Andrzej Oślizło, CEO of Develia talked to Property Forum about the recent acquisition of the Polish portfolio of the French development group Nexity, the current situation in the residential market and plans for investments in the PRS segment.
Develia recently acquired 19 Polish subsidiaries of French property developer Nexity for PLN 453 million (around €100 million). However, this is one of the largest acquisitions in the history of the Polish residential market. Please tell us why you decided to make this acquisition.
In the next few years, we want to be among the leading Polish residential developers and sell 3,000 flats annually. The purchase of the portfolio of subsidiaries from Nexity Poland brings us significantly closer to this goal. This acquisition, which should be finalised by the 30th of September this year, will allow us to increase the number of flats under construction by about 1,400 and the land bank by about 2,200 units in Warsaw, Kraków and Poznań. This will allow us to expand our residential offer in cities where we are already present and to enter the new Poznań market. In addition, a large part of the projects in Nexity's land bank have administrative approvals to start construction, which will further strengthen our sales potential. The acquisition will also allow us to achieve a higher return on equity from the transaction than we had assumed in our strategy.
After selling off your commercial property portfolio in recent years, the financial health of the company seems to remain good?
The financial health of our company in the first half of 2023 was very good. This was heavily influenced by the sale of the Sky Tower commercial buildings in Wrocław for €82.4 million and Wola Retro in Warsaw for € 69.3 million to entities associated with the Hungarian investment fund Adventum Group. We are maintaining residential sales at satisfactory levels. In Q1 of this year, we sold 533 flats - 30% more than in Q4 2022. In a market downturn and limited access to mortgage finance, these numbers place us at the forefront of the market. The second quarter performance will be just as strong, and with the government's „Pierwsze Mieszkanie” support programme, of which „Bezpieczny Kredyt 2%” („2% Secure Credit”) is a part, coming into effect, we expect strong demand to continue in the second half of this year.
We also expect further income from the divestment of commercial assets. Talks are ongoing regarding the sale of the Arkady Wrocławskie shopping centre – we aim to sign a preliminary sales agreement by the end of 2023. Last year, we signed a joint venture agreement with warehouse developer Hillwood. As part of it, a special-purpose vehicle was created that plans to develop a logistics park on land we own in Malina near Wrocław. The project is currently in the preparatory phase.
Andrzej Oślizło
CEO
Develia
A few years ago you announced your entry into the institutional rental market (PRS). However, Western funds are temporarily halting investment in Poland, struggling with the high cost of financing in the eurozone. Do you stand by your declarations of expansion in this sector despite this?
Our plans stand. The availability of financing in the eurozone will start to improve, and the prospective private rental sector, offering a high-quality product on transparent terms, is a necessary alternative to the residential ownership market in Poland. We plan to sell 600-800 units per year under this formula. In the third quarter of this year, we are preparing to launch the Flatte brand, an IT platform for comprehensive tenancy management, which we are developing in a joint venture with The Heart company.
What is your assessment of the current situation in the residential market in Poland? Because of the harsh year 2022 for developers, demand seems to be returning to levels before the outbreak of the war in Ukraine…
In terms of residential sales, the beginning of this year has amazed everyone. As I have already mentioned, in Q1 the volume of transactions returned almost to the levels of early 2021, before the outbreak of the war in Ukraine, and was twice as high as the monthly average for the whole of 2022. KNF - Polish Financial Supervision Authority acceded to the demands of the industry and loosened the provisions of Recommendation S, and inflation also started to slow down. The announcement of the government's '2% Safe Credit' borrower support programme, which came into force a few days ago, was also an undoubted demand stimulus. With a guaranteed reduced interest rate, it can partly solve the problem of low creditworthiness of buyers. Currently, customers using bank financing account for around 50% of our sales - last year the percentage was twice as low.
As demand returns, what about the supply? What are the most difficult challenges currently facing residential developers in Poland?
In the current conditions, it is difficult to make long-term forecasts - there is still an armed conflict going on behind our eastern border, and inflation, despite a downward trend, is still very high, as are interest rates. In this situation, developers are cautious about starting new investments. However, if the demand trend from the beginning of the year continues, the supply of units should gradually increase. This, however, may not increase the available offer, but will only slow down the current trend of a rapid decline in the offer due to demand far exceeding supply. Thanks to a steady flow of buyers with bank financing, projects in the popular segment, where the share of loan customers is the largest, will be unfrozen. We, too, are keeping a close eye on the market and adjusting supply according to the interest and purchasing capacity of customers.
