Developers will face a number of challenges this year related to, among other things, the high cost of raising capital, obtaining planning permission and the implementation of planning reform by local authorities, according to Otodom’s Housing Quarterly and Polityka Insight.
“The government’s BK2% preferential mortgage programme and the announcement of Housing to Start have changed the mood of the housing market. However, it is worth noting that the trend of supply recovery in 2024 will be hampered by a number of factors that may ultimately determine the market situation,” said Polityka Insight chief economist and co-author of the Quarterly, Adam Czerniak.
The expert stresses that the main barrier to new residential investments will be the high cost of raising capital. This, in turn, will determine that only the most financially advantageous projects will be finalised – i.e. those whose gross margin will oscillate around 25-30%. By definition, each such investment should generate revenue for the developers, allowing them to repay the borrowed capital.
Moreover, in 2024, obtaining building permits may be even more challenging than before.
“Following the building boom, the stock of readily available land, especially in large cities, is now historically low. Meanwhile, plots of land that in theory could be used for the construction of apartment blocks are in practice often fraught with legal problems due to the lack of zoning plans and the long time it takes to set development conditions, or the difficulty of obtaining environmental approvals. Obtaining building permits is therefore becoming increasingly time-consuming,” Czerniak explained.
The situation for developers may be further complicated by the planning reform introduced in 2023. It obliges municipalities to adopt general plans by the end of 2025. This, in turn, may make local authorities reluctant to quickly issue development conditions under the current rules while new documents are being enacted.
Does this mean that black clouds alone are gathering over developers? Not necessarily. The introduction of new developments in 2024 will, on the other hand, be favoured by the deceleration and even declines in the prices of building materials observed from September 2023 and the projected reductions in the cost of workmanship.
According to Otodom and Policy Insight experts, there are many indications that 2024 could be similar to the previous year in terms of turnover and demand behaviour. The announcement of a programme – even more so – of preferential loans has whetted the appetites of further groups of consumers. Not only those who happen to be in need of housing purchase support. For those for whom the subsidy is practically the only chance to buy, it is creditworthiness and the ability to accumulate capital for an own contribution that will determine whether they will have a realistic chance to purchase increasingly expensive properties, it concluded.
In response to the high interest in buying homes, developers began launching new developments towards the end of the year. As of November 2023, they had launched 6,400 flats in seven major markets, 20% more than in October and more than three times as many as at the beginning of 2023, the Quarterly recalled.
The fourth quarter of the year proved to be record-breaking in terms of the increase in residential offer prices. In the last three months of the year, they rose by an average of 5.2% q/q. And this is the highest rate of price growth recorded since the real estate boom of 2020-2021. The increases were strongest in metropolitan areas with more than 500,000 inhabitants (+5.5%) and least in small towns with up to 50,000 inhabitants (+4.4%).
The high rate of wage growth accompanied by falling inflation levels and lower interest rates boosted the creditworthiness of buyers, including those not eligible for the BK 2% programme. Thus, both borrowers benefiting from BK2% and those applying for a loan on market terms were active in the housing market, further encouraged by the increased choice of flats for sale, the highest since Q3 2022.
Flats from the secondary market became most expensive. Indeed, their average offer prices increased by more than 7% compared to the previous quarter and by 15% y-o-y, it was also reported.
The house market was not spared by the price boom either. In the last three months of the year, segments became more expensive by more than 3.5% q/q, detached houses on plots up to 500 m2 by more than 3% q/q, and those on large plots by more than 2.5%. On the other hand, the smallest increases were recorded in the category of plots for sale – their average offer price rose from £241/sq m to £244/sq m.
Source: Otodom/Politics Insight and ISBnews
