It may sound like an absurdity (though I have heard some stories of
people in a situation akin to mine), since if somebody sleeps on a heap of
cash, they should simply buy a property, instead of picking and choosing endlessly.
I realise I have precise expectations towards a flat I would like to own, each
one I had found and wanted to purchase had some drawbacks, yet acceptable.
Since that update I found another four flats (which means one flat
generally meeting my expectations per month, I suppose not a bad result).
Flat 1 in Kabaty had one disadvantage I could not get over, namely a pub
with beer garden was run beneath its windows and balcony. I feared the noise
and smell coming out of it and having taken advice of a few people who shared
my reservations that residing there could become a nuisance, I abandoned it.
Flat 2 in Bielany was under construction (completion and handover
planned for 4Q2018) and I fell in love with the layout of it. The price was
acceptable yet the charm was gone when I cycled to see the building and see
that:
- the amount of light coming into the flat was grossly reduced by a nearby 15-storey block of flats,
- the amount of light coming into the flat was grossly reduced by a nearby 15-storey block of flats,
- the flat was just next to a street, busy and noisy even on Saturday
afternoon during the 9-day April-May weekend.
On top I learnt from the developer the flat would be just above the
grocery store.
Flat 3 in Natolin had a nice layout, was in a lovely building in a
lovely location, but was completely ruined by previous tenants, so lots of
money would need to be put in to restore it. Sadly, the owner got stuck to the
desired price of PLN 9.3k per sqm and asserted he would not let anybody beat it
down even by a single zloty. The flat remains unsold until now.
Flat 4 in Kabaty was found quickly after the comeback from holidays and
seen immediately. The first impression was that it was quiet, sunny and had
large potential (also ruined by tenants and in need to comprehensive
refurbishment). My father got involved in preparing a renovation calculations,
however the flat was given up not for cost and hassle reasons, but because of
poor layout which fully transpired at the stage of planning / designing
(bathroom would fit nothing except for shower booth, washbasin and toilet bowl,
kitchen also gave little room for manoeuvre, corridor would fit nothing expect
for a closet) and location on second floor without a lift.
In the meantime, media reports of skyrocketing property prices and
shrinking supply began to flourish. Indeed, demand is still propped up by
people withdrawing money from bank deposits (oddly enough my bank savings fetch
40% higher return that a year ago despite central bank rates unchanged, only
thanks to increased competition to attract depositors), on top banks have
loosen their mortgage lending criteria. Supply of flats on the secondary market
is constrained by owners who believe it pays off more to let a flat rather to
sell it and put money on a low-interest bank account.
To find out what is actually happening on a property market, you can
draw on many sources. I find bleating developers, property agents, loan brokers
and financial advisors less credible that National Bank of Poland and
AMRON-SARFIN databases. The two transaction registers and still patchy, since
NBP database relies on data voluntarily passed by property developers and
estate agents, while AMRON-SARFIN base is compiled by mortgage-lenders, so
flats purchased for cash only fall out of the sample.
NBP data which differentiate between primary and secondary market
indicate that transaction prices on secondary market indeed went up a bit, yet
were higher in mid-2017 than recently and that the gap between asking prices
and transaction prices increased. No wonder. If in any newspaper and on any
webpage you can read the prices are going up, vendors naturally reach out for
more.
AMRON-SARFIN data which show the broad picture of the market
astonishingly indicate a minor q/q decline in Warsaw in 1Q2018 which might be
attributable to the seasonal factor and some transactions under MdM programme.
Year-on-year change in flat prices is no longer close to zero, but still far
from 10% of which those who benefit from price incline speak.
Some of you could ask why have I focused on secondary market and does
not want a brand-new flat. It is not even a matter of waiting or of higher
prices (here the 5% y/y hike is a matter of fact) or even idiotic layouts.
Those factors do matter, yet the biggest risk which I observe as bank analyst
(having insight into some information before they hit the headlines) is the
risk of construction not being completed, on account of cost pressure on
building materials and labour force sides. I know of some developments where
construction works have been halted and an investor faces a problem. The
phenomenon is already signalled in the press, but I fear also somewhat shrugged
off.
Tensions in the economy are more and more visible, though officially the
economy is steaming ahead at full blast. The currently observed salary growth,
not followed by inflation pressure is not sustainable and it is a matter of
months or quarters before the economy overheats. I also believe the National
Bank of Poland is doing an evil job of not jacking up interest rates, when the
economy would easily withstand tighter monetary policy but threat of imbalances
would be fended off. As I pointed out several times, if the price of money is
too cheap, those in possession of surpluses of cash would flee low-earning
investments and chase higher returns. Currently, such are offered by property
rental, but with:
- growing supply of flats for rent, rent rates are unlikely to go up,
- if flat prices rise and rent continue flat, yields will go down,
- on top if interest rates go up and banks keep on fighting for
deposits, the gap between nearly risk-free bank deposit and risky property
rental would narrow down.
Since most of flats purchased today are not bought for own use, but to
be let to someone else, a sell-off is conceivable one day…
But on the other hand, the market can stay irrational longer than you
can stay liquid. Poland is growing richer and one of evidences of it is the increasing
number of people who can afford to buy properties out of their accumulated savings
only. Besides, in terms of number of square metres which can be purchased for
an average salary, Warsaw still ranks among the most affordable property
markets in Europe. This makes sad news, if London or Paris appear as gloomy
benchmarks.
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