In summing up the year 2008, one has to start off with the statement that it consisted of two different periods: the first lasted till the end of September and the second was the year’s last three months. The first three quarters of 2008 saw continued trend that had been observable since mid-2007, with slightly more residential units launched for sale than sold. The aggregate sales for Warsaw within the said three quarterly periods equalled 8,000–9,000 units, which enabled to forecast annual sales at ca. 11,000–12,000 units. This did mark a clear drop as versus the year 2007, with ca. 16,000–17,000 units sold; yet, taking into account changes in the terms of funding and common fears of the marketplace’s tomorrow, as coupled with complete disappearance of investment transactions which in the peaking boom period could be estimated at ca. 30% of the market, such an outcome should not be regarded as surprisingly low, in fact. It has moreover to be borne in mind that part of the demand (ca. 1,000 units per quarter-of-the-year) has been absorbed by suburban projects delivered in the metropolitan area outside of the capital city’s limits – chiefly in localities of Piaseczno, Pruszków, Ząbki. The marketplace’s picture was essentially complemented by fast growth in the number of single-family houses started within the Warsaw Metropolitan Area – to ca. 9,000 as for 2007, up from ca. 4,000 – 5,000 per annum in 2004–2005.
Apart from the very number of units newly launched for sale, the market standing was materially influenced by the number of units on offer at the year’s beginning. Warsaw developers, similarly to their colleagues in other cities of Poland, marketed in Q4 2007 a record-breaking number of new dwelling units. Resultantly, the number of units exposed has increased more than twofold as compared with the beginning of 2007, up to 13,000. It is worth noting that until quite recently this had been an average annual output across developers operating in the city. What was happening in the market was also materially informed by the scale of speculative units. It may be estimated that there are some 10,000 such units today, completed or nearing delivery; on top of that, there are ca. 6,000–7,000 such units under construction.
The subsequent quarters made reduction of the supply by developers increasingly apparent; however, the number of units getting sold in these consecutive quarters did not come up to the number of units being marketed. As a result, at the end of Q3 2008, the number of units exposed has grown to ca. 16,000. The average quarterly sale ratio, i.e. the number of units sold in a given quarter versus the number of units exposed as at the end of Q3 2008, equalled 18% – a nearly fourfold lower than the Q2 2007 figure. To simplify, the conclusion out of this comparison is that in the period in question, the sale for a mean Warsaw project has dropped fourfold.
Although it became clear at some stage that the year 2009 would prove even worse – expectedly, the toughest period in the dozen-or-so years of the history of development sector in Poland – it nonetheless seemed that things should not be going much worse. However, the late September/early October came out with a baking crisis of a sort virtually no-one would have expected to ever occur in this domestic market. Not only did bankers ceased crediting new development ventures virtually overnight but suspended offering facilities to developers’ customers. Anxiety overwhelmed directors of development businesses and members of their staff, as well as their shareholders and contracting parties. This mood of uncertainty was soon to get transferred to prospective customers. In parallel to symptoms of funding squeeze in the residential market, the mass media started offering new, increasingly pessimistic forecasts with respect to the next year’s economic growth, availability of lending, situation in the labour market. As a result, the already low-performing sales in a number of companies still decreased a few-fold – particularly for recently started projects. Against this background, completed popular-segment (low-end) units were selling relatively well, with certain transactions being closed entirely on a cash basis, for the first time since long ago.
No surprise, then, that it’s rather hard to be optimistic in conceiving forecasts for the year to come. Of key import to the market performance will be the conduct of banks and the macroeconomic situation, as well as consumer spirits.
In terms of an optimistic scenario, the credit crunch will come to an end in Q4 2008 whilst the next year will bring about unbeneficial but clear new rules of play. In 2009 banks providing funding to development projects will put much stronger emphasis on the developer’s own funds and how the presale of residential units has performed. Given the present oversupply, this latter criterion will be a directly decisive factor for the scale of new residential project funding. It can be expected that the two factors in question will be decisive as to the ability of financing new projects. No presales to the borrower’s credit will translate to a higher equity required from it.
What is means is that the option to fund the buy of a land using a bank lending facility will be quite narrow, if not reduced to unfeasible.
For a change, banks are expected to resume granting credits to individuals under severer rules (minimum deposit 20%–25%; rigorous assessment of family income; prudent approach to evaluation of the collateral; preferences for completed units; insurance offered to off-plan buys; careful approach to very expensive residential units; ban on funding for speculative/rental purposes). The new lending will be lower globally by ca. 20%–30% than in 2008. As per an optimistic scenario, interest rates will start dropping quickly since mid-2009, thus slightly increasing availability of lending facilities.
According to a pessimistic scenario, uncertainty will last into mid-2009, the first quarter still to see the ‘Italian strike’ among bankers funding (or rather, non-funding) the residential sector. Year-2009 new lending will decrease by ca. 40%–50%, which will be accompanied by high margins in spite of reduced interest rates, and extended decision-making procedures.
Under either scenario, the residential market crisis will be accompanied by increasingly disturbing signals from other sectors of the economy. Since Q1 2009, unemployment is expected to be increasing, against shrinking production and internal market. Salary increases will be inhibited. Established companies, including developers, will be exposed to a risk of bankruptcy. An adverse impact on the market will additionally be exerted by shrinking savings owed mainly to collapsing stock market and the resulting reduced amounts of savings amassed in funds.
These elements will quite adversely inform social spirits. Readiness to incur debts will be counteracted also among those who can afford it. Possible bankruptcies of developers will feed prospective buyers’ concerns even more.
Given the circumstances, the aggregate sales in the Warsaw market will probably not exceed the 2008 figure, the remarkable condition being that developers have marketed a significant number of units priced below PLN 7,000/sq. m gross. However, the demand/supply relations may significantly vary by major market segment. The market may be close to balanced in low-end segment whilst in the upper-middle segment (price range PLN 9,000–13,000/sq. m) the pool of units remaining unsold may be still increasing.
Lower importance of first-time buyers – i.e. individuals entering the labour market without large savings and thus, unable to pay in any remarkable deposit – can also be expected with high probability. On the other hand, it is worth emphasising that a large group of prospective buyers is formed of families already having a flat – typically, a small one – of their own, quite typically purchased a few years ago and paid off to a considerable extent (in terms of mortgage repayment). Taking demographic trends into account, this particular group should include a considerable number of families willing to improve their dwelling conditions and capable of paying a considerable deposit conditioned upon offering them a possibility to sell their existing flat.
In the context of forecasting future prices, continued reductions in enhanced-standard apartment and standard premium apartment segments can be expected – bearing in mind a large scale of uncertainty as to how the market may behave in 2009. The scale of such reductions will be conditional upon the standing of specific businesses and projects themselves. Assuming that the new lending will get normalised in Q2 2009, the situation should start gradually improving since September 2009, but asking prices will probably decrease within the range of ca. 10%-15%, viewed on a December 2009-to-December 2008 basis. Gradual decrease in the pool of exposed units can be expected to occur in 2010; by the end of 2010, prices should start slowly growing, the condition being indications appearing that Poland has resumed an economic growth path. The annual price change in 2010 should be slightly positive (a 0%-3% range). Hence, the present-day pricing would be attainable again around mid-2011.
A possibly improved marketplace situation will most probably be identifiable in the latter half of 2010, the condition being the country’s significantly improved economy.
