Sunday, 25 October 2015

The historic day

Last week of the campaign was hot. On Monday evening two would-be prime ministers clashed in a TV debate, lacklustre, full of trotted out catchwords, hackneyed promises and hollow words. The other day TV stations hosted a debate of eight party leaders. That show’s value added was much higher and probably substantive, appealing appearances of small party leaders (Mr Petru, Mr Zandberg) took some support off the largest parties and helped smaller grouping garner more votes. Nevertheless the Tuesday’s debate laid bare how embarrassing Mrs Kopacz and Mrs Szydło are and how leaders of other parties stand out. I suppose the debate convinced many voters the times of choice between PO and PiS only should be over and a breath of fresh air is essential to unfreeze Polish political arena.

Today I turned up to the polling station in NI just after 9:00 a.m. I have a habit of going to vote possibly early, but never, ever have I seen such turnout. Clement weather and clocks going backward a few hours earlier could have contributed to high number of citizens casting votes. Media reported numerous queues in polling stations, while official figures by PKW showed the turnout at midday was anything but impressive, but at 5:00 p.m. up-to-the-mark with commendably high number of voters visiting polling stations in big cities. Such facts theoretically should not augur well for PiS…

Needless to say ban for publishing part results of the elections in the era of the Internet is ludicrous. Disguised results, varying from one to another, were disturbing, most showing swingeing lead of PiS (allowing them to form a government without having to look for a coalitional partner) and distressingly high score of Kukiz ’15.

Preliminary results show 4 parties will definitely make it to the parliament, PSL is balancing near 5% threshold, Kukiz is unlikely to get a double-digit score and… PiS will get what they were fighting for – simple majority in the parliament. They managed to attain what was unattainable even for PO at the height of its popularity. Fortunately, along with Kukiz, they are short of some 20 deputies to change the constitution.

I congratulate the winners and wish they run Poland well. We have to respect the citizen’s will. Let’s give them a chance.

Sunday, 18 October 2015

Looking for a flat

Maybe it’s not a perfect moment, but I’m taking the moment and trying to make it perfect to revisit my post on property market published two years ago and find out what has changed on the marketplace since then.

The best answer to the question above is: “nothing, except for rising number of transactions”. In October 2013 I predicted a 3% y/y drop in property prices, while in reality prices were, despite small fluctuations, flat.

The graph to the right shows average property prices (per sqm) in Warsaw over the last 3 years (source: NBP). Cursory analysis of the graph tells you that: (1) sellers have begun to realise the boom is over and asking prices had to be adjusted down to lure buyers, (2) difference between asking prices and transaction prices narrows, (3) primary market witnesses a revival, while secondary market is featured with more price stability.

A careful analyst will scratch beneath the surface and discern two other regularities that need to be taken into account. Firstly, each quarter sample of properties making up the average is different. In one quarter properties of higher standard in better location could be traded, thus inflating the average price, in another quarter there could have been higher turnover in poorly located or rundown flats, sending the average price down. Secondly, the difference between asking prices and transaction prices does not show how steep discount a buyer can expect, since samples used to derive the averages are totally different.

Since primary and secondary property markets in Warsaw are worlds apart (to be elaborated on down the post), they behave differently, yet analysing the property market in Warsaw as a whole, judging by AMRON-SARFiN data (gathered from notaries), transaction prices are flat as a pancake, ranging between PLN 7,100 and PLN 7,400 per sqm over the last 3Y, a variation that is negligible. These figures however also need to be interpreted with caution, since samples of properties being composites of the average vary from quarter to quarter.

While looking at the post from October 2013, it does not hurt to review the factors which could drive property prices up and down.

The factors meant to increase property prices:

1. Interest rates – today NBP’s prime rate is 100 basis points lower than 2 years ago. This has not boosted much demand for mortgage loans, however distorted creditworthiness criteria at some banks. This is a trap, since if a household can afford repayments today, it might fall into troubles if interest rates revert to where they were in 2008 (which could mean nearly two times higher instalments).

2. Income brought by bank deposits is even lower that 100 basis points than 2 years ago, on account of overliquidity in the Polish banking system. According to press information, the outflow of money from banks into the property market is taking place, since greedy depositors keep chasing higher return. Frankly speaking I do not understand their rationale for investing on the property market (other than the fact property is tangible). If after-tax rental yield is now in Warsaw some 4%, while after-tax return on a decent bank deposit is 2% (absolutely attainable), the extra income is 2 percentage points (no, not two times higher, you should calculate it as percent of capital invested). Now from the two additional percentage points per year of the yield you should deduct:
I) one-off transactions costs incurred at the purchase of a flat (ca. 3% for notarial charges, transaction taxes and entry in the land and mortgage register + potential commission for estate agent of another some 3%),
II) inevitable costs of void periods, i.e. when a flat is empty and not only does not earn income, but generates fixed costs, and cost of finding a tenant (additionally inflated, if you entrust the task to an estate agent),
III) cost of wear and tear,
IV) premium for uncertainly regarding price appreciation / depreciation – at exit this will materialize,
V) liquidity premium (compare how easy it is to convert a flat and a bank deposit into cash).
I deliberately do not count in problems with rent collection and damages done by tenants, since these can be covered from cash bail paid up-front, as well as all the hassle letting a property involves.
I can also reiterate the question how the increase supply of flats for rent will be met by demand from tenants, in the long run I do not see a balance here…

3. Cash buyers, who have waited for the perfect moment, keep generating demand. On top, I see these days lots of people who are at the process of upgrading to a more posh property (the question is whether they plan to dispose of previous flats).

4. In October 2013 supply of flats under construction was shrinking, today it is back rising and record-high. In two or three years, I foresee a supply overhang…

5. The government-run borrower-support scheme in Warsaw had little impact on primary market, because of the low price limit, however in the outer districts, prices of some flats were adjusted up to fit the limit, while in those more attractive downward adjustments were witnessed. Since September 2015 MDM covers also secondary market, however with price cap of some PLN 5,200 per sqm, only a tiny minority of low-standard flats fall under the scheme.

The factors that were meant to decrease property prices:

1. Demographics – does work, but to minor extent. Two years ago I mentioned it as the most important factor in the long-run. We need to wait five to ten years to observe its impact on property prices.

2. Situation of youngsters – has not changed much in terms of job security of salaries.

3. Recommendation S – I believe higher requirements towards buyer’s equity will be more observable, when the missing percentage of equity will not be that easily supplemented with MDM subsidy or will not be insured easily. Full impact will be witnessed in 2017, when 20% own contribution will be a must and only half of it could be covered by MDM or low-equity insurance, this will mean each buyers will need to have some 13% of property price in cash…

4. Banks have somewhat unleashed their expansion in the mortgage loans segment, however it might be curbed by the newly enacted laws after the parliamentary elections. Banks will most probably need to pay a tax on assets, which will not hurt the banking sector much, however the solution for the problem of CHF-denominated loans has not been worked out and the threat of severe losses for the sector if the most abject scenario (converting loans at the exchange rate at which there were taken out) remains conceivable. If so, the property market might go into decline for two reasons: (1) banks would curb lending on account of capital shortfalls, (2) owners of many flats currently unsellable due to LTV > 100% would be unlocked to sell their properties and swap them for bigger ones (however they would find it harder if bank lending comes to a standstill).

5. Future insecurity – no headway since 2013

6. Property prices remain steep, but flat, so if wages rise, availability of properties increases.

7. Costs of living are generally flat, with official deflation, yet prices of basis goods, including household upkeep, going slightly up.

All in all the two groups of drivers have been offsetting each other and I expect them to do so in the near future. A considerable decline of the property market, if no external shock hits, is likely around 2018, when combined forces of inevitably looming demographics, oversupply of flats on primary market, more stringent mortgage lending regulations in force, should send real property prices down.

On my own front, I began to look for a flat actively this month. My general criteria a sought flat needs to meet:
- one bedroom, between 50 and 55 sqm area,
- separate kitchen,
- garage is a must,
- built after 1995
- location: Ursynów, Włochy or Ursus,
- budget constraint depending on a district.

The last dilemma still being sorted out is between the primary and secondary market.

A flat from a property developer:
- is brand-new and you are nearly free to arrange it the way you want,
- incurs lower maintenance costs in the first years of living,
- is less likely to be a pig in a poke (defects coming into the light and requiring additional repairs)
- involves lower transaction costs at the purchase.

In turn a flat from a secondary market:
- can boast of better location and better developed infrastructure (especially in Ursynów, where supply of new flats is short),
- might be ready for moving in,
- might have more reasonable layout (easier to find two rooms above 50 sqm and separate kitchen) and might have been built from better materials (regular bricks rather than pre-fabricated blocks).

Moreover, the primary market in terms of concluded transactions is booming (both supply and demand on the rise), hence developers might be resistant to attempts of haggling down the price, while the secondary market is in the doldrums and impatient sellers, tired of putting up their flats for sale for months, or even years, are willing to make bigger concessions. I can admit to have browsed property advertisement since taking the exam (so for more than 4 months) and I have noticed several advertisements stay there intact (dates are updated so that they appear closer to the top of the page, but price stays the same). Offer of flats in Warsaw today is virtually the same as it was in early summer...

What also need to be noted on the secondary market is the extent to which it has been plagued by incompetent estate agents. I understand sellers might be too busy to deal with sale process on their own, but for a brainy and well-versed in legal matters buyer, who also has some spare time to look for a property, an agent adds no value (confirmed by brainy friends who used to make money on being well-paid intermediaries in good times). On the market which is in the doldrums, competition among estate agents is high and you can find the same flat (same photos) put up by several agencies, at different prices, with different usable area and located at different streets, which additionally proves incompetence of estate agents!

Another question I am facing is, how to buy not to lose on it. Given my relationship status and size of sought flat, the flat I’m looking for from the beginning is not the target property. If prices go down, I argue this should not be the problem, since my flat will be worth less, but in absolute number, prices of larger flats will go down by even more.

On the other hand, what the future holds is uncertain. I do not know whether a girlfriend appears in three months or in three years, when, if at all, I will get married and when my children will be born. My parents, who agreed to support me financially in my plans, think it would make sense much more to firstly find a girlfriend and then to think about a target flat or house. Nevertheless they agree there is the stage of a relationship when people should live together, but it is too early to take far-reaching decisions, such as buying a property for more than half a million PLN. And they also agree I enter the age when a male should live on his own… Something I long for, yet not at all costs.

After all young males (including me) feel a desire to be independent, have something that belongs to them, have privacy essential at such age and take responsibilities. Oddly enough, the percentage of young (aged 25-34) people in Poland living with parents keeps increasing. Not only the harsh labour market is to blame. Generation gap is waning, parents are more tolerant, so decision not to fly the nest, not to taste duties and responsibilities taking care of oneself involves, appears convenient for many adults.

Sunday, 11 October 2015

Home straight before the vote

The topic of the oncoming parliamentary election in Poland has been neglected on PES for too long. Like many Poles, disgruntled with feeble PO-led government, I have grown indifferent to politics, hence the absence of up-to-date commentaries. Beware though! You may be incensed, you may be fed up with politicians, yet it must not be the reason to take umbrage at democracy at all and decline to go to the polls; sadly many clever people around declare to do so, for the first time since many years.

Since many voters have not yet decided who they will support, a short (biased) overview of what the parties which stand a chance of garnering seats in the parliament lure us with.

1. Prawo i Sprawiedliwość (Law and Justice) and its sidekick-groupings

The odds-on favourite winner according to all reliable polls, with support oscillating between 30% and 40%. Since the party generally lacks ability to find a coalitional partner and refuses to make concessions in its pursuit to lift Poland from ruins, it aims for a score which would secure them a simple majority in the parliament. Given the recent drop in support for the party and how numerous the anti-PiS electorate is, the scenario seems now out of reach, although the party capitalises well on Poles’ weariness of Platforma being in power for too long.

The party strives to run a substantive campaign with focus on economic agenda. While the end is commendable, means leave a lot to be desired and hollow promises do not hold water, when confronted with shortage of budget proceeds to finance the joyful spending spree.

For a long time PiS kept some of its prominent leaders (Mr Macierewicz, Ms Pawlowicz) locked away, presumably not to deter moderate voters. Only recently the party’s president, Mr Kaczynski, began to put in public appearances and for some reason this coincided with drop in support for the party.

While I can comprehend the Polish conservative society care little about problems of civil partnerships, abortion, in-vitro, etc., I find it mind-boggling how short a human memory can be. The rule of PiS and its coalitional partners, brought to an end in October 2007, two years of spoiling Poland’s secret services, justice system and harnessing them to chase own political goals should have been engraved in Poles’ memories. This style of doing politics was rejected by Poles in 2007. Now it is likely to return, with much stronger magnitude…

2. Platforma Obywatelska (Civic Platform)

After eight years of being in charge of the country, PO begins to pay the price for numerous scandals, getting riveted to privileges of power and for straying away from ordinary people’s problems. Thanks to the generous injection of money from the EU, under PO rule Poland has moved ahead considerably, yet the progress has not necessarily been felt by many Poles in terms of their standard of living. As I once quoted Mr Sienkiewicz, I can reiterate an average Kowalski has not benefited enough from all the positive developments which have taken place in the recent years and asks “what’s in it for me?”. Prime minister Kopacz has discerned it, yet far too late, and had far too little time to catch up for the lost years.

The wake-up call for the party was the lost presidential election, a clear signal many Poles opt for a change, just for the sake of overthrowing the current state of affairs, even if what is offered in return is uncertain. PO is desperately fighting to regain support of disillusioned voters and entices groups of voters who have never been PO’s core electorate – hence since Mrs Kopacz took charge of the party, PO’s agendas, both the economic and the social, drift left. Maybe knowing PO stands no chance of winning over those who adore PiS, it strives to take over moderate leftist electorate, strategically the step is wise.

Another sign of party’s desperation is inviting political outcasts to candidate lists in the election. Presence of Mr Michał Kaminski and Mr Dorn (both guys were among the ardent builders of would-be Czwarta Rzeczpospolita, yet rejected by Mr Kaczynski instead of sliding into political non-existence, have found a cushy shelter on PO’s lists) and Mr Napieralski (he should begin to search for a regular job, a task well beyond his capacity, instead of living off taxpayers’ backs) is a ludicrous step I find barely forgivable.

As I keep track of the campaign, solitude of Mrs Kopacz is more and more noticeable. She goes it alone, she fights alone, her party-mates seem to be bracing for setting themselves up in the more comfortable role of the opposition.

3. Zjednoczona Lewica (the United Left)

To keep their heads above water, Mr Miller and Mr Palikot have decided to team up and fight the battle to survive together. This means they will need to reach the hurdle of 8%, a result that seems attainable, yet is glaringly low if you bear in mind, according to sociologists’ research, some 30% of Poles declare their views are leftist.

The agenda ZL (I will stoop low enough to “sink” them, since I believe criticism should be substantive and not referring to semantics) offers is clearly leftist, often populist. Thumbs up for them for laying out an agenda that could actually benefit the poorest, thumbs down for the same agenda which is unviable and would hamper economic growth.

All in all, ZL attempts to position itself against PO (too liberal in economic terms and not enough liberal in social terms) and PiS (with makings of infringing civic freedoms and track record of treating favourably the wealthiest), looks out distinct to them, yet lacks credibility, most probably because its image has been tainted by dodgy party leaders (Mr Miller and Mr Palikot) out of favour with several leftist voters.

4. Polskie Stronnictwo Ludowe (translated as the Peasant Party)

Current coalitional partner of PO. In polls always balances near the 5% parliament entry threshold and always scoring much higher in actual elections. The party’s credibility (with me) has been dented by recent utterance of its leader, Mr Piechocinski, who claimed the great coalition of PO, PiS and PSL would be to the benefit of Poland. Screw loose, dear neighbour, determination of your henchmen to hold on to stools in ministries and government agencies must be really strong, but talking your head off has some boundaries! If PSL deputies find some seats in the parliament, they will make up a coalitional partner for anybody.

5. Kukiz ‘15

Whenever a grouping has its leader surname it its name, it brings out associations with personality cult and I find it off-putting straight away. Mr Kukiz, having scored an impressive result in the presidential election, has wasted much of his alleged potential afterwards, yet eventually has also managed to get his act together and compile lists for elections. Despite having no agenda, since any agenda is a deceit, he still stands a chance of making his way to the parliament, carried by the votes of the fed up, outraged, duped, etc.


Set up less than four months ago, endeavours to offer an alternative to PO electorate let down by how PO has strayed from its original economic liberal agenda. Nowoczesna calls for reforms PO shies away from, yet its agenda is disguised as beneficial for all citizens, while many points (e.g. flat taxes) of it favour only the richest. For the sake of straightforwardness, I would prefer if it clearly dubbed itself representatives of entrepreneurs and corporate rodents.

Two weeks ahead of the election, the most likely scenario is that all six parties make it into the parliament, but PiS will not have the ability to form the coalition which would have majority in the lower house. The only natural partner for them would be Kukiz ’15, alliance with some deputies from PSL and ZL (then ZLew) seems also conceivable. Most likely we will be in for long squabbling that will benefit nobody.

Personally… In the lower house election I am going to put a cross against Let’s face it, they best represent my interests as a financial sector employee. My rationale is selfish, yet if a scenario of broad coalition against PiS materialises, I would prefer it to have economically liberal tilt and only presence of can ensure it.

In the upper house election, I will vote for (and not against other candidates) professor Monika Płatek backed by ZL, an outstanding lawyer and a voice of common sense in public discourse regarding civic freedoms. I hope PO electorate, plentiful in sub-Warsaw constituency, will hold back from voting for Mr Giertych, indirectly supported by PO (shame on you, PO) by not putting out a counter-candidate.

Looking forward to days after 25 October 2015; will be anything but boring!

Sunday, 4 October 2015

In the future, in the past, going nowhere, much too fast

Perfect, clement weather. A whiff of late summer in early October (day-time high of +23C, not much short of October heat record for Warsaw of +24.5C, set on 5 October 1983). Spent most of the day outdoors, lazily or actively, yet in the great companion. Reflective mood has kept me company while I was basking in the autumn sun anyway…

Today is the sixth anniversary of my mother’s best friend’s death. 4 October in 2009 also fell on Sunday. She passed away late in the evening, thus losing a battle against cancer she had fought for months ahead of the sad day. Back in the early years of blogging I followed the principle to keep the private stuff away from the PES. I do not regret abiding by the self-imposed rules at that time, yet regret not putting in words my feelings at that time and confining only to succinct coverage of the funeral. Our families used to be friends over the period of my childhood and teenage years. Ciocia Magda used to be one of my nearest and dearest, closer and more trusted than most relatives. Piece of life, hundreds of memories turned into ashes, yet alive as reminiscences of her survivors.

Today also falls the third anniversary of most crucial conversations I had with three people which three days later were compiled into the timeless Guardian Angel conversation, the post on PES I most frequently revert to. With hindsight, as three years passed by, I am immensely grateful to myself for picking up courage to face up to all the bitter feelings overwhelming me at that moment. Freeing the thoughts, putting them into order, confronting them with I had been told by wiser fellows sobering me up have helped reach the turning point in breaking free from that hapless affection.

Getting over that miserable infatuation took me good six months. For the last year of working at the Employer’s, my professional relationship with Her was correct. While seeing Her for the last time on 31 July 2014, on my last day of work, I did not resent Her for what we had been through. Yet She was the only person deliberately I cut off. I have met or spoken to all my immediate co-workers; all, except Her. Oddly enough though before I had been in much closer relationships with girls / women than in that dead-end something I would not call a relationship, I still feel She was a piece of my life. She has not left a wound, yet a scar remains.

The Soulmate (a work-mate at the Employer’s today a friend) while we met last month told me She had probably broken up with that guy. “A pity, She will turn 32 soon, She will find it only harder to find a decent boyfriend, this is not the state of affairs I would wish on Her”, I replied. I sincerely wish Her all the best, yet I felt a twitch of twofold nature: I felt this could be chance to start over and to be honest with you, I smirked at thought She got the well-deserved punishment (for what?). I was curious whether Soulmate mentioned this to chin me up (I am not the only one who has it uphill with the opposite sex) or to gently hint starting over. Two weeks later I outspokenly told the Soulmate I actually had not been indifferent to the news she had passed to me, yet…

Let’s face the truth. Lighting never strikes in the same place twice, as the saying goes. You could argue, we are both three years older, more mature, wiser, our lives have moved on, we have experienced more. We are both three years older, but She still is four years older than me. We have no common source of income, I earn more than twice as much as in 2012 and for some reason She and her ex-boyfriend are no longer together – if anyone thinks these developments make a fundamental difference – shame on you! We could forget who hurt who in the past and discover each other as if we just met, but we would not erase what set us apart from each other. I have my pride. Being second-best does not make sense!