Don’t wait
for the perfect moment! Take the moment and make it perfect!
- Why do
you argue now is the right time to buy a flat? When will the property prices go
up again?
- Prices
won’t rise soon, however in my opinion the third quarter of 2009 will bring the
onset of slow, yet stable upward trend (…) Those who take decisions swiftly
will be the winners.
- Do you
think then prices on secondary market will not decrease in the coming months?
- Where
they were meant to fall, they have already fallen.
The scales
on the property market have not been tipped so favourably for a while. And it
seems this won’t last long. Hurry up then!
Decline of
property prices has come to a halt and prices are not going to fall any more.
This is a good moment to buy a property, but a bad time for selling it.
Property
prices are still low and banks are more willing to grant loans. According to
property agents, this is the perfect moment to buy a dreamt-up flat.
Some time later in the second half of 2010:
This is the
best moment to buy a property. It won’t be any cheaper!
Some
property agencies seem affected by the slowdown on the market, other describe
the current market as ‘stable’. Nevertheless, all property agents claim in
unison this is the perfect time for property buyers.
Last days
of 2011 and first months of 2012 will be the perfect time for property
purchases – experts convince.
Whoever
plans a property purchase should not put it back. Downward trend in prices is
likely to reverse.
If you
consider buying a property, this is the perfect moment. Prices have gone down,
but fewer buyers can boast about desired creditworthiness. Even if next year
prices fall, the decline will be negligible.
Planning to
buy a flat? Property market practitioners point out sellers are ready to make
bigger concessions in price negotiations. This indicates the perfect moment to
buy has come!
Property
prices keep falling and have reached the levels last seen in 3Q2006 – good
moment to buy a flat!
Experts
claim now is the best moment to buy a flat!
Over the
last year property prices have significantly gone down. The economy is markedly
reviving. The probability of further price decline is miniscule, while choice
of flats is wide. It seems this is the perfect moment to buy a flat!
Chart 1:
Average price of one square metre of a property on primary and secondary
markets in Warsaw over last almost seven years. Source: National Bank of Poland’s quarterly report on property market, figures based on data collected
from notaries (reflect only transaction prices, rather than asking prices (sellers’
wishful thinking!) in property ads).
Chart 2:
Average quarterly prices of one square metre of a property in Warsaw, this time
sample covers all properties from primary and secondary market. All data are
transaction prices and are based on data collected from notaries. Source:
excerpt (short version of) from AMRON-SARFiN’s quarterly report.
Conclusion
1: chart 1 is biased – by starting in 3Q2006 it omits the first phase of
property market frenzy which kicked off in late 2005. Since then up to the peak
of property market bubble (?) in prices went up by up to 100% - growth scale in
time frame of 3 years (therein some 50% growth in 2006 alone) makes it
justified to call it a bubble.
Conclusion 2: the perfect moment has lasted for five years. It has been one of the longest perfect moments in the history.
Conclusion
3: based on the recent history of property price fluctuations and frequency of
developers and property agents bleating about the perfect moments, there is no
significant correlation between intensity of obtrusive urging to buy and higher
demand for flats reflected in mounting prices.
Conclusion
4: The regularity observed during many stock market and property bubbles, i.e.
when everyone tells you to buy this is the best moment to sell has proved true
between late 2008 and now.
Conclusion
5: the future trend is rather unpredictable… (deserves the ‘conclusion of the year’
award ;-))
…Albeit my
expectation is that within the coming year (i.e. by the end of September 2014)
average property prices will decrease by 3 percent year-on-year and with 95%
probability the price change will range from –10% to +6%. Over the coming
decade the prices are most likely to stabilise in nominal terms and drop in
real terms on average (with some deviations from the long-term trend). Here’s
the rationale:
Why
property prices might rise:
1. Interest
rates, now at their historical lows, are predicted to stay unchanged for about
a year, and then are unlikely to rise quickly. Lower interest rates have a huge
impact on amount of monthly instalment of a mortgage and hence on
creditworthiness. Thus a borrower with the same earnings has some 30% higher
creditworthiness than a year ago. But watch out – this is a trap. The capacity
to repay a long-term liability is assessed based only on current market
conditions and National Bank of Poland’s base rate will not equal 2.50%
forever. If it goes up by 2 percentage points, monthly instalment of a 250,000
PLN loan with current interest of 4.00% taken out for 25 years will rise from 1,319
PLN to 1,610 PLN (by 22%) if the interest rate increases to 6.00% (note annuity
payments are very sensitive to interest rate changes).
2. Low
income on bank deposits discourages wealthier depositors from keeping their
savings in banks and makes some of them to invest in properties in pursuit of
higher yields on rents. Beware though, this is a trap as well – if everyone
buys flats with the intent to lease them – will the supply of new properties be
matched by demand from lessees? Won’t this trend exert a downward pressure on
yields to make them equal with bank deposits? And note flow of income from a
relatively small group of well-off people is a rather one-off occurrence,
therefore the price incline cannot rely solely on demand generated by wealthy
buyers.
3. There is
a group of buyers who’ve already had enough of waiting for prices to go even
lower and are running out of patience. In the meantime they’ve amassed some
cash, so they can either pay in 100% or take out a small loan to finance the
purchase – this group is capable of generating steady demand and unlike wealthy
disgruntled depositors can make the upward trend sustainable.
4. Supply
of new flats offered by property developers and number of new dwellings under
construction are both shrinking. As the basic laws of economics state, lower
supply should result in higher prices.
5. New
government-run scheme (flat for the young), bound to take effect in January
2014 – the government will fund 10% - 15% of purchase price of a flat from the
primary market only. The biggest restrictions in getting the subsidy are a
square metre price cap (to be set at 5,865 PLN in Warsaw in 1Q2014) and the
fact an applicant must not be older than 35.
Why
property prices might fall:
1.
Demographics, one of key drivers of the property market. People naturally seek
to have their housing needs met and want to buy (or rent, or build their own)
properties. Number of young people entering the labour market is decreasing
year by year and given that the population of Poland is set to contract,
prospects for price hikes in the long run are downbeat.
2. The
biggest demand for flats is generated by youngsters looking for their first
flat (later they swap one for another, bigger one, i.e. upgrade) – not only
their number is lower, but also labour market is not on their side:
unemployment rate among youngsters is higher than a few years ago, many of them
work under ‘junk contracts’ (banks do not view it as steady source of income),
salaries for workers under 30 are much lower than before the crisis.
3.
Recommendation S, issued by Polish Financial Services Authority (KNF) which
states a mortgage borrower will need to put up a specific percentage of
purchase price as equity. This percentage will be rise 5% in 2014 to target 20%
in 2017. This recommendation (banks won’t date to try not following it) will
bring to the end dicey 100% loan-to-value lending.
4. Banks’
reluctance to increase their mortgage portfolios. This product is not the most
profitable (hard to cross-sell it) and its risk seems to have turned out
underestimated – for many CHF-denominated mortgages, outstanding debt
considerably exceeds property market value, putting banks at risk of not
recovering the lent amount in case of borrowers’ defaults.
5. Future
insecurity among potential borrowers – given the scale of layoffs in the
corporate sector (which should by all means fall back along with recovery in
the economy), many people think twice before taking out a loan for several
years (who can guarantee nothing bad happens in such time horizon). Even if
someone has not been affected by a job loss or salary cut, they could have
observed someone else losing their source of income. Mortgage-taking spree from
2006-2008 was fuelled by booming economy and over-optimistic expectations that
good time would last forever. That craze is extremely unlikely to repeat in
many years.
6. Despite
considerable decline (some 20% in nominal terms over last 5 years in Warsaw on
average), property prices are still steep in relation to ordinary people’s
earnings and for many potential buyers out of reach. Currently an average
monthly after-tax salary in Warsaw (some 3,600 PLN) is enough to buy a half of
a square metre of property in Warsaw. This means after two months of putting
aside 100% of one’s salary (in practice impracticable) you can buy one square
metre of an average flat; after a year you can buy six square metres; after
eight years of not spending at all you can buy a decent one-bedroom 50-sqm flat
for cash.
7. In the
meantime costs of living have risen disproportionately to nominal wages growth.
This means the discretionary income, i.e. the share of monthly cash inflow that
can be either saved or spent on mortgage payment has dwindled. Needless to say
what effect it has on demand for properties.
I’m
planning to buy a flat in about a year. Hope the wind blows in the right
direction…
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