4th July 2005
Thursday, September 2nd, 2010
Property boom or hot-air bubble?
Polish residential real estate is hot property at the moment, but, having learned their lessons in the earlier investment boom, some experts have their feet firmly rooted to the ground, while many agents are talking up price growth and capital appreciation.
| There is no shortage of buyers for Warsaw homes |
Although he presented a raft of statistics that all pointed towards a property boom, Kazimierz Kirejczyk of Reas Konsulting was keeping his feet firmly on the ground.
"It's a very promising market but while investing here don't expect miracles," he said. Peter Gage Morris, managing director with Ober-Haus Real Estate, has other ideas, and although he has the same figures at his fingertips he has "very different conclusions."
In a presentation he outlined 10 factors that he believes are going to fuel long-term growth in Polish property prices, namely: growing loan liquidity; a growing population; deteriorating house stock; strong GDP growth; strong real-wage growth; low unemployment; EU membership; eurozone membership; reduced barriers to entry; and foreign direct investment growth. Furthermore he expects a spike in property prices before the VAT hike on January 1, 2008.
In the past, many had targeted foreigners as an easy source of tenants who were willing to pay high rents, but Morris believes this is no longer a viable market. "As an investor, target below the market," he advises. "Don't buy flats just for foreigners and ex-pats, that's not a growth segment. The number of foreigners here is relatively stable, so target young Polish professionals. Generally people pay zł.1,000 to zł.2,000 per month and you can get yields of eight to 10 percent on this target market. It is the fastest growing segment where demand far outstrips supply."
Morris quickly sketched his idea of the perfect investment property. "I'm a big believer in Warsaw," he says. "New build or historic prewar of two to three rooms, 50 to 60 sqm. You won't get the best yields here but you will get the best price appreciation. Two, three, four room [apartments] probably have the lowest yields at the moment but in the long run that's where the demand is and where you will get the greatest price appreciation."
He also says there is still money to be made in the city center. "The price differential between the city center and the suburbs is just not great enough, it's roughly 50 percent in some cases [and] maybe 20 or 30 percent [in others]. City center and the riverside district still have a lot of growth ahead of them. Upper Mokotów is still a very nice area, [as is] Żoliborz and Saska Kępa." Failing that, apartments in "green areas, especially near to the existing or future Metro line" are a good buy, as far as he is concerned.
Many at the conference were evasive when it came to the rental market. It is the weak link in the Warsaw property market, and many investors may have to get used to the idea that rental income may be inconsistent and lower than they expect. However, capital appreciation is what many speculators will be looking at, rather than yields, and in this respect Warsaw has plenty to offer.
There is still a lot of potential in the city center, and not just in existing buildings. "The center of the city has a great deal of lands still available," says Dror Kerem, general manger of Ronson Development. "There is a great deal of post-industrial territory that has yet to be developed and sold in the city center." He also warns against the dangers of simply buying up property without first examining it thoroughly. "I don't want to call it junk but there are certain newly built projects that I think [buyers] should stay away from." He believes that build quality will be a major factor in the years to come.
"When I lived here at the very beginning I lived in the most expensive area, which was on the corner of ul. Hoża, which was where the foreigners lived and if someone looks at it today, it is a dump, because at the time people did not invest in giving you quality. Today you have to recognize that a building need to look good in five, 10 or 15 years."
Some are wary of older buildings, with many buyers viewing new builds as a safer bet. However, renovating an older structure can unlock serious potential and major profits, and Krzysztof Litwiński, president and CEO of Coldwell Banker Poland, says that canny buyers and developers should look to "old residential housing, apartment blocks that are close to the center in areas that are not popular now." He points to the east of the city as a good example of untapped property potential. "Many of the streets in Praga are very uninspiring today but there is no doubt in my mind that in a couple of years they will become attractive and that proof has already started with prices going up [in the area]. If you are looking for long-term investment I would definitely take a close look at those areas."
But to know what to buy, you need to know your buyer and many developers spend a lot of time sketching the typical flat hunter and then building to suit their demands. According to Jeroen van der Toolen, managing director at Ghelamco: "[Developers] are looking for a standard client and a lot of builders are developing this standard client unit. There is a very big market for out-of-the-box units with more windows, larger terraces, and higher prices, but [clients] can afford it."
Legislation is a perennial problem, but some remained upbeat on the legal hurdles. Krzysztof Litwiński bemoaned "the lack of zoning law" and said: "Until this gets settled as a permanent structural solution, it will continue to distort the demand and supply evolution on this market." However, according to Jonathan Gimblett from legal firm Linklaters: "There is nothing to fear from the legal system in Poland. There are set procedures and where there are risks there are ways of closing it off. Things are really speeding up in Poland and there are lots of legislative changes. The legal climate is becoming more positive."
There are many opportunities in the market, and not just for owners and developers. "The big issue in residential is with property management," says David Dixon, senior partner with legal firm Chadbourne & Parke. "There are some domestic Polish agencies that get involved in one-off building and if you are a buyer who is not in Poland you have to deal with the problems of letting." Some are even resorting to buying a property and not trying to make rent on it, instead leaving it standing "dark ... as core and shell", he says.
Many agree that this is not good for the market, and Helmut Fischer, managing director of Bank BPH's real-estate division, tries to avoid such developments. "I try to protect myself against lending to such projects," he says. "I don't like it and I think it creates a lot of problems. I try to limit this problem."
As a developer, Jacek Wachowicz, vice president and director of CEE acquisitions at Heitman, is aware of the problem but less concerned with it. Rather he is worried that speculators are creating an artificial demand for properties that will cause a minor property bubble in the years to come. "We are observing the same phenomenon," he says. "Our main focus is the end user. However, we have a situation where people buy 10 or 20 apartment in one shot. One has to take into consideration how much of the market is coming from those investors. The nature of the market is that they come, they buy and in a few years' time they will be the seller, so looking at a long-term perspective we are selling to our competitors. There is no doubt that at some stage there is going to be a correction in the market."
David Dixon also points to the major difference between large international developers operating in Poland and smaller domestic builders, with local knowledge but less capital. "There is a major difference between local and international operators," he says. "Local guys can get everything done much cheaper and they still have something of an inside track on local property thought they don't have the financial muscle to really get in there and compete with Heitman and others in prime locations. [Domestic developments tend to be] a little less well located but they have such a good price differential. There is clearly a dichotomy between international and domestic builders."
From Warsaw Business Journal by Laurence Mackin
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