Property market in Poland – going bonkers indeed?

As prices of residential properties soared in a double-digit pace in Poland in recent months, pricing several first-time buyers out of the market, many wonder, whether the market is already red-hot, how big the imbalance of it is and where the property prices are heading. I will try to come up with a cool-headed analysis, with my judgements underpinned by 3Q2023 NBP and Amron-Sarfin reports (charts come thereof).

Looking at the past two decades, one sees property prices skyrocketed between 2005 and 2007, then levelled off on unsustainably high level, to decline by 20% - 25% in nominal terms by late 2012. For the next five years dwelling prices where in a slight uptrend, which began to accelerate in 2018. In nominal terms, peak levels from 2008 were hit over a decade later. The pandemic did not cool the market down, but the increasing interest rates did it in 2022. In nominal terms prices levelled off, but upon the inflationary adjustment, they fell by 15% - 20% within one year. Then in the second half of 2023 prices increased again, driven by a generous mortgage subsidy programme…

Looking at the graph which shows how many square metres an average salary in major Polish cities would buy, one could infer the market has not gone crazy. The underlying analysis by NBP has some critical drawbacks:
1) salaries are gross-of-tax, which fails to take into account changes in taxation (Polski Ład), which benefitted those who earn less, but hit the middle class,
2) it does not take into account costs of living, especially:
- a portion of net-of-tax wages need spent on payments to landlord by those who reside in rented flats,
- rising costs of basic expenses, such as dwelling upkeep costs and nutrition.

As I coincide with the conclusion dwellings were most affordable in 2016 and 2017, the uptick in affordability in 1H2023 is doubtful given that salary growth did not catch up with rising costs of living around that time.

Analysts from Amron-Sarfin have come up with an enhanced housing availability index, which takes into account more factors, including purchasing power of disposable income and access to mortgage lending. According to their measures, the dream of an own residential property was harder to come true already in 2021 and by the second half of 2022 it declined to levels unseen since a decade. Currently an ordinary man finds it as difficult to buy a flat, as they did in 2011.

Arguably, the property market in Poland is not in a most buyer-friendly shape, but let’s look where it might be heading.

The factors which are likely to drive property prices up are:
1) ongoing first-time buyers schemes extended recently by the government – in Warsaw given the tight criteria they will not spoil the market badly,
2) overall conviction of market participants that prices will go up, turning into self-fulfilling prophecy (this means bubble-like conditions),
3) stringent technical requirements residential buildings from the primary market must meet – they elevate construction costs and jack up property prices on secondary market too,
4) supply constraints – as property developers still have it uphill to get the planning permission.

On the other hand, the market is facing some headwinds, which makes good news for buyers:
1) interest rates remain on a high level and prospects for a material monetary loosening are weak,
2) rental yields are already low – current net income from dwelling subletting is these days lower than on a bank deposit or from government bonds, while risk and liquidity of property investments is incomparably higher,
3) the long cycle is drawing to a close, as examples of countries where prices began to rise earlier than in Poland (Germany, Scandinavia) show,
4) more and more buyers are priced out of the market, which dents the demand.

I have no bloody idea which group of factors will have a bigger impact on the market in real terms (note property price growth below in the inflation rate is an actual decline), but there are several solutions, which might let ordinary people have their housing needs met.

Firstly, let’s build more dwellings, yet without allowing for pathological solutions (which should be theatrically verified by the free market, but under conditions of constrained housing availability, such mechanism does not work).

Secondly, levy taxes on multiple residential property owners (those in possession of more than two properties), which would be progressive (higher tax rates for each next dwelling) and  which would hit harder uninhabited (including not sublet) dwellings. This would curb speculative purchases, which have done a lot of harm to the market (a flat bought for speculative purposes is empty, i.e. not rented and a speculator bets they will gain only from value growth, which is typical for a bubble-like market).

Thirdly, increase protection of landlords – sadly tenants are overly protected by the law in Poland and hence many property owners are afraid of subletting their flats. With a higher supply of flats, rents would go down, which would mean demand from investors would decrease and properties would become more affordable to those who seek their own roof over their heads.

Sick of politics

One down, four to go. Counting down days until the end of his term and wishing him good health.

One of keystone vows of Mr Duda as a candidate was to convert toxic foreign currency mortgage loans to PLN at the rate at which they had been taken out. As the problem is quite intricate, it has been tackled by a dedicated task force several times. The first proposal of loan conversion into PLN at “fair rate” was unveiled in January 2016, another “draft” of set of measures to ease CHF-mortgage-ridden debtors was laid out in June 2016. Last week the president’s experts finally presented the draft law whose core element is the obligation for banks to refund the borrowers overcharged spreads…

YES WE CAN’T, one would love to paraphrase Barack Obama’s campaign slogan. After several promises to bail out borrowers (majority of whom are either well-off and their only problem is that their properties cannot be sold, or are suckers who wanted to outwit their fellows indebted in the domestic currency) the final scheme has been grossly whittled down in comparison to what had been pledged. Yet, as Mr Dera sincerely confessed, perception of a candidate differs from perception of an incumbent president.

Thanks to the new scheme hapless debtors will see principals of their loans decline by the amount of spreads overcharged at disbursement and at each instalment payment until August 2011, when anti-spread law came into force. Essentially, if you look at this detail, president Duda’s task force’s proposal is just the extension to the banking law amendment enacted by PO-PSL government (and initiated by former president Komorowski in the wake of soaring CHF in mid-2011) since it applies to payments between banks and borrowers made between January 2000 and August 2011.

So far no one has mentioned the risk of new law’s illegality. It needs to be noted though banks had charged FX-debtors excessive spreads, or simply had ripped them off, they had done it within the letter of law (there had been no limits on spreads) which in principle is not retroactive. Yet with constitutional tribunal brought to the heel, this should no longer be a concern.

Even if the total cost for banks in Poland reaches PLN 10 billion, the burden will be bearable and will not shake stability of the financial system. “Ensnared” borrowers are let down by Mr Duda’s scheme, while the refund of overpaid spreads will in fact constitute a transfer of wealth from banks’ stakeholders (not only shareholders but also clients) to a relatively wealthy group of PO and Nowoczesna’s electorate who will have their mortgage loans prepaid (or if they have paid off their debt, they will receive cash).

The 72^nd anniversary of Warsaw Uprising outbreak was marked by a dispute to who the homage should be paid at W-hour. A handful of insurgent were called to minister Macierewicz’s office and forced to agree to a compromise that the full list of 96 fatalities of Smolensk air crash would not be read out, instead names of five persons involved in nurturing the remembrance of the Uprising would be read out.

The presence of Smolensk tribute during each and every event assisted by the army not only contributes to denigrating remembrance of 96 Tu-154 passengers who died in the tragic transport accident, but also is the top point on the agenda of rewriting the history.

Besides, the PiS-inspired industry of hatred is running at full steam. The two victims are 99-year-old general Scibor-Rylski accused of collaboration with communist secret services in post-war years and Zbigniew Galperyn. Beyond all doubt general Scibor-Rylski did co-operate in these bleak times, however by all accounts the collaboration was tactical and did not harm anyone. The campaign against Mr Galperyn kicked off just recently, after he criticised combining commemorations of Warsaw Uprising and Smolensk air crash and is backed by no evidence, a similar article could be written about anyone doing anything.

Actually it does not matter whether they collaborated with communist regime before 1989. Many today’s zealous supporters (Jerzy Zelnik) and politicians (Stanisław Piotrowicz) of PiS did it and their past does not disqualify them out of public discourse. What only matters is one’s attitude towards PiS today. The moment you firmly oppose against what knights of dobra zmiana pursue is the moment before the mud-slinging machine is set in motion.

Seven years after this pledge, my approach to the Warsaw Uprising has not changed. I still pay homage to inhabitants of Warsaw who valiantly fought against the Nazi occupier and to civilians who either lost their lives in the Uprising or endured probably the biggest humanitarian catastrophe in the history of Poland. I am sick when I see people who show off how they pay tribute to the insurgents, use the W-hour anniversary as an opportunity for lansik or when public figures attempt to capitalise on the anniversary. Commemorate, but not celebrate. Stop for a minute, in silence, with your head down and be thankful you live a in free, peaceful country.

Meanwhile, first serious cracks can be seen among affiliates of the ruling party who have relished on power. Backdrop of the decision to oust Mr Kurski from the public TV broadcaster’s CEO seat and then to defer his departure by nearly three months laid bare clashes between coteries. Unlike some of you may think, supporters of PiS are not a uniform group. Gazeta Polska entourage is not fond of wSieci / wPolityce and the other way round. The two entourages have also little in common with priest Rydzyk’s empire, not as influential as in 2005-2007. Just read Toyah’s blog to learn more. He often gripes about Rafał Ziemkiewicz, Tomasz Terlikowski and moans how other accolades of PiS hinder the good cause.

Quarrels between coteries do not herald break-up of the wide front of PiS supporters, yet the more perceptible they are, the more they remind Poles PiS politicians are no different than their predecessors, they go back on promises and become corrupt by power

Swiss Francs, no easy way out

One of pre-election campaign promises made by president Duda and the bevy of politicians he hails from was a bail-out for FX mortgage borrowers ensnared into toxic loan agreements and trapped in their unsellable properties for years to come.

In January 2016, exactly a year after the Swiss currency had been freed to float, Mr Duda’s office laid out a proposal of converting CHF mortgages into PLN at a “fair rate”, different for each debtor and reflecting benefits received by debtors on account of favourable CHF/PLN rates before September 2008 and lower interest rates in CHF (for broader explanation in plain language click here and scroll down to the third paragraph from the bottom). The proposal has been assessed as hazardous for the Polish banking system and… shelved. Five month on, the sketch of the solution has not developed into a draft law ready for legislative process… Which is reassuring, since if Mr Duda’s experts are mindful of dire consequences of banks going under or loss of trust among foreign investors, they have held back from pursuing it and set out to reshape the proposal…

On Tuesday the “CHF task force” held a fifty-one minutes long conference, during which they attempted to outline the major conclusions of their work on the bail-out scheme until now. I will be nasty, but I will exercise my right to speak it out… This was one of the most ludicrous conferences I have ever seen in life. I have got accustomed to listening to politicians who speak a lot and say nothing. This time self-styled economic experts have told a story of guys who met up several times to sip coffee, munch biscuits and waffle on quandaries of benighted individuals who wanted to chase their dreams too much…

OK, the malice cap has been reached, time to move on to what audience have been spared, namely details…

The participation in the bail-out will be voluntary, what in practice means some better-off borrowers might not decide to get rid of their Swiss Franc burden, in practice they will continue to bet on depreciation of CHF in years to come. I personally know people who accumulate savings and hope one day they pay off their whole mortgage with one shot at favourable CHF/PLN rate.

The bail-out package consists of several measures distressed debtors could choose between, however I still cannot make out whether they are mutually exclusive or not.

One interesting measure which could theoretically be implemented with another one is the obligations to lenders (banks) to refund the borrowers the overpaid currency spreads. I came, I saw, I did not understand at all. This concept leaves more questions than answers. Firstly, what would constitute an overpaid spread? Banks naturally earn on difference between rate at which they buy and sell foreign currencies, whereas the problem with the CHF mortgages was that spreads were far higher than reasonable (bid-ask spread often above 6%)… So would lawmakers define a reasonable spread banks had been entitled to charge, or would they set National Bank of Poland rate as benchmark? Secondly, would banks give this money to borrowers’ hands or would they obligatorily prepay mortgage loans? Thirdly, would the refund include penalty interest accrued for period between it had been unduly charged and the day of refund? Fourthly, would the measure cover also instalments paid after August 2011 (enacted swiftly the PO-PSL government in reaction to soaring Swiss Franc) when the anti-spread law (amendments to the banking law) came into force?

Fifthly, facing the truth, the banks were not prohibited by the law to rip off borrowers, so would reversing it be interpreted as violation of the precept that law is not retroactive?

The concept of the “fair rate” has been revisited in the presentation. The expert spoke of four variants of the fair rate, however decided to share only two of them with the audience. One draws on the algorithm presented in January 2016, the other would additionally take into account current well-being of a borrower, with debt-to-income ratio (percentage of after-tax income spent on instalments) a key criterion. The very concept of what is “fair” and for who gives ample room for disputes and will most likely by one of moot points if works on the bail-out scheme move on.

Another measure, whose legal feasibility is questionable, is the option for a borrower to extinguish their mortgage debt by renouncing ownership of the mortgaged property. In Poland mortgage debt has recourse nature, i.e. a debtor is liable for it with all their present and future assets. Such scheme again casts doubts whether law does not work retroactively (a bank when it was granting mortgages, relied in creditworthiness assessment on claim on debtors’ assets and income). Incidentally, introduction of pure non-recourse mortgage lending under which a lender could recover from collateral only, could civilise Polish mortgage lending, but at the expense of higher cost of such debt, being the compensation for lenders for relinquishing the recourse to debtors.

The professors mentioned in passing 30 billion PLN as the total cost of their proposal (which one exactly?). No one still knows how their arrived at that figure, but to be honest, to my best knowledge none of the figures presented by any participant of the CHF debate has been backed by substantive calculations or estimations holding water.

The experts (I pull a grumpy cat’s face when I write this word, as Poland’s current ruling elites lack backing of competent experts) also claimed the effects of the bail-out would be spread over around 30 years, yet failed to explain how such spreading over time be brought into line with International Financial Reporting Standards which proscribe to recognise a loss in full amount in the period an entity learns it is going to incur the loss. One of the task force members murmured something about SPVs and securitisation as tools for spreading the cost over time. A word of explanation here… SPVs are used by banks to remove loans from their balance sheets. Some assets (pools of CHF mortgage loans) are swapped for other assets – cash. Hence a bank has its problem solved immediately, provided it sells portfolios of loans to SPVs at face value. If it sells dicey loans at discount, it recognise a loss (or pre-sale write-down) immediately. At this stage the story is not over. An SPV which buys dicey loans from banks must pay cash for it. Cash is an asset which must be funded with equity or liabilities. Who would then provide equity or liabilities? Whoever it would be, they would be exposed to sizeable haircut in their investment, as SPVs would absorb the losses on loan conversions into PLN…

The Tuesday’s proposal has been slated by nearly everyone. Economists criticised it for lack of details (during the conference the task force experts were struggling to answer most questions asked by the audience). Disgruntled debtors, who put faith in Mr Duda’s promises, also do not perceive the unveiled concept of the bail-out package as a step forward.

I suppose PiSites and Mr Duda know well only time may solve the problem of CHF loans and therefore they play on time. Month by month outstanding debt declines as borrowers make repayments and so the scale of the problem diminishes. They fully realise if they run out of money, voters will knock them out of power (if voting regulations are not tampered with), so their spending spree fortunately has halted after 500 PLN child allowance programme kicked off. I bet works on the draft law will drag on for months and by the end of this year the legal framework will not be passed.

Swiss Franc going bonkers

Disclaimers:

1. I am employed by one of financial institutions involved in mortgage lending denominated in CHF, my financial well-being might be negatively affected by aftermaths of sudden appreciation of CHF.

2. I do not possess any substantial (in equivalent of more than 1,000 PLN) liabilities nor assets in or denominated to any foreign currency.

With hindsight it sinks in to me the decision of Swiss monetary authorities from 15 January 2015 deserve some more attention. The Swiss National Bank, apart from discontinuing its policy of warding off appreciation of the country’s currency, decided also to slash interest rates by 50 basis points, pushing policy rate further down into negative territory…

This move calls into questions one of economic paradigms I would take for granted during five years of studies and four years of banking career. Until recently in the economic theory the “floor” for interest rates was zero. Whenever the range of a central bank’s instruments in monetary loosening was described, one mentioned decreasing interest rates to zero and if this turned out to be insufficient, enlarging monetary base. Whenever I asked chaps from market risk department to estimate maximum negative valuation of an interest rate swap, it went without saying the scenario to analyse was an overnight drop in interest rate in a given currency to zero. Time and central bankers proved us wrong…

Interest rate is cost of money. Because as a matter of principle money cannot be bought or sold, the price is paid for temporary transfer of money, i.e. for borrowing or lending it. Theoretically, the cost of money can be negative, but in practice it seemed irrational. Recent goings-on have disproved economic theory. Thus we witness theory of economics is still in the making.

Negative interest rates have serious implications for stability of financial system. We already see the first apparently eerie effects of SNB’s move. Yields of Swiss governments bonds have entered negative territory, not only on secondary market, but also on debt auctions. In practice if yield on a10-year bond is –0.09%, you pay now 100.91 units of a currency to be paid back 100.00 units in ten years. At first glance it such investment makes little sense and the negative yield can be interpreted as safekeeping fee. Nonetheless, investors snap up on such bonds. Why? “The Economist” has beaten it to me in providing a comprehensive answer.

Government bond market naturally crops up as the first illustration of how central bank’s policy impinges on financial system. Let’s examine the outcomes for other economic actors.

Interest rates at which commercial banks lend or borrow money are strongly tied to rates set by a central bank shaping monetary policy of a currency in which those banks lend and borrow. On the lending side the situation is at first sight straight-forward. Components of cost of credit are a variable rate taken from inter-bank market (LIBOR) which is the cost of funding for a bank and the bank’s margin over LIBOR, standing for reward for credit risk borne by the bank. Whenever positive margin is higher than negative LIBOR, the cost of credit remains positive. If the margin, however, was low enough not to fully cover negative LIBOR, we would be faced with a situation when a borrower would have to repay less than they had borrowed. Consider a 1Y 10,000,000 CHF overdraft with cost of 1M LIBOR + 100 bps a Swiss company takes out. The principal is to be repaid at maturity, interest to be paid monthly. But if 1M LIBOR is –1.12%, then what? My first answer would be that no interest payments would occur, but how to handle loan principal? Should the net cost of –0.12% per annum be amortised over time and decrease outstanding loan by 1,000 CHF? If so, what if within a year 1M LIBOR rises above –1.00%? Loan administration staff and finance staff at some banks should begin to scratch their heads now!

From the borrowers’ (no matter if talk of individuals or enterprises) perspective the loan with negative cost is a veritable bargain. Probably the SNB intended to spur borrowing, thus increase monetary base and trigger inflation that would result in currency depreciation. The side effect of this action is that the break-even point for borrowers has been set too low, i.e. some entities that would not be eligible for a loan if LIBOR ran at 1% are now creditworthy. This pool of borrowers will likely default on their debts when interest rates increase, threatening economic growth in the future.

From the depositors’ perspective negative interest rates make horrible news. If commercial banks are to get funding on market conditions, they should pay depositors LIBOR. Businesses have no choice and will need to accept the negative rate. No one would imagine companies switching from bank transfer to handling payments in cash. Individuals, however, might choose to withdraw money from banks and decide to keep their savings in cash in a piggy bank / in a drawer / under the carpet. Of course if you keep cash at home, you are exposed to risk of physical damage or theft, but I presume some depositors would be willing to take those risks. A sudden outflow of cash from the banking system could pose a threat to banks’ liquidity. The effects could be comparable to a regular bank run.

In Poland, the Banks’ association and the Ministry of finance have worked out and agreed on measures to ease the pain of over half a million CHF mortgage borrowers. The proposals are modest and require banks to make some concessions that will somewhat decrease their profits, but in return should fend off provisions for past due debts. The measures will include:

1. lower or no FX spread on instalments – directly hits banks’ earnings, however gives a relief of up to 4% to borrowers,

2. using negative LIBOR as a base rate, however the total sum of base rate and margin might not fall below zero – at best a borrower would not pay any interest on the loan,

3. banks will refrain from calling for additional collateral – it has to be underlined in extreme cases LTV ratio, measure relation of outstanding debt to property market value, might be reaching even 200% (e.g. a borrower owns a flat which could be sold for 500,000 PLN but their debt in PLN is 1,000,000 PLN), the concession is a violation of one of Financial Supervision’s recommendations on mortgage lending, but given the current market situation, it is the best possible solution,

4. extension of lending periods, which would result in lower monthly instalments – given record-low credit cost in CHF and prospects of CHF/PLN returning to levels seen before 15 January 2015, it is a reasonable to wait out the period of ultra-strong CHF.

The compromise is very wise, since both banks and borrowers will share responsibility for the event which has taken both sides aback. That being said, one must not forget during the lending spree which reached in climax between 2006 and 2008 banks aggressively foisted upon their customers loans denominated in foreign currencies, particularly to those mortgage applicants who could not afford to service mortgage loans in PLN, but in CHF, in which interest rates were lower, were creditworthy.

For those with shorter memory, a short reminder, how in July 2006 the same politicians who today bleat how evil CHF lending was, expressed their disapproval of Financial Watchdog’s efforts to curb mortgage lending in foreign currencies.

The Polish Financial Supervision has also come out with another proposal that seems to hold water. The distressed borrowers could be given the option to convert their loans into PLN at the CHF/PLN rate from the day the loan was taken out, however they would need to return to banks difference between lower interest paid in CHF and PLN. The CHF appreciated rapidly in late 2008 and despite staying around or above 3.00 since then, a monthly instalment of a rate in CHF was lower than a monthly instalment in PLN until the first quarter of 2013. This was due to interest rate differential between CHF and PLN that offset CHF appreciation. This proposal should remind CHF borrowers for many years they benefited from their decision, however the reward was accompanied by FX risk… Impact for banks is very hard to estimate, in depends on so many technical assumption of the operation that any attempts to give a ballpark figure are doomed to fail.

The proposal, apart from questions of legal nature, gives rise to several technical / mathematical questions, e.g.:

1. how the current outstanding debt in PLN would be determined (not only FX rate but also loan amortisation needs to be taken into account),

2. how the difference is interest base and effects of loan amortization and changing time value of money would be accounted for,

3. would the borrowers have to return the difference in interest paid in cash, or would banks be willing to add it to the outstanding debt, if yes, would breach of currently binding Recommendation S in terms of max. LTV ratio be allowed,

and many other, proving this idea makes sense, but is on account a quick fix.

Many accuse banks of reaping profits from CHF appreciation. Had it worked like this, we would see enormous profits of institutions involved in CHF-denominated lending in their 1Q2015 financial reports. But we will not. CHF-denominated loans are banks’ assets, but they are effectively funded by liabilities. Because Polish banks do not take deposits in CHF, rarely issue bonds in CHF and generally do not take out loans in CHF (there are exceptions when funding is secured by parent companies), they have to replace funding in PLN by funding in CHF. This is done with use of FX swaps, derivatives which compose of FX spot and FX forward. For example, in order to replace a 3M deposit in PLN with a 3M deposit in CHF, a Polish bank sells PLN and buys CHF at a current date at spot CHF/PLN rate and agrees to conclude a reserve transaction in 3 months, at pre-agreed CHF/PLN rate which reflects interest rate differential between PLN and CHF. Thus effective cost of funding is LIBOR rather than WIBOR. Such operations are risky, because long-term assets are matched by short-term liabilities which needs to rolled over frequently. The roll-over risk materialised in late 2008 when access to FX swap virtually dried out and intermediation of Polish and Swiss central banks was requisite to match positions on Polish banks’ balance sheets.

Banks’ earnings on loans denominated in foreign currencies are made up of spreads. When such loan was disbursed, a bank earned profit on a spread between market FX rate and bid rate (i.e. if NBP CHF/PLN rate was 2.30 PLN, a bank would convert CHF into PLN at 2.20). Then banks earned on spread between market FX rate and ask rate each time an instalment was repaid. This practice was curbed in 2011 thanks to anti-spread law. I dare to claim as of today portfolios of FX-denominated loans, after costs of hedging and provisions for bad debts, generate negative income for the banks.

My own guess is that the period of negative interest rates and ultra-high CHF will not last long. Negative cost of money will lead to distortions in financial system, while strong CHF will send the Swiss economy into deep recession. Bright future is not ahead though. Just three days ago ECB announced it would launch out into quantitative easing. If without near-zero interest rate and expanding money supply economies of the Euro zone are unable to grow, it means they are still on their knees, almost seven years since the outbreak of full-blown crisis in early autumn of 2008. This time there will be more than seven lean years…

Me – the odd one…

I haven’t planned to mark the second anniversary of submerging into corporate world, neither here, nor at work, but it somehow coincided with the first… kind of crisis. It’s not a pure burnout, nor anything akin. I’m still highly motivated, my work gives me a lot of pleasure and satisfaction and still offers a lot of challenges. It’s about people I’m surrounded by.

Overwhelming majority of my colleagues are staid, several years older people who’ve set up families – are married and most have offspring. For many months I hadn’t minded it. I would get along with them and still do so, unlike many of my friends from university who couldn’t imagine working with people not of their age. I hadn’t mind it, but with time it sank in to me I’m a different breed. It’s not just boiling down to the fact I’m 25 and most of them are in their 30’s, but this age difference is a why and wherefore I don’t fit in.

I was aware of some sort of generation gap long before, but I first realised the depth of gulf between us early last month when one of my colleagues returned from maternity leave. Our team went down to our canteen for a coffee and to have a chat. The conversation, predictably, revolved around early stages of parenthood, I sat with all the young and slightly older parents and silently gobbled an ice-cream (eating cold Big Milk once a week superbly fends off germs from throat in the winter, recommended second breakfast) and for the first time I felt actually alienated. I felt like standing up and walking away, but for sake of civility I listened to them with feigned interest in things which won’t be familiar to me for a while.

From that very moment I inadvertently looked for ways to escape their company in moments when we were not focused strictly on work-related stuff. I have workmates below 30s at different departments, so I decided to spend most of my lunch / coffee breaks with them, much to my fellow colleagues chagrin (I don’t understand why they find it so aberrant I seek company of my peers).

Since then some of their habits I used to perceive as minor shortcomings, began to wind me up. The ‘dirty mug pride’ is at the top of their list. Whenever I see them coming to our desk where we have a kettle, coffee jar and milk with mugs or cups not washed after coffee sipped on the previous day it makes me want to puke and I have to hold back not to snatch it and shatter it on their held-up-high heads. At the end of the day before I leave, no matter how much I hurry and no matter how exhausted I am, I have to go to the kitchen and wash my mug. My parents taught me at home that whenever I use any dish, after I finish I should wash and keep it clean, for sake of hygiene. I don’t feel comfortable with dirt, they do.

This somehow contradicts with how toffee-nosed they are. When talking about holiday voyages, they claim they don’t accept accommodation below four-star standard. Everything below this substandard and they deserve something more. The same goes about business trips. I don’t mind staying in an economy-class two-star hotel. I only need a clean bed linen, a clean bathroom, a closet spacious enough for my suits and shirts and a decent breakfast. Why the hell my colleagues think they deserve a better standard? Are they made of higher-quality clay?

This is all a matter of klasa – you have it or not, you won’t learn it, nor acquire it. Good taste and good manners can be easily recognised – whenever they are rehearsed, they are unnatural. You might finish a good university, get a prestigious job, grow into wealth, learn foreign languages, but if you lack klasa, your image will always lack that missing piece. It all comes out in a way you treat people, how you mark your social status, how you use foreign languages, your reliability and attitude to work, etc. A well-mannered person will never treat anyone with superiority, will not raise their voice, keep cool head, be self-confident (this reflect their lack of inferiority complex), never show off their wealth, will learn foreign languages continuously and improve their command, instead of confining to just getting by in communication. Klasa is about modesty and proper balance between self-confidence and self-effacement.

When I observe them, dwell on their mindset, a picture of a typical lemming emerges in my mind. And the word ‘lemming’ does not just refer to voting for Platforma.

By the way, once I can say I am proud of this government. It has fought over 300 billion zlotys for Poland from the EU budget for years 2014-2020. This money will have a great contribution to helping Poland catching up with western economies. I call it an immense success, much greater than the same amount negotiated by Kazimierz Marcinkiewicz government in late 2005, as conditions are much tougher than then. When everyone was focusing on cutbacks, getting that much money is a success. The other story is that the budget might be voted down by the European parliament, many members of which are reluctant to such ‘profligacy’, so the joy might be premature, but the very fact such amount of EU funds is at stake is a reason give credit to our government. Of course the main opposition party, whose leader quite recently declared keeping fingers crossed for Polish negotiating team, but on Friday silver-mouthed PiS deputy Mariusz Błaszczak announced 300 billion are a bare minimum… How much would his principal attain for Poland during late-night informal negotiations without an interpreter?

Coming back to the main thread of the post – I’ve just realised my colleagues are a by-product of culture of consumerism, or triumph of ‘having’ over ‘being’. Living beyond means to show off their status is typical for Poland’s fledging middle class. The focal point of their wealth is usually a mortgage, symbol of dream of state-of-the-art dwelling fulfilled. Not planning to take a mortgage is it least dubious. In my parents’ generation having so much money implied right away you must have come into the possession of it illicitly. For much younger people it rather invokes a question “what’s wrong with you?” What’s wrong with you that you don’t want to have your own flat right away? And I simply don’t feel like taking such burden on my back if I don’t have to (if I was renting a flat, I’d surely have a different view), for many reasons.

Firstly, property prices, despite recent considerable drop, are still steep and given their relation to disposable income, the imbalance of supply and demand, curbed mortgage lending, macroeconomic situation, dwindling consumer confidence and demographic trends, are very unlikely to go up in two or three years; the worst scenario is that they level off.

Secondly, being free of debts gives you a huge comfort – future is not full of insecurity over job stability, health, source of income.

Thirdly, it’s about pure maths. Assuming I take out a 25-years, 250,000 PLN mortgage at interest rate of 6% (=0.5% monthly) and pay it off in monthly annuities, the monthly instalment is 1,610.75 PLN, out of which around 1,250 PLN goes for interest payment, so in the first month my debt is reduced by 360.75 PLN. It means after a year of repayment my outstanding debt is less than 4,500 lower than at repayment phase inception! I could also set aside some money and from most of them prepay the loan (some rainy-day liquidity cushion must stand by). I could safely assume after a year my outstanding debt would go down by 15,000 PLN. In a year of saving and living with parents (and putting up with them) I can set aside a whole lot more and my savings earn interest on top of that.

Fourthly, there are bargains on property market and in case of urgent sale a vendor decreases asking price and can accept an even higher discount in return for cash received immediately. If you want to hunt a bargain, there will be no time to arrange a mortgage. Oh, I would’ve forgotten, the very procedure of fixing a mortgage is also expensive – upfront and other fees usually consume an equivalent of a square metre of a flat at best.

Being thrifty is not a virtue in consumerist world. None of my colleagues does what my parents were doing from the day of my birth until I was finished high school – they were setting aside small sums of money for a separate bank book, then on time deposits. For what they’d put aside and interest earned I could buy a brand-new city car, but a single zloty from that money has not been spent until now and it still works. Then I’d put aside money as a student and inherited some more money. Savings began to rise quickly as I got a full-time job. Should I be ashamed I have accumulated something instead of throwing it about? Should I, as some suggest, paint the town red each weekend and thus decrease balance of my bank account by at least a few hundred zlotys each month?

Some people say after the stint of two years at one employer, there is a need for a change. But in the respects above, transfer to another bank would mean doing the same thing with the same sort of people, so there’s no point in changing… Unless for pay-related reasons… But this is not the case now…

Got it off my chest! What a relief!

No mercy for risk-takers

Sometimes you can hear a widespread opinion that financial markets resemble a casino, sometimes you are told prices of financial instruments do not reflect their fundamental values, but follow a random walk. Even if these assertions are half-truths, they must not be disregarded by anyone who wishes to be a market participant. If you enter a financial market, no matter if you buy, sell, borrow or lend, you take risks. Come to terms with it, put up, or ship out!

Over two years ago Poland witnessed sad stories of companies which speculated on currency options. In 2008 zloty strengthened, its appreciation was potentially detrimental to exporters, for who export sales would no longer be cost-effective. Banks found a solution to their problems – stricken exporters were offered an opportunity to buy currency options on sale of EUR at fixed rate, usually higher than market one. Unfortunately, such a hedge had to cost, so banks came up with a strategy called risk reversal. The rest was once described, there’s no need to repeat it.

Broadly at the same time, in 2008, Polish zloty (hereinafter PLN) hit its high against Swiss Franc (hereinafter CHF). Mortgage loans denominated in CHF were extremely popular in that time, as the housing boom was at its climax, and CHF gave the opportunity to have lower debt service costs, thanks to gradual decline of CHF/PLN exchange rate and lower interest rates in CHF. Then came the turmoil on financial markets and PLN plummeted against currencies of highly-developed countries, deemed to be safe havens. In early 2009 the trend again turned back and zloty’s value in other currencies was back increasing. 2011 saw Greek crisis and printing money in the United States, so EUR and USD began to be regarded as riskier assets, while CHF still enjoyed the status of safe haven and kept strengthening against other, also major, currencies. In July 2008 CHF/PLN rate was at its ever-time lows at around 2.00, in June 2011 it climbed near 3.40. This translates into financial standing of homeowners who have taken out loans in CHF in 2007 or first eight months of 2008 when CHF/PLN rate ranging from 2.00 to 2.50, and who now are facing a problem of mounting debts. Currently many of them have so-called negative equity (what’s the Polish for negative equity?), what means their outstanding debt is higher than the market value of their property, but this is not yet the biggest problem, since as long as they settle their monthly payments in time, banks do not raise any alerts. The bigger problem is posed by rising debt service costs. Monthly instalments, as loans, are also denominated in CHF and then converted into PLN. If a debtor’s rate is 500 CHF, holding everything else unchanged, when CHF/PLN exchange rate was 2.20, a monthly payment was 1,100 PLN. When the rate soared to 3.40, the instalment soared to 1,700 PLN. Makes a difference, doesn’t it. When loan repayments make up a small portion of a borrower’s income, a borrower stays afloat, but if a borrower could only make ends meet when CHF/PLN stood below 2.50 PLN, a borrower is distressed.

The parliamentary election is coming and politicians search for various ways of “buying” votes. Election year is usually a period when politicians from ruling parties are more eager to give away gifts and those staying as opposition have inclinations to come up with promises of gifts they will give away if they win. Some of the Polish politicians have taken a leaf out of Hungarian book and put forward to freeze the CHF/PLN rate at 2.75 for the borrowers who have taken out mortgage loans in CHF at rates lower than 2.75. The difference between the market rate and 2.75 would be paid by the state. But who is “the state”??? Yes, my reader, it’s you, it’s me, it’s every person and every company that pays taxes in Poland. And this ridiculous idea is just another bail-out. Someone has taken a loan in a foreign currency and exposed themselves to a currency risk – cool, now they have to face the music. The scenario in which CHF/PLN goes up by at least 50% should have been taken into account when the decision to take the loan was made! And banks should have prepared sensitivity analyses, but as far as I know the recommendation of Polish Financial Supervision Authority that curbed lending in foreign currencies came into force some two years too late…

This is actually not the first time, in 2009 deputy prime minister Pawlak proposed to cancel legally valid option contracts between stricken companies and banks. The idea to freeze the CHF/PLN rate is not as shockingly silly as the Pawlak’s attempt to turn back time, but will not meet my approval.

On this blog there will never, ever be any consent for bailing out risk-takers. Either you take a risk and accept the rules of the game – you win or lose, or you just don’t engage in risky transactions. If there is to be a relief for troubled borrowers, why doesn’t somebody return me let’s say 200 PLN out of almost 900 PLN I lost recently on the stock market? I knew how aggressive speculation could end up and this time the worst scenario materialised. I made a mistake and covered the loss-making position far too late, thus incurring a bigger loss, but I’m the only one to blame, and I have no right to moan, just as some people with “encumberance in Swiss currency” do. I’m sick of listening to them griping and tell them politely that if they made their bed, they have to sleep in it. And they politely shut up… Maybe I’m ruthless, but those people really have to suffer consequences of their decisions.

Keep your fingers crossed on Thursday, between 10:30 and 11:00 a.m.