Residential developers operating in Poland have several possibilities to find a balance more easily on the decreasing number of transactions on the Polish market – incl. entering the PRS (Private Rented Sector) market, in new segments or in smaller cities, assessed Mateusz Bonca, CEO of JLL in Poland. According to him, developers will not start price wars, they will rather try to maintain the price level and protect margins.
“Last year was very good for developers due to high demand and successively shrinking supply. It was a time of high margins and high sales efficiency if the given developer managed the resources well. However, it did not improve access to land and led to the exhaustion of the offer,” said Bonca.
According to him, this year the market will shrink in terms of the number of transactions.
“We can see that the market has had a systematic ten-year growth to 2019. Due to the uncertainty caused by the 2020 pandemic and the money flight, 2021 was a record year in terms of the number of transactions. Today, our internal analysis shows that we are again at the market level. from 2015-2016. Although there are many factors that will have an impact on the final result in 2022,” he stated.
“The market has already started discounting this next year and this discount on the developers’ valuation has appeared. On the one hand, there is a fundamental increase in operating costs, physical construction costs, and financing costs. On the other hand, access to plots has not improved, administrative decisions have not accelerated and at the same time interest rates are rising on the demand side. Although the influence of the latter on the market itself is not decisive – because as we will look historically, the value of lending in Poland was not directly dependent on the value of interest rates – but certainly a flight from savings towards residential real estate it may not be so dynamic,” continued the president.
According to him, this will mean that the market will look for a balance between supply and demand at a new point and will fall back into the lower ranges of the number of transactions.
“What should be more and more important for developers is that the market has matured and an institutional ‘leg’ of business has emerged that can stabilize their business. There is room for a shift to another segment in the event of retail sales ‘squatting’. This growing activity. We have already seen it last year. So far, these were not such transaction values that would change the Polish housing market significantly, but investors’ appetite is high,” he assessed.
Other trends that have clearly marked the strategies of development companies include shifting towards premium investments or smaller cities, and in the context of difficulties in building a land bank – greater propensity to take over smaller entities with their own projects.
“The situation of each developer is individual and it is difficult to indicate one standard and optimal strategy, but for sure, especially in the largest markets, the time of easy investments has passed,” he said.
“All developers are actively looking for land. If they are not able to rely sufficiently on the land bank built earlier, the integration trend may intensify, with the acquisition of entities with investment areas in desired locations. It is worth noting that an interesting phenomenon in recent years has been a marked growth activity of developers – mainly local – in smaller cities, below 100,000 inhabitants. This is where over 70% of all apartments built in Poland are already being built,” he continued.
Above all, however, in 2022 developers will – with a great deal of caution – keep the business balance and maintain margins.
“If we look at the strength of the developers’ business, with a well-managed process of introducing new investments, they will not have the appetite to start price wars. It can be assumed that they will try to maintain the price level and defend the margin against the rising costs of their operations. I think the market is has already discounted these trends. Even before the pandemic broke out, the sector was entering a phase of lower turnover, and now, after artificially induced acceleration, it must find a new equilibrium point,” he concluded.
Source: ISBnews
