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The Warsaw Voice » Special Sections » February 23, 2012
The Real Estate Voice
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More Apartments, Lower Prices
February 23, 2012   
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Last year saw a revival on the Polish housing market. Developers resumed some of the projects they had put on hold during the crisis. This was accompanied by increased sales of finished apartments. But it is unclear if this upward trend will continue this year.

According to analysts at REAS, a company that provides advice to those planning and carrying out housing projects, the situation on the Polish residential market defies easy assessment. From the point of view of developers, optimism is encouraged by relatively good sales results recorded over the last two years; from the point of view of customers—by the growing choice of residential units and falling prices; from the point of view of banks—by the demand for loans, which has been relatively stable despite increasingly stringent loan-granting criteria.

However, there are also several reasons for concern. All analysts agree that Poland’s economic growth is bound to slow down in 2012. The government needs to increase its revenue, which, in the face of decelerated economic growth, means less money in the pockets of citizens, also those who are thinking of buying a new home. All this suggests that banks will limit the number and the average value of loans granted in 2012 compared to last year. Overall, residential market players entered 2012 with mixed feelings.

The results of a project monitoring study conducted by REAS at the end of the fourth quarter show that last year saw an increase of the total number of new residential units sold in the six largest residential markets in Poland (Warsaw, Cracow, Wrocław, the Tri-City, Poznań and ŁódĽ), though the number of residential units launched for sale increased even faster. As expected, REAS observed a price drop in units newly launched for sale as well as those sold and previously on offer.

As a result, the value of new transactions was lower than the one noted in 2008, despite the fact that the number of transactions concluded during the previous 12 months was the highest since the boom period in 2007.

According to the results of a market monitoring study conducted by REAS in the fourth quarter of 2011, the number of residential units launched on the market in six major Polish conurbations was just over 7,300, a decrease of 17.5 percent from the previous quarter and down by 14 percent from a year earlier. Throughout the year, 37,500 dwellings were launched for sale, 21 percent more than in 2010. Only the record-breaking year 2007 saw the launch of a larger number of residential units in the six analyzed conurbations.

Growing sales of smaller and cheaper homes

Despite a relatively strong and regular level of sales, the volume of housing on offer calculated for the six analyzed conurbations in the final quarter of 2011 remained at a level of more than 48,000 residential units and increased by more than 25 percent throughout the year. The offering is dominated by dwellings under construction, which constitute over 77 percent of units offered for sale by developers. However, in comparison with the previous quarter, the number of completed but unsold units increased by close to 11 percent, and during the 12 previous months by more than 11 percent. At the end of December, Warsaw offered just over 4,000 completed but unsold dwellings, slightly more than in the previous quarter. However, the total offering in this category of units in the six conurbations was close to 10,500.

According to REAS, throughout 2011, approximately 29,700 residential units were sold, 7 percent more than in 2010. A higher sales level in the six analyzed conurbations was noted only in the record-breaking year 2007, when the demand was strongly driven by Swiss-franc-denominated mortgage loans. It is worth remembering that a considerable part of the units sold in the boom period were purchased for investment purposes and returned to the market in 2009 after buyers canceled their preliminary sales contracts. In 2011, investment demand was insignificant, and the vast majority of buyers made carefully thought-out purchase decisions in order to satisfy their own housing needs. This comparison shows that, in terms of the number of transactions, the sales level noted in the previous year should be considered a success.

The increased number of transactions in comparison with the previous year resulted predominantly from adjusting the supply to buyers’ expectations, as well as from price reductions and promotional offers. In the majority of cities the average prices, both those calculated for units newly launched for sale and those previously available on the market, decreased nominally, and the drop calculated for the six cities amounted to around 5.7 percent. Considering that the inflation rate is close to 5 percent, this means a price decrease in real terms.

As a result, despite a considerable increase in the number of transactions, the value of contracts concluded throughout the year increased only slightly. Calculated for the six markets, the increase was around 3.6 percent: in the case of Warsaw and Wrocław it was close to 3-4 percent, in the Tri-City and Cracow it reached 9 percent, while in Poznań and ŁódĽ the market value decreased considerably.

Although the Polish residential market is unlikely to decline sharply, demand for housing in 2012 may be lower. Last year, after an encouraging first two quarters, demand shrank in the second half of the year. This was because of several factors, including the phasing out in practice of the government’s “Family on its Own” mortgage subsidy program and a reduction in the creditworthiness of potential buyers in the wake of the introduction by banks of the guidelines of the so-called S II Recommendation, which limits the credit capabilities of potential borrowers. As a result of turmoil on foreign exchange markets, the vast majority of banks withdrew from granting loans denominated in foreign currencies. All this, combined with uncertainty among the public over what will happen in the Polish economy in the immediate future, explains why demand for mortgage loans may be much lower this year.

According to a study by the Nowy Adres company and market researcher Millward Brown SMG/KRC, entitled Polish Residential Market 2011: Demand and Buyer Preferences, the average size of a housing unit purchased in 2011 was 59.7 square meters, almost 3 sq m less than a year earlier and 10 sq m less than two years earlier. The average cost of a dwelling bought in Poland last year was zl.378,600.

Experts say the crisis has not had a clearly negative impact on the Polish housing market. Rather, it has made the market more balanced: the prices have dropped, so more people can afford to buy housing these days. Customers are mostly interested in small apartments, with one or two rooms, ranging from 33 to 50 sq m in size, and preferably costing no more than around zl.5,000 per sq m.

Luxury at a price
Housing prices may have dropped, but this does not apply to luxury apartments, a market segment that continues to develop relatively fast. The Polish luxury apartment market began developing in the late 1990s. Initially luxury residential projects were only built in Warsaw. Soon they also began to appear in other large cities as well as major resorts. But the majority of premium housing units are still constructed in the capital.

Experts point out that true luxury apartments account for just 2-3 percent of apartments offered on the Polish market. This might seem very little compared to Western countries such as Britain, France or Germany, but the Polish luxury home market is relatively young and still in the development stage. On the other hand, regardless of the country, the cost of such apartments is high. Luxury comes at a price. Prices of luxury apartments in the Polish capital can vary significantly, however, ranging from zl.11,000 per sq m all the way to zl.40,000 per sq m or even more.

Last year, after a hiatus of almost two years, work recommenced on the most luxurious building in Warsaw: Złota 44. This tower, a project by Orco Property Group, is scheduled for completion in 2012. It is a luxury building in the heart of Warsaw, in Złota Street, and will stand 192 meters (54 stories) tall. It was designed by the world-famous American architect of Polish descent, Daniel Libeskind. The “glass sail” (as Złota 44 is popularly referred to) will offer the most luxurious and highest-located apartments in Warsaw. It will have 251 apartments of varying sizes.

Other luxurious and exclusive apartment buildings in Warsaw include Klimt House by Echo Investment and Apartamenty Trio constructed by the Eco group on Stawki Street. Further examples include Rezydencja Piękna Nova by the Magnus Group, Restaura Górskiego by Restaura, Nowe Powi¶le by Menolly, Puławska 111 by ECC Real Estate, Belgravia Residence by Belgravia Polska, and Rezydencja Foksal by BBI Development.

Luxury apartments can also be found in the “sPlace – smart living” estate on Rydygiera Street in Warsaw’s Żoliborz district. The investor behind the project is Layetana Developments Polska, the Polish subsidiary of the well-known Spanish developer. The apartment buildings being constructed by Layetana Developments will offer a full concierge service, an amenity that is not yet particularly widespread in Poland, but is slowly entering Polish housing estates. According to experts, the market for concierge services in residential premises, especially premium projects, has huge potential for growth. As the market grows increasingly competitive, developers will want to stand out not only in terms of quality, workmanship or an attractive location, but also with additional amenities for residents.


Commentary
Potential of Premium Properties
Alicja Ko¶ciesza, Sales and Marketing Director for Poland Orco Property Group:
With the growing purchasing power of Poland’s business leaders, premium properties like Złota 44 undoubtedly have high potential. Luxury apartments, in addition to the prestige they offer residents on account of their prime location, unique architecture, top-quality finish and facilities such as a spa, swimming pool and a private concierge, are, above all, a very good investment. Precisely because luxury real estate is seen as a stable investment, this market segment has resisted fluctuations typical of the popular market.

The condition of the luxury real estate market is best reflected by the high demand for the Złota 44 apartments—the most exclusive residential project in Poland. We have already sold a third of all available dwellings, and recently, after the completion of structural work on the building, we have been noting a very strong increase in interest among potential buyers. We expect that by the end of 2012, when we will be handing over the keys to the apartments to our customers, the choice of available apartments will be very limited. It is worth noting that in recent months large apartments of more than 150 square meters in size have been the most popular. For example, we have sold a large premium apartment with an almost 300-sq-m terrace on the 9th floor of the high rise. At the moment, we are in advanced negotiations on the sale of a whole floor in the Złota 44 building to one customer. This shows that customers are not trying to save on their investments; they are eagerly buying luxury apartments.

It is also worth noting that the luxury residences market is special in that it does not tend to be significantly affected by economic crises. At the same time, it has responded well to positive changes related to some recent developments. Factors such as the Euro 2012 European soccer championships to be co-hosted by Poland have indirectly contributed to boosting demand for luxury apartments. Preparations for the event have been related to improvements in infrastructure, including the road system, stadiums, and hotels, as well as better perception of the host cities abroad.
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