Polish buyers stopped buying in huge numbers in the autumn 2007, writes Stanislaw Staromlynski of i-PropertyAssets.

There was a period of tension as the developers failed to reduce pries and buyers waited for them to do so.

Buyers stopped waiting at the end of February 2008.

Buying started again and in some locations, such as Warsaw, this was at autumn 2007 prices. This is actually good news as prices are not going down.
It also means the days of large volumes of sold apartments are gone.

For example, a medium sized local agency, which used to sell about 50 apartments per month during the boom (2005 -mid 2007), sold perhaps 3-5 apartments per month between October 2007 and February 2008), and now they sell 10-15 apartments per month.

The change is not only quantitative, it is also a qualitative.

Polish real estate market has turned from a sellers' market into a buyers' market.

If you have a buyer, treat him seriously. Do not put forward new demands or requirements. It is much easier for the buyer to find a new apartment than for you to find a new buyer.

Before buyers make decisions to buy they check all offers available on the market, so they usually have an alternative option to buy.

A lot of enquiries are meant only to test the market, to check if owners are desperate and ready to drastically drop prices.

This is a very difficult market at the moment.

Supply consist of three sources:

(1) Those who want to make money on their investments made in the past and they can very well do so if they purchased apartments in 2006 at the latest.

(2) Developers, who want to sell apartments in the old investments and they expect to get boom period prices.

Developers are also starting new investments to be sold at a profit. And they are struggling with sales at the moment.

There are special offers like: white finish for free; garage for free; some offer cars as a bonus to purchased apartments. They very badly need to keep prices at a high level to preserve profit margins.

However, the definition of high level is changing.

Please note that one sqm of apartment in Warsaw was PLN6000 in 2005, the average monthly salary was about PLN 1700, i.e. 3.5 x salary per sqm. 1 sqm of apartment is PLN 9000 now, but the average monthly salary is PLN 3800, i.e. only 2.3 salaries per sqm.

(3) There is also the secondary market and all owners of panelaks, built in the 70s, and 80s who wanted too high prices for their apartments during the boom period. Now nobody wants to buy these flats even though the owners are extremely flexible with the prices.

These owners used to be one of the forces propelling the boom, as those who sold their old panelaks usually were the buyers of new-builds from developers. The rapid slowdown of the secondary market is one of the reasons of the slowdown in the new-builds market now.

I would also like to stress that there is demand to buy apartments in Poland.
But it will be released gradually as people's purchasing power grows, which is actually happening right now and as financing becomes even easier to obtain.

The market is picking up in the sense that the number of transactions is increasing, not that prices are shooting up. Let me also remind you that 5% average price growth means that there are locations where the growth is 10% and there are others with 0% growth.

Flipping

Flipping used to be one of the most profitable businesses in real estate in Poland.

Between 2005 and mid 2007 there were not enough apartments to satisfy the demand, those who were the first to buy or had good contacts with developer had a chance to make a lot of money.

It was to enough to sign five preliminary purchase contracts, pay five deposits and wait for half a year, (in fact until the development sold out); and then flip (assign the right to buy) three apartments in order to have money to buy the two remaining.

As the procedure to pay taxes was also simplified - i.e. there was a written contract for the deposit only and all the rest of the money was paid in cash - it used to be a very lucrative business.

But flipping makes sense when apartments are in short supply, the demand is high and the prices are growing fast. We no longer have such a situation in Poland.

Certainly, there are cases of flipping taking place. They happen when a buyer accepts flipping as he wants particular apartment for reasons that do not depend only on price.

We have closed several flipping transactions. However, it is not the big business it used to be.

Renting

The rental market is getting stronger in Warsaw and in cities like Poznan, Wroclaw and Krakow.

There are more tenants and prices are going up.

iPropertyAssets have rented many apartments at good prices within the last two months.

However, tenants are very careful before they take final decisions on renting.
They are sure to make all and every effort to spot the best offer. They even make offers to rent several apartments in the same building and then they wait to see which owner offers them the best conditions (lower rent, better fit out, equipment or furniture).

There are definitely more tenants than there used to be as apartments are so expensive to buy and many people just cannot afford them.

And some potential buyers simply do not want be associated with a mortgage debt for life.

The mortgage lenders have also tightened up their criteria for granting loans, which increases the number of potential tenants.

Currently, there is PLN 6.2 billion (£1.45 billion) of overdue mortgage payments in the market.

Those who were refused mortgages just have no other choice but to rent.

Exchange rate boost

Let me show you a real example of what the rate of exchange can do to your profit.

Purchase price PLN479000; rate of exchange £1= PLN 5.6; Purchase price £85,536

Sale price PLN590,000; rate of exchange £1= PLN 4.3; Sale price £137,209.
Profit in PLN, 24%.
Profit in £s 60%

There are investors who calculate their daily increases in profits due to the changing rate of exchange. They purchased in 2005 and 2006.

There are also those who purchased in the first half of 2007 when the prices were already high and they stopped increasing.

Unfortunately, in the short term, their profits are not going up in Polish zloty. Their profits result only from the rate of exchange, which is very often unnoticed by investors.