During the boom in the housing market, forecasts were outdoing one another as to where the prices will be rising most and fastest. At present, experts and the mass media are prophesying falls of several dozen percent. Before we start guessing by what percentage can dwellings cheapen locally, let us think for a while about the rationale behind pricing policies employed by developers.
In the short term, prices of residential units may be prevailingly informed by the bankers' strategy with regards to crediting development businesses. In this respect, the situation of individual entities is extremely diverse. Those developers who started their new investment projects backed with firm bank-provided funding will not be forced to have their prices reduced drastically. A completely different situation occurs with companies which took the risk of starting a new project without secured bank funds at sufficient amounts. In the case that bankers refuse them increased or extended lending, they will have to rescue themselves by selling out lands their own or by waging quite a fierce pricing fight with their competitors in order to accelerate the pace of sales, be it at the expense of seriously reduced margins.
A developer's maneuvering ground is also conditional upon the margin, whilst the latter depends to a considerable extent on the price the developer had paid for the land. If the proportion of the cost of the land per sqm of the dwelling's useable area is PLN 100, then the developer would probably still retain a rather large room for a reduction. On the other hand, however, if the said proportion is PLN 2000-3000, a reduction in the price of a flat or apartment would be not-quite-plausible; yet, such a developer's situation is indeed unenviable.
Inclination to get prices reduced may also be conditional upon the sales of the specific project. Some developers can namely be reducing the prices of last available, as-yet-unsold units in a project, as they are aiming at closing the investment project. Others, being in a similar situation, would take a contrary action - quietly waiting till the good old times are back. This attitude may be favored by policies applied by bankers, should they start clearly preferring completed units. How investors will be shaping prices in projects with medium (30% to 80%) advancement rate of sales progress will be conditional upon their liquidity-related situation and upon how easy it will be to get a housing credit for a not-too-advanced stage of construction.
Other questions of importance, and central to the pricing policy, include: the specific market segment; present-day prices offered for the project; location; type of project; and even, the type of accommodation. The expected adjustment will probably to a lesser extent affect units of the basic standard and floor area. Any significant reductions in prices of two/three-bedroom apartments remaining within accessibility limits of most prospective buyers should rather not be expected. Having said that, no drastic drops should be expected, for instance, for a project situated in the outskirts of Warsaw and featuring basic-standard units priced at PLN 5,500 per sqm.
Dropping prices may instead be applied, to a larger extent, to big accommodations with untypical, if not extravagant, character. The luxury apartment segment offers units priced at a dozen-or-so thousand PLN per sqm, targeted at the most affluent purchasers, not infrequently non-Polish citizens. Buyers of this sort mostly have some place to live in, and do not have to buy an apartment just today - instead, it is an investment buy for them, or, a means to enhance their personal prestige. Therefore, it is generally easier for them to withhold the decision to buy. Reduced demand in this particular segment may have also been caused by lending policies applied by banks which may now much more carefully approach the option of granting credits for the highest-priced units, being aware that their value is presently re-valued/overestimated to a highest degree possible, whilst high incomes of (potential) purchasers prove to be uncertain, given the unsteady labor market.
A certain adjustment for the value of real properties resulting from the present-day financial crisis seems inevitable. The scale of this adjustment will vary by market segment, the situation of a given developer and the project's advancement. It should also be borne in mind that although the prices of new apartments built in large cities in Poland are overestimated to some extent, they still retain their value, ensuing from their real useable value, relatively decent quality, and rather good locations.
To sum up, any attempted effort at forecasting average price reduction ratios does not make much sense at present. There are still too many unknown factors that might affect the picture, whilst the average may include projects with prices coming to a standstill as well as those with 25% price reductions.
More information about the residential markets in Polish major cities can be found in the new REAS report "Residential Market in Poland - Autumn 2008"
