Poland’s Residential Market IInd Quarter 2008

Who is first to crack up? The buyer or the seller?

The advisory company, redNet Consulting, has examined the situation in the residential market in the biggest urban areas in Poland – the Warsaw, Tri-City and Silesian agglomerations, as well as Kraków, Poznań, Wrocław, Łódź and Szczecin. The conclusions are simple – the buyers’ and sellers’ expectation fail to meet each other. As in 2006 the market lost its flow due to low supply, now it is losing its flow due to a shortage of demand – and, to be precise, a lack of buyers’ acceptance of too high prices. However, the market is effective. In some places it is visible that some developers can adjust to the new market situation.

A slump in sales and very high supply
The redNet Consulting estimations show that in the second quarter in the examined areas, developers sold 5,763 flats, which has been the worst result for years. Moreover, the slump in sales was especially visible in June. The slump in sales was accompanied by high supply of new projects – according to the redNet Consulting estimate, developers introduced 13,618 flats for sale in the second quarter of 2008, which means that every 10 sold flats correspond with 24 new flats entering the market. In such a case, the peculiar tug-of-war between the buyers and sellers places the latter in last place – the price will need to fall.

The sellers’ and buyers’ expectations still fail to meet each other
The average price of a flat in the eight biggest Polish agglomerations was 8,268 PLN at the end of June and was by 0.23% lower than in May. However, the price of flats which were sold in the first quarter was by 5% lower and totalled 7,858 PLN. Unfortunately, the price of the new offer was by 1,064 PLN lower (13%) and amounted to 8,922 PLN. The detailed data are shown in the chart below.

Average price per sqm (in PLN) in the eight biggest Polish agglomerations
Source: Drawn up by redNet Consulting on the basis of the data from www.tabelaofert.pl
Legend: [from the left] price of the offer of flats; price of the flats sold; price of flats entering the market

What does it mean? Saying it straight out - 5,763 flats were sold in the second quarter, at an average price of 7,858 PLN/sqm, and in the place of the flats sold the developers introduced 13,619 new flats in the market at an average price of 8,922 PLN/sqm. The result can be easily confirmed – an audible gnashing of teeth in selling offices.

The positive No 1 – developers boast about good prices
A careful observer will ask himself a question: since the new offers are so expensive, why has the average price fallen? redNet Consulting has checked this information and the explanation is trite – simply, developers lower the price of flats which are already on the market. Moreover, many companies publicly boast about lowering prices and stop hiding behind the facade of a promotion such as an extra garage and even an additional car to this garage. It is an essential change of attitude since not so long ago developers discretely decreased the price being afraid of customer reaction. It occurs that customers react very positively to the increased tendency of lowering the price. The redNet Consulting data shows that sales in the projects where developers advertise their price fairly is higher than in the case of projects where marketing strategy relies on faith in the perfectness of its product and magic tradesmen’s skills, aiming at presenting the advantages of the product in such a way that the price becomes unimportant. The problem is that these tradesmen do to even have a chance to talk with a customer on the phone. In the situation where the supply is high, a customer simply chooses a different offer. The purchaser assumes that every developer boasts about the advantages of his project. Should the price be advertised, then it must be the chief asset of a project. However, if the price is not even mentioned – it means that it is not the trump card. Furthermore, there can even be an assumption that the price is too high. In places where developers boast about their price, the sales are higher, even if projects are from the upper shelf.

The positive No 2 – developers are starting to discover customer needs
In the majority of the cities the problem can be defined as follows: customers already know that the market has turned and do not hurry with purchasing flats, and when purchasing, they are influenced by the price – not because they cannot afford more expensive flats but because they do not want to overpay. Simultaneously, projects which are currently being introduced on the market were prepared at the time of a galloping growth in price. With high construction costs, very few developers decided on constructing in the popular segment due to a small metric area. They mostly invested in the average and higher segment where, with similar expenditures, they earned more and flats sold brilliantly. Thus, there is a shortage of projects in the popular segment. The key factor is the time necessary for their preparation. Developers in Gdańsk were the fastest to react, as a few companies introduced cheap investments there. The new offer in Gdańsk is by over 8% cheaper than the flats sold in the last three months. In comparison, in Warsaw and Wrocław mainly expensive flats have been put up for sale recently – the new offer is by 2% more expensive than the currently sold flats.

Average price per sqm (in PLN) in the biggest Polish agglomerations
Source: Drawn up by redNet Consulting on the basis of the data from www.tabelaofert.pl
Legend: [from the left] price of the offer of flats; price of the flats sold; price of flats entering the market

Conclusions: the price of flats will continue to fall – firstly, developers will lower prices of existing projects, secondly - more and more investments from the popular segment will enter the market.