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The Warsaw Voice » Real Estate » February 25, 2011
Residential Market
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February 25, 2011   
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The crisis on Poland’s housing market seems to be over—but the market is still nowhere near the prosperity it enjoyed several years ago.

After the crisis of 2009, last year marked a return to normality for businesses operating on the market for new homes for sale, according to analysts at REAS, a firm that provides advice to those planning and carrying out residential projects in Poland and Romania.

This return to normality was evident in all key aspects of the market—including home loans, supply and demand—and was reflected in both the buyers’ behavior and deals concluded.

The main reason why the situation on the market has improved is that the Polish economy accelerated in 2010 and entered 2011 with a stable labor market and steadily growing household incomes. Additionally, the number of home loans granted to individuals has stabilized at a relatively high level while interest rates are exceptionally low.

Market research conducted by REAS shows a significant increase in the supply of homes in most cities in 2010, as new residential projects entered the market and developers resumed the sale of homes in many projects which had been temporarily suspended because of the crisis.

Preliminary data by the government’s Central Statistical Office (GUS) show that in 2010 Polish developers regained optimism. After a decline in 2009, in 2010 developers started building more than 63,000 apartments and homes, which represented an increase of over 42 percent in year-on-year terms. At the same time, housing cooperatives started construction on around 4,600 housing units, or 10 percent more than in 2009.

The total number of completions in 2010 is estimated at under 136,000, or 15 percent less than in the previous year. In that period, developers completed 53,000 apartments and homes, 26 percent less that a year earlier. Although sales were relatively strong and regular, the supply in Poland’s six largest cities reached almost 39,000 housing units at the end of the year. Completed but unsold dwellings still account for a major share of all the housing offered by developers. At the end of December, there were around 4,200 such dwellings in Warsaw, slightly less than in the previous quarter. The total number of such apartments and homes offered in the six cities exceeded 9,400, up by 13 percent year on year.

The structure of supply by completion date has started to stabilize. At the end of 2010, housing under construction accounted for over 70 percent of the total supply, with more than one-third of the dwellings under construction scheduled for completion in 2011 and the remainder scheduled for completion in 2012 and in the following years. To compare, at the beginning of 2009, supply was dominated by housing scheduled for completion in 2011. They accounted for 58 percent of the total supply while completed homes and apartments accounted for a mere 14 percent.

Developers say that in 2011 they are planning to launch more projects on the market than in 2010. “The worst period for the sector is over,” says Jarosław Szanajca, president of the Dom Development company and of the Polish Association of Developers (PZFD), which brings together more than 100 companies. “But we are aware that we can hardly count on any major increase in the next two years. One reason is that the state’s assistance in the form of new programs designed to boost demand—such as the Family in Its Own Home program—is not growing.”

REAS experts say that home loan policies pursued by banks were a fundamental factor that determined the behavior of buyers in 2010. Banks granted a relatively large number of home loans, comparable to that in 2008, but reverted to the lending rules they applied before the boom on the real estate market. Requirements included high downpayments, realistic credit ratings and a conservative approach to appraising the value of collateral.

A number of factors were behind the increase in lending: low interest rates, decreasing profit margins and increasingly optimistic data, which improved with each quarter, indicating that the economy was growing and the labor market was stabilizing. All these factors influenced the buyers’ behavior. On the one hand, one could see an increased interest in buying and a belief that prices would not drop any further. On the other hand, buyers were adapting their preferences and expectations to their purchasing power, which dropped as credit ratings declined.

Prices stabilize
The psychological factors which triggered a drop in housing sales during the global crisis, had a neutral effect in 2010. In the first half of the year, they held demand back, but in the second half they stimulated it. It seems that the present value and volume of sales correctly reflects the conditions determined by current prices, incomes and access to home loans. The average prices of new housing are stable, despite slight changes from quarter to quarter. In 2010, average prices dropped by 2-3 percent from 2009.

Developers would probably be more optimistic if they could count on a marked increase in prices and sales in 2011. But what happens on the market in the future is uncertain. Price increases can hardly be expected. With the growing supply of housing, sales may be sluggish for individual projects, even though total sales on the market are likely to grow. The average price of housing offered on the market in the third quarter of 2010 increased slightly to zl.7,800 per square meter and was around zl.150, or 2.2 percent, higher than in the previous quarter. The prices of new housing brought onto the market have stabilized in recent quarters at zl.7,600-7,900 per square meter, roughly zl.1,500 less than before the crisis.

“The Polish real estate market is maturing and demand for housing is still high, driving the expansion of firms operating in this sector,” says Laurent Tirot, general manager of Bouygues Immobilier Polska. “We expect that housing prices will not rise in 2011 because the supply of homes and apartments is relatively high and because the Family in Its Own Home program is being phased out. The lending policies of banks toward buyers of houses and apartments will be of crucial importance for further development of the sector.”

In 2010, Bouygues Immobilier Polska sold 235 apartments and 47 houses. The Villa Parc project in Warsaw’s Ochota district, with 118 apartments sold, attracted the greatest interest from customers. The company also sold 117 apartments in its Villa Arte/Bell’Arte in the Warsaw district of Wola. In addition to carrying out successive stages of projects that are already in progress, in 2011 Bouygues Immobilier Polska will start new projects in the districts of Bemowo, Bielany and Wilanów.
“Growing interest in smaller apartments has been a well-pronounced trend on the Warsaw real estate market in recent years. Our strategy to bring onto the market compact units in locations well connected to other districts in Warsaw, a strategy we have decided to pursue consistently, has produced the expected result,” Tirot says.

The Międzyborska 11 project, carried out by RE project development Sp. z o.o., the Polish subsidiary of Austria’s Raiffeisen evolution project development, shows that the downturn on the Polish real estate market is over. The developer started construction work in Warsaw’s Gocław neighborhood in November 2010 and sold 15 percent of the apartments offered in the project by the beginning of February 2011. This enabled the company to receive zl.50 million in loans to carry it out. The zl.75-million project is scheduled for completion in mid-2012.

Maciej Krenek, member of the board at RE project development, said, “The real estate sector ended last year in a much better mood than 2009, which was especially difficult due to the global financial crisis. This year, we may well say that the crisis is already over and that time has come for new projects. At our company, work began with redoubled strength this year. At present, apart from the residential complex in Gocław, we are working on another three projects. We are going to start the first one at the end of the first quarter of 2011.”

Residential projects now under way in Warsaw include the Aleja Krakowska project being carried out by the Dolcan company, the Kaskada project in the Wola district by Gant Development, the Osiedle 19. Dzielnica project by Spanish company Pro Urba, and the Osiedle Saska project by Dom Development.

Developer strategies
This year will be a time of trial for developers and a time when they will be trying to make strategic decisions on a still unstable market, according to a report by CEE Property Group on the strategies of developers for 2011. Large companies are expected to start new residential projects, many of them large and most of them intended for the general market. Smaller developers, on the other hand, will be slowly resuming work on further stages of projects suspended in 2008 and will be looking for niches on the housing market, the report says.

In 2011, developers are expected to benefit from encouraging macroeconomic prospects, but their strategies and behavior on the market are likely to be influenced by unfavorable regulatory changes. CEE Property Group expects that the planned phasing out or expiration of the Family in Its Own Home program—which is designed to support families buying their first apartments with subsidies to interest on home loans—will be one of the most important factors determining developers’ activity this year.

Attractive market niche: Vacation apartments
Real estate market analysts expect that developers, especially smaller ones, will be increasingly entering new housing market niches in the near future. These include construction of apartments for rental, vacation apartments and the redevelopment of old tenement houses.

Vacation apartments are usually accompanied by an on-site spa and fitness facilities, a club/restaurant and swimming pool.

Research by CEE Property Group shows that a growing number of people in Poland use vacation apartments in apartment hotels. Apartment hotels, an alternative to hotels and guesthouses, are available in all major summer and winter resorts in Poland. It is estimated that there are around 10,000 vacation apartments with 40,000 beds in Poland.

The four regions with the largest number of apartment hotels are northwestern Poland, with the resorts of ¦winouj¶cie, Międzyzdroje and Dziwnów; Pomerania with Władysławowo, Gdynia and Sopot; southwestern Poland, with Karpacz and Szklarska Poręba; and southern Poland, with Zakopane, Szczawnica, Wisła and Krynica. At least one or two projects with vacation apartments is being carried out by developers in each of these towns.

A vacation apartment is an apartment in a building with a high standard of finishing and furnishings. Vacation apartments are usually located in apartment hotels in the center of resorts or in locations with attractive views of the mountains or sea.

CEE Property Group experts say that the supply of vacation apartments will be growing faster than the supply of hotel rooms, as the number of tourists using this kind of accommodation is set to rise. Projects where at least some of the apartments will be used in the future as vacation apartments are now under way in various parts of Poland.

The first stage of Apartamenty Rozewie, the latest development project in the coastal resort of Jastrzębia Góra, has been completed recently. Sun&Snow, a company providing services for vacation properties, including apartment rental to tourists, is responsible for managing the building. Apartamenty Rozewie is 200 meters from the seashore. Most apartments have a view of the sea. The building provides 58 fully furnished apartments with an average area of 40 sq m. As it is located close to the Faleza hotel, which includes conference facilities and restaurants, the apartments may be rented to institutions organizing training sessions and meetings for staff or customers. As a result, the apartments may be rented out all year round rather than for only two months, as is often the case. The project is scheduled to be completed this summer.

The Mierzeja Helska company is carrying out the Gwiazda Morza (Star of the Sea) project in the coastal resort of Władysławowo. The company is now offering 48 vacation apartments to be completed in the first stage of the project. Gwiazda Morza is the only apartment hotel project by the sea that is being carried out close to the Hel Peninsula. The apartment hotel will be composed of two modern five-story buildings, with a total of 96 apartments with spacious balconies or terraces. Apartments on the upper stories will have a view of the sea. Gwiazda Morza will offer its occupants 24-hour reception desk, a restaurant, a sauna complex and a recreation and sports complex with an indoor swimming pool. All the apartments will be of a high standard, delivered on a turnkey basis and tailored to the needs and expectations of their owners, the developer says.

Those who prefer a lakeside vacation will soon have an opportunity to buy a house in the Mazury Residence complex near the town of Giżycko in the Mazuria Lake District. Sixty houses will be built in the first stage of the project. Twenty-seven houses ranging from 206 sq m to 410 sq m in area on plots from 5,100 sq m to 10,400 sq m are now under construction. The complex will include an airfield for tourist planes, a hotel, restaurant, two marinas, horse stables, a beach, tennis courts and sports fields.
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