In 2023, do developers expect reductions in the prices of construction materials and general contracting, as well as a correction in the land market? Will the slowdown in housing production and the decline in demand for services and materials bring reductions in offered rates?
Andrzej Oślizło, CEO, Develia S.A..
In recent months, the costs of general contracting and materials have begun to stabilize. However, we do not expect significant reductions in the coming months. Due to the market situation, developers are limiting the launch of new investments. Lower demand will affect the rates offered by general contractors, including the level of margins. However, these reductions may be offset by expected higher energy prices and transportation costs, which will be reflected in the price level of construction materials.
In 2023, we are likely to see a further slight decline in the price of land for construction. As I have already mentioned, there will be significantly fewer projects launched next year and they will be carried out mainly on land that is already in developers’ land banks. We are already seeing a slight discounting of the plots on offer today. This segment has already recovered. In my opinion, there will be fewer transactions next year, which will affect the decisions of landowners who will need cash.
Angelika Kliś, Atal S.A. board member.
As for the cost of materials and workmanship, we see that the air is escaping from a kind of price bubble that we have already observed in 2021. Several factors contributed to it, including post-pandemic delays in supply chains, the conflict in Ukraine, and, as a result, inflationary pressures. Although the market is normalizing, it is difficult to expect prices to return to previous levels. We will also certainly feel an increase in energy costs. A favorable development is the greater availability of construction crews and specialized equipment.
Land prices are still subject to realignment. We are securing a land bank for future investments. Many price bargains have appeared on the market this year, prompting us to buy. Optimally prepared plots of land in good locations are a sought-after “commodity”, owners can hold off on the decision to sell them, unless they are compelled to do so.
Zuzanna Należyta, commercial director at Eco Classic
We do not expect significant declines in the prices of contractors, materials or land. In the case of contracting, it should be remembered that the bulk of the industry’s workers were Ukrainian citizens. After the outbreak of the conflict, the outflow of workers is very strongly felt, and thus the cost of acquiring labor hands will certainly not decrease. As for the prices of construction materials, due to the turmoil caused by the conflict in Ukraine, significantly higher energy and transportation costs will persist. The amount of these costs is quite immune to the decline in demand.
In the case of land, the problem is supply. Investment-worthy plots of land with a clear legal situation will continue to be at a premium because they are scarce. In Poland, only 30 percent of land is covered by Local Land Use Plans, which shorten and simplify the investment process. There are also still significant restrictions on the marketing of agricultural land, which make it difficult to incorporate it into residential production.
Małgorzata Ostrowska, director of the Marketing and Sales Division at J.W. Construction Holding S.A.
The rise in the prices of some construction materials has slowed somewhat in recent months, but this has not translated into general contracting prices. Construction companies continue to face problems related to the outflow of workers from Ukraine. Conflict is also disrupting the material supply chain. Construction costs are also not decreasing due to the price of fuel and energy and inflation. Construction prices will also be affected by the increase in the minimum wage.
At most, housing prices in the current situation may stabilize for a short time, but high inflation and a significant reduction in supply (developers started 45 percent less construction in the last three months than a year earlier) will accelerate the pace of housing price increases next year and in the next two years. With a worsening housing shortage and rising rental prices, there is no doubt that the coming months will be the best time to buy property for investment purposes.
Land price forecasts do not point to reductions either. Land is still hard to come by in attractive locations, and one is unlikely to expect profitable buying opportunities.
Marcin Michalec, CEO of Okam
We do not assume a decrease in the cost of construction materials or raw materials. Much, of course, depends on geopolitical changes and developments beyond our eastern border. However, bearing in mind the current year, the rising inflation in recent months, the temporary lack of availability of some materials, which raised construction costs, it is difficult to look at the next months with much optimism. At the same time, it is natural that if investors sell less due to the decline in demand, which is due to consumers’ credit difficulties, also taking into account the higher rates for general contracting and related services, developers will tend to raise the prices of units slightly.
At the same time, due to the limited availability of land in central parts of metropolitan areas, we do not assume a decline in their prices. On the contrary, they may rise. An increase in the number of upgrades of older buildings, especially office buildings for residential purposes, and the development of suburban neighborhoods are highly likely. In addition, landowners far from central locations, realizing the lack of areas for development, may decide to gradually raise plot prices.
Dariusz Nagórski, investment director of Aria Development
We are seeing a slowdown in the growth of prices for many building materials. Land prices are also growing more slowly. There is also less demand for apartments mainly due to the lack of credit availability. With lower production costs, developers would have had the opportunity to offer prices somewhat better suited to the current strength of demand. However, due to inflation and fewer new projects, we estimate that reductions in offer rates will be small or even symbolic.
Sebastian Barandziak, CEO of Dekpol Developer
The upward trend in land prices has stopped. This is particularly evident in the case of single-family residential plots. This is mainly influenced by the increase in mortgage interest rates, which has translated into a reduction in the creditworthiness of potential buyers. The reduction in the number of credit customers is felt in the sale of apartments, which in turn translates into a reduction in the dynamics of new investments being carried out by developers. In terms of land prices for multifamily housing, as usual, good locations with attractive infrastructure in the area are strongly defended.
Karolina Bronszewska, board member, director of Marketing and Innovation at Ronson Development
The slowdown in the mortgage market has made the investment activities of many development companies much more cautious, resulting in a reduction in the volume of projects under construction and the number of completed apartments. Thus, we expect a correction in general contracting prices, related precisely to the lower volume of investment contracts signed.
The cost of construction materials has tended to stabilize, but it is hard to predict how they will evolve in 2023. Prices depend on energy costs, which are expected to rise in 2023, or logistics costs. Due to the continuing conflict in Ukraine, there are also still extended supply chains.
Mariola Zak, director of sales and marketing at Aurec Home
Both investors and contractors know that the situation in the construction market is dynamic and surprises every day. Although the prices of building materials have been rising for the past two years, they may flatten in 2023. The drop in the price of construction items alone could lower construction costs. However, there remains the question of slowing inflation and improving credit conditions. Therefore, I believe that it will still be a long time before the bad streak in the construction industry is broken. What is optimistic, however, is that a slowdown in the price of construction materials may result in the resumption of stalled investments.
As for the prices of building plots, on the other hand, forecasts for the coming months do not indicate that they will decrease. In the first months of 2022, there was a correction of land prices in the largest cities. In localities outside provincial cities, prices continue to rise, although no longer at such a rapid pace as in 2021.
The poll was prepared by the real estate website dompress.pl.
