Although not long ago the PRS market seemed to be the obvious choice, thanks to the sudden improvement in economic conditions and the optimism of buyers, the construction of apartments for sale in Poland is today a more profitable solution - this is the main conclusion of a panel discussion at Living Investment Forum 2023, an event organized by Property Forum in Warsaw in May.
Just a year ago, the answer to the question in the panel's title (Build to rent or build to sell?) was quite simple - in a market downturn, limited access to mortgages and a drop in housing sales of as much as 50 per cent, developers switched en masse to building units for the PRS market. This state of affairs has changed dramatically in the first few months of 2023. „We had a very positive first quarter of 2023, which was far more positive than the last year. Everybody is willing to buy right now, people just got their money out of the sockets”, said the moderator of the panel, Przemysław Chimczak-Bratkowski, Managing Partner at ThinkCo.
His words were confirmed by the developers. „Unfortunately for the development of the PRS, the ‘for sale' market is very strong again. Last year people were thinking ‘Maybe the prices will be lower, maybe I should wait, maybe I will find some opportunity to get better a better deal’. This year, they figured out that it will not happen. We are very positive because the demand for our apartments is very strong today, and people are keen to buy. Also, the mortgage market is recovering - we have more and more clients, who plan to use a mortgage to buy flats”, said Jarosław Bator MRICS, CEO of NDI Development.
His opinion was confirmed by Damian Kapitan, CEO of Spravia: „Comparing to 2022, we see a big change. In terms of sales, the first quarter was good and April was excellent The inflation is dropping, its peak is behind us, and affordability and the cost of mortgage are much better than last year. Everyone knows that it is the best time right now to buy a flat, But the residential market is not only about the demand, it`s also about the supply. With the lower revenues, developers have frozen a lot of projects, There is a 30 per cent drop in the number of construction permits issued in the first quarter of 2023, it`s a real disaster. An increase in the prices is imminent”, predicts Kapitan.
Piotr Szafarz, Partner, Head of Real Estate in Poland and CEE at Dentons is also of the opinion, that PRS market in Poland is currently in a difficult situation. „PRS market is in the process of reinventing itself in Poland, especially in terms of how to cooperate with developers. What we see this year is mostly the closing of transactions that originated in the past; disappointingly, only a few new transactions originated this year, obviously for a number of reasons. We had different assumptions at the end of 2022 - we thought that because the for-sale market had some problems that year, maybe it will encourage developers to strike some deals with PRS operators. But it didn`t happen. So. I think the way developers cooperate with PRS operators will need to be redefined. Maybe we will see some more joint ventures of securing platforms in-house. Third-party developers don't seem to be the source of new units for PRS operators now, not in the scale that we would expect a few months ago”, said Szafarz.
While „classic” PRS operators seem to experience a slowdown, business is thriving in the student housing sector. „At the moment, we have 3.2 thousand beds in operation. And we have two important openings this year - one in Warsaw and the second one in Łódź. So the scale is increasing - we will carry out tenders for the new branches shortly and we are hoping to receive really good construction offers. The demand last year was record high, this year is really promising as well. And we can see signs that this will continue”, said Jolanta Bubel, CEO at Student Depot.
„Right now we have two operating projects, a student house in Kraków and a residential one in Kraków. But we are currently working on four other projects, which are under construction, just to build up the pipeline. We are about to open a student house in Warsaw. I feel the market is still so small that everything that gets delivered will be rented, the demand for student housing remains still high”, said Maximilian Mendel MRICS, Managing Director at Zeitgeist Asset Management
Build to rent or build to sell? The companies that operate in both these markets have no such dilemma. „I have the pleasure to represent ROBYG, the biggest residential platform in Poland and at the same time Vantage Development in the rental segment. I can confirm that in the last quarter, both of those segments performed very, very well. For us, there is no question to build for sale or to build for rent; for us, the answer is simple - to build both. The resi for sale segment is developing much better than we all expected a few months ago, not only because of new subsidized loans, implemented by the government. People also stopped waiting for the price decreases and decided to come back and buy. From our experience, we can say that the ratio of people buying with their own funds dropped from 89% in the last few months of 2022 to 55% in April. That means that there are much more buyers, who decide to take loans. But the demand for PRS units is also very good. We are still expanding our rental portfolio. Actually, we have 2.2 thousand units in operation and 1.1 thousand under construction. A huge advantage of operating in both these segments is that we are financially sufficient. All the surpluses generated by the sales platform can be reinvested in the rental platform. So it gives us the chance to double our operation scale in the next three years, even without even additional, external financing. This is why we do not have doubts about what to do in the future: we will develop both platforms,” forecasts Dariusz Pawlukowicz, Member of the Management Board at Vantage Development.
