Will raising capital for investments in banks, which is now burdened with higher costs, reduce the number of projects introduced to the market and housing prices? Are developers looking for alternative ways to finance new projects? What kind? The survey was developed by the real estate website dompress.pl
Andrzej Oślizło, President of the Management Board of Develia S.A.:
An increase in interest rates and higher costs of raising capital will have a negative impact on the number of units introduced to the offer and the increase in prices. Our company, as planned, is increasing its offer, but maintaining the assumed pace depends on the further development of the situation on the market. Virtually all investments are financed from our own funds and from customer prepayments. Good sales already at the initial stage of implementation allows you to support project financing.
Due to the changing realities on the market and the expected decline in sales, we are analyzing various options, including development in more prospective areas, including PRS, implementation of projects in the JV formula or with a greater share of bank financing. We have sufficient financial reserves to support the financing of projects from our own resources to a greater extent than before, which will be particularly important for our clients in a more difficult time on the market.
Małgorzata Ostrowska, director of the Marketing and Sales Division at J.W. Construction Holding S.A.:
Investment financing is one of the components of the price of an apartment, so higher interest rates mean a higher final price. So far, this factor has not significantly influenced the cost of implementing our investments, because many of them are largely or even fully financed by ourselves, or we sell ready-made apartments in the project after the loan is repaid. An example is the Jerozolimskie Invest investment in Aleje Jerozolimskie in Warsaw, where the customer can buy a ready-to-live-in, functionally furnished apartment.
Adrian Potoczek, development director at Wawel Service:
At the moment, we do not see any relationship between increased interest rates and the emergence of new investments. Likewise, high inflation is not the main factor affecting home prices and construction costs. The main factor here is the price of the land. We have a land bank all over Poland and our own funds that allow us to implement further investments. Currently, we also do not plan to search for alternative financial solutions. All our investments are carried out in accordance with the previously determined work schedule and we do not forecast any delays at the moment.
Piotr Ludwiński, Sales and Customer Service Director at Archicom S.A.:
The company has a stable financial situation, we do not have investment loans and we enjoy the trust of financial institutions, and we look at the changes in the long-term perspective. Our 35 years of experience and strong market position allow for flexible adaptation of the offer to the current demand. The decision to start a project is always preceded by a thorough analysis, putting the protection of the interests of the company, shareholders and investors first. Change in interest rates costs, and thus the increase in the cost of financing, applies to the entire market and it is natural that it will affect the final price of flats, but it is not the only factor. Our observations show that the prices and availability of land, materials and construction costs also change significantly, which may cause potential problems for smaller entities. We see a greater danger resulting from higher interest rates in the reduced creditworthiness of our potential clients.
Joanna Chojecka, sales and marketing director for Warsaw and Wrocław at the Robyg Group:
Higher interest rates primarily translate directly to customers, their creditworthiness and the size of the apartment they can afford. Of course, financing investments in such difficult macroeconomic conditions is not easy. It should be noted, however, that Grypa Robyg has a very good cash position. On the other hand, the main impact on home prices is inflation and a drastic increase in the costs of building materials, energy, services and raw materials. This will certainly be a very important factor that will determine the size of the demand for housing, and thus the supply that will match it. We assume that the market of apartments for rent will definitely increase and here we can already observe the growing interest of customers.
Yaron Shama, CFO of Ronson Development:
Higher interest rates translate to a large extent into the costs associated with financing the investment process. In the case of a developer that issues bonds to finance a land purchase, incurring the investment costs starts from the first day. Usually, these are fixed costs added to the investment costs and incurred until the end of construction. The second aspect concerns the bank financing the construction process, which can of course affect the total investment costs. In this case, the most important thing is at what pace the sale is carried out. If it is at a satisfactory level, the exposure to high interest is not material.
Ronson Development is constantly looking for alternative, additional ways to obtain financing. In the first quarter of 2022, thanks to the help of our main shareholder, we signed a SAFE agreement with potential investors. We also always consider JV opportunities with landowners.
Zuzanna Dobra, Commercial Director at Eco Classic:
Above all, higher interest rates and tighter criteria for calculating creditworthiness have a negative impact on buyers’ ability to obtain financing. At the moment, it is not a significant problem for obtaining investment financing or a factor that significantly increases costs. However, the increase in construction costs is of greatest importance for potential further price increases.
Janusz Miller, Sales and Marketing Director of Home Invest:
We generally finance investments from our own funds and customer contributions. At the end of last year, we sold one of our projects entirely to the fund. Thanks to this, it was ensured, among others financing of investment implementation. Such experience allows us to open up more to cooperation with funds also in subsequent projects. We also do not rule out obtaining financing from banks.
Mariola Żak, sales and marketing director at Aurec Home:
It is true that the higher interest rates and creditworthiness requirements imposed on banks by the Polish Financial Supervision Authority made credit more difficult to obtain than a few months ago. The sharp increase in interest rates has a negative effect on the entire industry. We reckon with the fact that more expensive capital raising and servicing of liabilities will have a significant impact on the number of flats introduced to the market and their prices. In the case of development premises, prices have already increased by 19.1 percent in March 2022. compared to March of the previous year. We expect housing prices to continue to rise as investment costs continue to rise, but at a much slower pace than before due to the decline in demand. We are constantly monitoring changes taking place on the market and we are considering the optimal solution for financing further investments.
Marcin Michalec, CEO Okam:
The increase in investment financing costs due to the rising costs of construction materials or interest rate increases in the case of a developer loan or floating-coupon bonds based on WIBOR may affect the financing of current projects by some which developers, or to postpone planned investments.
At the same time, taking into account the increase in project implementation costs due to the rising prices of raw materials and building materials in the world markets, housing prices will increase, but the growth will be rather stable, at a level of several percent. Customers who will not be able to obtain the necessary financing for the purchase of a flat to own property will probably enter the rental market, at least temporarily. The appearance of the real estate market will be influenced by the further development of the macroeconomic and financial situation in Poland.
Wojciech Chotkowski, President of the Management Board of Aria Development:
Our newest investment, Osiedle Natura 2 in Wieliszew, has so far been carried out without external financing. We managed to implement two thirds of the project with our own funds. Due to the scale of our new projects in Poznań and around Warsaw, we are open to talks with banks and private funds.
Sebastian Barandziak, president of the management board of Dekpol Deweloper:
Rising interest rates can significantly affect the total cost of a development investment. Hence, an extremely important aspect is responsible building of project schedules. Correlating sales revenues with project expenses allows to minimize financial costs. Of course, the company uses external financing, but our hedging and liquidity management policy allows to minimize the negative effects of increases in interest rates on the results achieved and, what is important, on the prices offered to clients.
In our opinion, a greater risk of a decline in the number of housing projects introduced to the market may be seen in the demand side. According to data from the banking sector, customers’ creditworthiness decreased by 50 percent. since the beginning of the rate hikes cycle by the MPC. On the other hand, the noticeable, drastic decline in the offer of flats for rent, caused by the influx of refugees from Ukraine, allows us to expect an increase in sales among investment clients. We monitor the market situation on an ongoing basis and we are constantly looking for new, attractive sources of capital.
