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Summarizing situation on residential market in Warsaw

Warsaw is definitely the largest residential market in the country. In 2008 almost 19 400 new residential units were placed in service in the city, which was the best construction output within the period of the last 20 years. Warsaw’s share in the Polish residential construction output constituted approximately 24% in the year 2008, and if we consider companies’ operations outside the borders of the capital city, within the Warsaw Metropolitan Area (WOM), the total share of WOM can be estimated at approximately 30% of the total construction output of apartments built for sale in Poland. The data concerning the number of apartments planned for completion indicate that the year 2009 will bring an even larger residential construction output. At the same time, in the coming year we will be able to observe a dramatic reduction of the number of building permits issued as well as number of apartments whose construction has been started. In comparison with the rest of the country, the economic position of the city inhabitants remains evidently better. In March 2009 the unemployment rate was at the level of 2.2%, the average salary amounted to 4 318 PLN, which means it was higher by 30% than the average in the country and higher by 6.0% than in analogous period in the previous year. However, the deterioration of the economic situation in the country will definitely soon be reflected both in indices concerning the level of retail and in salary growth, and especially in the unemployment rate. The first quarter of the year 2009 was the period of extraordinary low developers’ activity. After a very weak fourth quarter of 2008, the supply on the residential market has dropped even more. Only approximately 900 new residential units were introduced to the market, which is the lowest result since two years, indicating a reduction by 35% in comparison with the previous quarter. In the analogous period of the year 2008, the number of apartments introduced to the market was four times bigger. Due to the lack of customers and a difficult situation at the credit market, the developers have practically suspended introducing new investments to the market. In the first quarter of 2009 for the first time in 2 years the number of apartments on offer has significantly fallen. Compared to the previous quarter it has gone down by 9%, reaching the level of 15 400 apartments.
The difficult situation in the market has influenced also the demand side. Due to the fact that many banks have withdrawn from granting mortgage loans, many consumers had to resign from purchasing a new apartment, despite having paid the advance. Even though the sales in the first quarter 2009 increased by 50% in comparison with the last quarter of the year 2008 and amounted to 1600 residential units, this result is several times lower from sales results noted in the year 2007 and in the beginning of the year 2008, when on average approximately 3 000 - 4 000 apartments were sold per quarter. It were precisely the good sales results in the period between the years 2007 and 2008 that constituted the main reason for keeping the pre-sales levels relatively high. For apartments planned for completion in the first and second year half of 2009, the sales reaches respectively 69% and 50% which means that over 8 000 residential units planned by developers for completion in the current year remain in the market.
In comparison with the previous quarter, we noted a significant growth – by 50% - of the number of apartments ready and unsold: it reached the level of 1350 units, which constitutes currently 9% of the offer. The majority of these are not very attractive, expensive or poorly located apartments. It is still very difficult to buy a ready, two-room apartment located near the underground line for a price below 500 000 PLN. The average price of apartments introduced to the market in the first quarter of 2009 reached the level from the beginning of the year 2007 and amounted to approximately 8 100 PLN/sq.m., while the average price of residential units on offer grew in this quarter by 2% compared to the previous one and amounted to 8 900 PLN/sq.m. Within the 12-month period (fourth quarter of 2008 compared to fourth quarter of 2007) the prices of residential units on offer remained on the unchanged level. The median of apartment prices distribution amounted to 8 000 PLN/sq.m., which means that one half of all apartments currently on offer is priced below 8 000 PLN/sq.m.
When commenting on prices noted within several last quarters, we should take into account the broad range of bonuses, promotions, reductions, cuts and sales offered to the customers. We may estimate that as a result, transaction prices are lower by approximately 400-800PLN/sq.m. from their respective offer prices, which reflects the average price-cuts on the level of 4.5%-9%. Due to a dramatic drop in sales in the fourth quarter of 2008 some developers have started to show a previously unseen price flexibility. In some cases, the scale of reductions exceeded 15%. We may predict that for the Warsaw developers, the worse is still to come.
Despite the fact that the number of apartments on offer will probably further decrease, the limitations in mortgage loans availability as well as unfavorable socio-economic situation will keep sales levels relatively low. However, each successive quarter ought to bring a slight improvement both in terms of the number of new mortgage loans and in terms of apartment sales. When we take that into consideration, deep and general price reductions in most investments do not seem very likely, with the exception of very expensive projects offering average standard. The main problems that developers will have to face in the first year half is the liquidity gap resulting from negative attitude of banks towards financing new projects.
Adam Kulpa Junior Consultant

Added by admin April 11, 2010 (10:57PM)

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