Marcin Krasoń, a residential property expert at Obido.pl and Otodom.pl talked to Property Forum about the incoming slowdown in the residential market in Poland, the development of the PRS sector and the effects of rising inflation.
We are currently dealing with an unprecedented number of important factors influencing our residential market. Is it even possible to formulate any long-term forecasts in this situation?
The residential market is always dependent on many factors, but how unpredictable it has been for the past two and a half years is indeed an unprecedented situation. When the pandemic broke out, Poles locked themselves in their homes and it wasn't easy to buy a flat because even some notary offices closed their doors. There was no shortage of voices saying that prices would skyrocket and there were even serious institutions that predicted reductions of 25 or 30 per cent. The lockdown ended after a few months and the residential market caught wind of the situation. Both sales and prices went up.
In the spring of 2022, the effects of interest rate rises are felt more strongly - creditworthiness shrinks and some buyers are forced to refrain from buying. As a result, demand for housing is falling. Taking into account the influx of refugees and still high inflation (people are then looking for places to invest their savings), forecasting what will happen to the market next is actually very difficult.
Restriction on the availability of mortgages has caused a slump in demand, even by 30-40 per cent. However, with building materials constantly on the rise and high prices of land for new investments continuing to decline, are developers able to reduce prices at all?
Prices of raw materials in the world have started to fall, but before we feel it in Poland, some water will have to flow in the Vistula, as there is significant inertia at work here. There is no sign of any improvement in the land availability situation; on the contrary, it is getting worse. Attractive plots are valued at exorbitant prices; in this situation, it is difficult to expect that cheap flats will be built on them.
An additional pro-growth factor is an amendment to the Act on the Protection of Rights of Buyers of Residential Units and Single-Family Houses. It imposes a number of obligations on developers, including paying a contribution to the Developer Guarantee Fund.
In such situations, companies will naturally behave differently. A developer with a reserve of capital can act calmly and get through a more difficult period with dry feet. A company with a barely balanced budget may be forced to cut prices. First, however, promotions will appear in greater numbers. A lot will also depend on how effective the developer is in the sales office. Buyers today demand better care and employees should be prepared for this by giving them knowledge, data and sales tools.
A significant effect of the decline in the availability of credit may be the shift of a large group of customers to the rental market. Can we expect developers to start including flats in the PRS model in their offer en masse?
PRS funds in Poland are very cautious about entering the market. Among other reasons, they are reluctant to do so because the legal solutions in Poland are asymmetrical - they protect the interests of the tenant much more than those of the landlord, and even signing a contract with a notary does not give 100% security.
We observe two models of operation on the market: some funds buy ready-made buildings or entire investments from developers, while others buy a development company - there have already been several such transactions in Poland. I do not think that in a few years' time funds will revolutionize the Polish rental market, in my opinion, it will be rather a slow process. Evolution, not revolution.
However, not everyone can count on a "golden ticket" from a foreign investment fund, and many medium and small developers may not be able to diversify their offers quickly. What tactics for the market slowdown should smaller players adopt?
The first point is that consolidations are likely to take place in the market. Companies with more capital will want to buy someone smaller and use this step, for example, to enter a new market. Difficult times always verify how someone runs their business. And let's not be afraid to say it: if, after so many years of market prosperity, a developer is left with nothing, it means that he could run his business better.
In both the primary and secondary markets, we see that the buyer's market is returning quite rapidly. Buyers need a lot more support and care before they make a decision, it also takes more time. Hence the competitive advantage will go to those companies that adapt to the new situation in the fastest and best way. Theoretically, everyone knows that the market has better and worse periods. Still, the better one lasted an uncharacteristically long time - many real estate agents or employees of a developer's sales office have never worked in such conditions. They have no experience, knowledge or even reliable data about the market, so they require solid support from their employer.
In your opinion, will Poles continue to protect their savings against inflationary loss of value by investing them in residential real estate?
Real estate has always been perceived as a safe way to invest savings. When inflation began to hit Poland last year, buying flats, which had been rising in price for several years, became even more popular. This popularity has slowed down somewhat, as prices have stopped growing so dynamically. On the other hand, the influx of refugees from Ukraine has meant that in most cities there are huge shortages in the rental market, so the possibility of making money by renting a flat is very tempting.
The current number of Ukrainian refugees in our country is estimated at around 4 million. How many of them can actually decide to buy a flat or a house in Poland?
There are very different figures on the number of Ukrainians in Poland. Certainly, we know that there are those who come here with a solid reserve of cash and already at the beginning they can afford to buy a property. Besides, a few years ago Ukrainians "outranked" Germans in the ranking of nations that buy the most residential property in Poland, in 2021 it was 4423 flats (data from the Ministry of Internal Affairs and Administration). The official figures for 2022 will not be known until spring 2023.
In your opinion, will developers decide to include valorisation clauses in their models of contracts with customers?
Some companies are already doing this, and in the situation when construction costs are so unpredictable, it is a reasonable practice - most clients understand it perfectly well, because they face similar problems, for example, when building a house for their own use. Of course, such clauses should be introduced in an appropriate manner, as transparent and understandable to buyers as possible.
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