: the markups, commission and clients’ downpayments are all going down; various promotional offers are available. The situation is still far from what we had in 2006-2008 at the peak of the loan and real estate boom. The markups are not as low and it is hard to renovate a purchased home from the money provided by the bank.

For many clients, the most important feature of a mortgage loan is the best possible loan-to-value (LTV) ratio; only some borrowers can make downpayments. At present some institutions are offering loans with a maximum LTV in excess of 100 percent. The first to introduce this was Allianz Bank, followed by mBank and MultiBank, and then Alior Bank. Only a few banks still require the client’s downpayment; the standard now is an LTV of 100 percent.

The markups that determine a loan’s price are also going down. The toughest time for borrowers was the third quarter of last year, when the average markup of a loan denominated in zlotys was 3 percentage points, and 3.8 percentage points for a euro loan. Today there are plenty of loans available in zlotys with a markup below 2 percentage points; the average being about 2.1 percentage points. In the case of euro-denominated loans, someone making a downpayment can count on an average markup of about 2.8 percentage points.

The banks’ attitude to both the secondary and primary housing markets is also liberalizing. This is due to the cooling-off of the market sentiment, the worst now being behind us. The Polish market has survived the crisis quite well. Of course, some developers are well reputed; others are not. The most reliable ones are in the best position. Many banks have their own lists of trusted developers. Obtaining a loan for a primary-market project depends on how advanced the project is, how well the developer is doing, and many other factors. Some banks refuse to finance a “hole in the ground,” requiring that the project be at least at the “building shell” stage, for example.
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