Less fresh stock will tighten the market

Compared to 2001, there may be 25-30% fewer residential units arriving in  Warsaw in 2002,  according to REAS Konsulting's latest report into the housing market in Poland's capital. Though sales dropped in the first few months of this year, there are signs of increased absorption; as supply falls, demand will increase, creating a more positive climate in the city's housing market in 2004 or perhaps even 2003.

The prospects for developersi building multi-family residential units have worsened significantly since early 2001, because of the economic downturn Poland has generally experienced. This has caused a reduction in both the number of units scheduled for development and the number of active developers. The required minimum period of three years to plan and complete a residential project, means that  any deferral or abandonment of projects in 2001 or 2002, will reduce the inventory of available housing units at least until the end of 2004.

Fewer units
The aggregate number of residential units, planned for completion in 2002-2003 was 30,000 in Warsaw, down 7,200 units on REAS' survey conducted nine months earlier. In the Greater Warsaw area, around 38,000 units are scheduled, a decline of 8,000 units. Past REAS surveys have shown, however, that actual completions are 20-25% below the developers' stated plans and current difficulties in the market will result in a further 10% shortfall in 2002-3. REAS consequently estimates that actual completions in the commercial house sector will be in the range of 20,000 units over 2002-3.
The fall in the number of permits and construction starts since 200 is an important indicator of the anticipated decline in near-term production. As it takes a minimum of two years to build a typical project, the decline will become clearer when fewer units are delivered in 2003-4. But as market conditions improve, developers with unused permits may begin construction quite quickly. There could even be as many as 8,000 units with permits but as yet not started.

Pricing trends
No evidence was found of any significant reduction in prices, though developers are currently more flexible in negotiating sales terms. Few developments in Warsaw are being constructed with bank loans, so there is little external pressure to reduce prices and increase sales to repay credit. Prices therefore remain relatively stable and developers are waiting for improved market conditions, which will earn them profit. This has meant that many developers have been able to absorb the 7% VAT, which is now added to any flats they sell.

Conclusions
2002 sees more developers engaging more of their own equity, as well as securing bank financing for projects, which will increase the development risk and reduce profitability. Financially weak developers and those seeking higher returns will leave the market.
Demand for housing in Warsaw has not however disappeared and diminishing supply along with better availability of mortgage financing and the beginning of economic growth, should increase demand. z
 

i In this context, the term developer includes housing co-operatives, development companies and TBS, (non-profit housing associations) and building units for sale.