Finance
Has the Polish real-property market truly recovered? Andrzej Oślizło, President of the Board of Expander Advisors Sp. z o.o. & of Związek Firm Doradztwa Finansowego (The Association of Financial Consulting Firms) talks to Jan Sosna. For many years, Poland did not have a tradition of or interest in analysing the realproperty market. Today, the developments on the mortgage and housing markets are believed to be major indicators of business-cycle changes. But isn’t it symptomatic of the post-crisis trauma? I think it is perfectly reasonable that this interest has been sparked. This said, however, one should note that the Polish economy is affected by a number of other equally-important factors. Our economy is well-balanced, so I’m inclined to say there is something different at work when it comes to how the real-property market impacts on macroeconomic developments. In America, much effort is put into thoroughly examining current data on the number of building permits and mortgage-loan applications. This data is juxtaposed with, say, unemployment rates, to make projections about the economic environment and the magnitude of investment decisions. This is becoming common practice in Poland as well. Keep in mind, however, that in addition to rational factors, such as credit and home prices, the housing market is influenced by consumer confidence. If the market doesn’t provide me with proper incentives, and I’m in precarious employment with unstable wages, and everyone’s going on about prospects being grim, then I’m not going to buy a home or a car. What this results in for the national economy is lower demand. This is a self-fulfilling prophecy at work. Of course, shaped by credit interest rates and consumer expectations, the business environment on the housing market will impact on the condition of the entire economy, as the building and developer sectors fall into a slump. Luckily, Poland doesn’t depend on the construction industry as much as, say, Spain. It is important to remember, however, that credit policy has its implications for the condition of households as well. Mind you, over 1.5 million people in Poland have mortgage loans, a substantial proportion of which are pm
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foreign-currency loans. Households who took out Swiss-franc loans at low exchange rates might now find themselves incapable of repaying them, as the exchange rates have grown beyond their initial expectations. So, in addition to being relevant in determining the housing-market situation, credit policy can also cause over-indebtedness and an overestimation of the creditworthiness of borrowers, especially in less-affluent societies. Also, real-property prices and credit interest rates are major factors in the valuation of a property, which can be realised or pledged as collateral. Does this pattern work both ways? I’m asking this because Expander was one of the first firms to announce that the downward trend in the Polish real-property market had reversed. Admittedly, this market has experienced a somewhat slower decline in volumes, and credit volumes aren’t plummeting as fast as they did. But should we really get optimistic over these numbers? Our optimistic projections are not founded on the simple assertion that the declines have statistically slowed down, which has been the case for eight quarters, but on the analysis of the entire process that has brought the decline to a halt. We were hit by the problem in 2008, when the Polish mortgage market plummeted in the backlash of the financial crisis after Lehman Brothers had gone bankrupt. The Swiss-franc-credits business was virtually swept from the market. With the national interest rate as set at that time, however, it proved impossible to sustain a high level of new lending. Banks had to reduce their own margins, which made new lending less profitable. In effect, some of the banks took this product out of their core portfolios. Large banks, enjoying a steady supply of low-interest deposits, that ensured lower lending costs, and substantial equities, could be content with lower loan margins. This way they’ve outgrown smaller banks on the pm
mortgage market, with the latter having to shift their focus to cash lending. Consequently, the mortgage market shrank dramatically, from PLN 5 billion in the boom period to PLN 2.6 billion towards the end of last year. The real-property market was also hit, as the “Rodzina na swoim” (“Family at home”) government housing programme for families came to an end. Under this programme, families who took out housing loans received financial support on paying back interest in the initial period. These changes in demand caused the prices of housing properties to further decline, early this year deepening the slump in this segment of the construction industry. So the pessimists who claimed that the programme artificially pegged prices were right. These trends were reversible only after the National Bank of Poland started (in November last year) to consistently cut the interest rate. It wasn’t until the second quarter of 2013 that the interest rate became low enough for the banks to cover their lending costs while securing a satisfactory margin and offering clients attractive mortgage interest rates, at 4.3-4.5%. Now compared to interest rates on such markets as the USA, which reach 5%, this is a real bargain. Indeed, July 2013 saw monthly mortgage lending grow to PLN 3.4 billion in value. Secondly, housing demand, which began to grow at the turn of the second quarter, was driven higher by cash buyers. This included traditional builders who are additionally encouraged by low interest rates on bank deposits. Recently, the proportion of cash-loan demand on the housing market has grown exponentially. Now, they make up 30% of total volumes, which is particularly easy to see on the primary market. With higher demand at work, house prices were no longer on a rapid decline. Also, the excessive supply of homes began to be contained. This gives us good reason to hope that the market will soon regain its position as the driving force behind a number of sectors in our economy. ::