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EFFECT OF THE WORLD FINANCIAL CRISIS ON REAL ESTATE MARKET IN POLAND

Автор Доклада: 
Rybak J.
Награда: 
EFFECT OF THE WORLD FINANCIAL CRISIS ON REAL ESTATE MARKET IN POLAND
EFFECT OF THE WORLD FINANCIAL CRISIS ON REAL ESTATE MARKET IN POLAND

EFFECT OF THE WORLD FINANCIAL CRISIS ON REAL ESTATE MARKET IN POLAND

Janusz Rybak

Vice-President of the Western Chamber of Commerce and Industry (Wroclaw, Poland)

В статье осуществлен анализ влияния мирового финансового кризиса на рынок недвижимости Польши. Это позволит углубить познания закономерностей и особенностей функционирования рынка недвижимости в стране и разработать мероприятия, способствующие его стабилизации и дальнейшему развитию.

Ключевые слова: рынок недвижимости, кризис, причины, влияние, последствия.

The article studiesthe world financial crisis effect on real estate market in Poland. It will help to deepen learning laws and peculiarities of real estate market performance in the country and to develop events which foster both stabilizing and their future progress.

Key words: real estate market, crisis, factors, effect, outcomes.

Financial system of any country is a composition of both different and closely connected markets forming complex market structure. Level of development as well as functioning features of the structure particular segments is important aspect for the progress of market relations. Real estate market is one of specific components of economics.

From economic and philosophic point of view real estate market is an infrastructural class connected with conditions necessary for production, commercial, social, ecologic, and other activities. It is caused by the fact that any real estate units are to cater for take care of specific needs: real estate market is for ensuring housing enterprise; market of industrial facilities is for catering for production methods; land market is for civil engineering and industrial engineering, farm production, tourist activity, and recreational activity.

From financial point of view real estate is financial asset, important condition for current and future efficient activities of business entities and citizens.

As a component of market itself, real estate market has specific regularities: cyclical changes of activity and prices together with economic, investment, and other cycles; communication with other markets (e.g., exchange market, equity market) which favours capital transfer to the real estate market and real estate unit price rises etc.

With it, cycles in real estate market development are not synchronous with cycles in other industries. The feature is rather important for real estate market. Turn-down in real estate market comes before turn-down in economics as a whole and vice versa.

Global financial crisis confirms the feature of real estate market. It also should be noted that on the one hand real estate market was the motive of crisis, and on the other hand just real estate market was greatly affected by the crisis.

It is necessary to eliminate negative effects of the crisis which influenced real estate market and to develop proper conditions for its future development as real estate market is one of the key sectors of economy in any country. Besides it is required to make scientific analysis of real estate market performance market operation in the current context.

As studies show crises in real estate markets are not new at all (Japan, 1989–1992; countries of Southeast Asia, 1997–1998; Finland, 1991; Mexico, 1990–1994 etc). That time they were either of regional character or of local one, and had other reasons and outcomes. Naturally, they differed on scale. Crisis used to impact specific branches within economics. Today crisis processes cross national boundaries, and real estate crisis of some country turns out to be crisis of global real estate market.

Up to the crisis in the USA the outburst of speculative investment bubble in Japan (1989) was the greatest collapse in real estate market during the last two decades[1]. That time prices for capital assets soared. It depended on expansion in the number of speculative contracts on the part of realtor companies, cut in bank rates, and national currency appreciation. Very quickly it raises incomes of households of this export-oriented country, worsen greatly situation with market agiotage and with speculative expectations concerning future price increase. It largely depended on policies of the government aimed at ease of credit and financial managing. It resulted in formation of speculative bubble in real estate market. As consequence cost of property sharp reduction (twice at once), bankruptcy of anchor companies of financial and construction sectors as well as real estate sector which played then important role in national economy took place. Phenomenon called deflation of capital assets originated. The recession lasted till 1992 but in Japan they still call it lost decade [2].

Analysis of crisis events in real estate market which took part up to the current recession helped to determine problems the market faced before:

1.Ineffective monetary policy.

2.Poor development of financial system as a whole and bank system in particular.

3.Underdevelopment of the market infrastructure.

4.Formation of speculative bubbles and their outburst.

They were overcome with the help of monetary policy managing, state construction investment, services by banks and other financial institutions in real estate market.

Even though reasons and course of the current crises are similar to Japanese one, it differs greatly. First of all it depends on the fact that boom conditions in the USA real estate market result from implementation of financial innovations, especially Sub-prime real estate mortgages and derivative mortgage securities unprovided with dollar equivalent.

Today such problems of real estate market performance and development are the most acute:

1.Increase in credit non-payments and as a result bankruptcy of institutions engaged in mortgage credit and real estate sector financing.

2.Deterioration in demand for real estate units and associated reduction of their prices.

3.Runoff of construction investment and drop in construction itself.

It should be noted the all countries are involved in the problem. With it the extent turned out to be different.

For the first time Republic of Poland entered the six of the largest economies of European Union. Such a jump became possible thanks to the fact that Poland was the only country of European Union which kept economic growth during crisis. Important role in it was played by rather efficient structural reforms which helped to improve considerably competitiveness of the country economy. In turn, it favoured inflowing huge direct foreign investment in Polish economy. For instance, in 2006 Poland got €15,7bln, €16,7bln in 2007, €12,1bln in 2008, and €8,6bln in 2009 [3]. Together with anti-recessionary events it helped to alleviate negative consequences of the world recession.

However despite the measures crisis affected Polish economy as well as its real estate market though less to compare with in other countries. First of all, it impacted on construction volumes (Table 1).

Table 1. Quantities of Buildings Put into Commission in 2009

Types of buildings

Total

Urban areas

Rural areas

buildings

cubic volume in m3

buildings

cubic volume in m3

buildings

cubic volume in m3

Total

91421

165079676

36476

98965157

54945

66114519

  Residential Buildings

71472

76946429

26510

45009647

44962

31936788

  Non-residential buildings

19949

88133247

9966

53955516

9983

34177731

Source: www.stat.gov.pl.

Thus, 91421 new buildings were put into commission in 2009. Unfortunately, it is 14049 buildings less to compare with 2008. Meanwhile quantities of new residential buildings were 71472 in 2009 to be 10298 projects less to compare with 2008 (81970). Quantities of nonresidential buildings put into commission decreased too but the quantities are not so large to compare with residential ones: from 23500 in 2008 to 19949 in 2009.

It should be noted that construction activities including residential ones are among the top activities in the country economy. Availability of funds by EU within preparation to the World Football Championship of 2012 and inflow of direct foreign investment to Polish real estate market are the key factors influencing development of construction sector. It particularly concerns commercial real estate. Thus despite reduce in construction volumes Polish real estate market is promising sphere of capital investment. Today investors from Germany, France, Spain and Australia take their interest in Polish real estate market.

Thus € 631mln were invested in Polish commercial property to be the lowest index from 2003. That very time 26% of total volume of investments in commercial real of Central and Eastern Europe estate were accounted for Poland. Segments of retail property and hotel property are the most attractive as for investment [4]. Of 19949 new buildings of nonresidential property put into commission in 2009 25,2% are office buildings (586), hotel buildings (622), and retail buildings (3822) (Table 2).

Table 2. Quantities of Commercial Real Estate Put into Commission in 2009

 

Office buildings

Hotels and similar buildings

Wholesale and retail trade buildings

number

cubic volume in m3

usable floor space in m2

number

cubic volume in m3

usable floor space in m2

number

cubic volume in m3

usable floor space in m2

Total

586

4382569

929119

622

2149107

491915

3822

18853130

3179837

  Urban areas

395

3562359

779418

179

1166737

273403

2795

15502389

2682741

  Rural areas

191

820210

149701

443

982370

218512

1027

3350741

497096

Source: www.stat.gov.pl.

Naturally general decrease in construction volumes in 2009 also impacted on quantities of offices, hotels, and sales areas put into commission.

However despite recessionary events in real estate market share of hotel segment within overall structure of investment transactions grew from 6% in 2008 up to 17% in 2009 [4]. About 180 hotels are either under construction or reconstruction which put into commission is planned before 2012 [5]. First of all, interest in hotel real estate is connected with World Football Championship of 2012.

Besides, retail property is of great demand. In 2009 750,000 m2 of sales areas were leased. First of all, it concerns large shopping centers. It depends on the fact the greater part of the projects have started before recession, mainly in the first part of 2008. Within period of 2010-2013 it is planned to build more than 200 shopping centers. It should be noted that first of all developers are interested in large projects, for example in construction of multifunctional complexes [6].

As to office spaces, there were erected 929,000 m2of them in 2009. Another 700,000 m2 are under construction.

The following is true as to residential property. The majority of Polish cities and towns still run a deep residential deficit. That’s why despite recession demand for it stays to be rather high. Volumes of residential spaces put into commission confirm that. Decrease in construction volumes in 2009 was not significant to compare with 2008, and quantities of apartments put into commission in 2009 (111315) were even more numerous to compare with previous year (109530) (Table 3).

Table 3. Quantities of Residential Spaces Put into Commission

 

1990

1995

2000

2002

2003

2004

2005

2006

2007

2008

2009

Dwellings comple-teda

134215

67072

87789

97595

162686

108117

114066

115353

133698

165189

160002

  urban areas

98855

48215

70099

71076

93535

72523

77711

80210

88290

109530

111315

  rural areas

35360

18857

17690

26519

69151

35594

36355

35143

45408

55659

48687

Source: www.stat.gov.pl.

Besides, it should be noted that Poland differs from many countries rather comfortable mortgage lending terms, and, accordingly, developed mortgage market. Following example can confirm that. In 2000 total of mortgages was some more than € 2 bln, and in 2008 the criterion was more than € 43 bln to be 15,3% of GDP. Mortgage accommodation was not stopped in 2009 (it was just less) and it favoured stabilization in real estate market [7].

We can say that mortgaging was not stopped (as in Ukraine) because absolute majority of mortgages was accommodated to buy new houses or apartments. Whereby, people first tried to make payments upon loans. Representatives of middle class and those who had the only residence were the best payers. Besides, banks just could not manage to enter secondary real estate market with mortgages.

Another important factor of mortgage development under recession is availability of different government programs and initiatives (for example, “Rodzina na swoim”) which have been widely used recently. Within the programs and initiatives government helps to pay for home loans. As practices show they are rather efficient [7]. Thanks to program “Rodzina na swoim” housing demand had not subsided even during the recession.

Undoubtedly things are not so good in Polish real estate market as might appear at first sight. Several problems can not be solved but situation had started to be stable by the end of 2009. As studies show efficiency of future activities in the real estate market first depends on mutual understanding market participants, clear organization of their work, and rational planning investment.

It should be noted that Poland is the demonstrative example of national real estate market confrontation to outcomes of the world financial crisis, the example of competent control of economic situation.

Thus, Poland managed to avoid a number of the world crisis outcomes in real estate market, especially in housing market. It can be explained in such a way. First, Polish banks did not allow such risky mortgage credits as financial institutions of the USA which allowed credits from own funds. Every bank has rather elaborate mortgage mechanisms. What is more, despite rather developed market of mortgage credit, during economic growth of 2006–2007 considerable part of Polish banks granted less credits than attracted deposits. Second, majority of towns in Poland still have serious lack of housing. That’s why demand for it stays to be rather high. Third, prices for residential property did not put down drastically to compare with other countries. It is a very good factor for its fast recovery. Besides, Polish real estate market is at the stage of development, has a limited number of participants, and a low level of services specialization (however having pronounced tendency for increase). That’s why it can’t influence greatly the entire country economics as it is in the USA. Thus despite the fact that current real estate market in Poland reflects all problems of the country economics resulting from the world crisis it is specified by uneven development of its segments it is promising capital investment field.

That’s why many investors focus on Polish real estate market. Both economic and political situations are rather stable in Poland, and Polish legal system becomes more favourable for foreign capital.

However despite rather positive shifts Polish real estate market stays imperfect. It depends on the fact that measures taken as well as following market energizing can not bring it into accordance with modern requirements, and development rates of other sectors of economy both on quantitative and qualitative factors. The problem solving is difficult because real estate market (which classically covers both purchase and sale) is comprehensive, and a number of stage and steps are preliminary to its final stage. Thus it can successfully function if only numerous individuals and legal entities carrying out different functions, and using various tools, forms, and procedures to implement them participate.

As practices of developed countries confirm effectiveness of real estate market broadly depends on reasonable task sharing of its players, their competence under rational organization of actions and economic relations. It is natural phenomenon that hundreds of thousands legal entities and individuals (investors, development companies, facilitators, brokers, evaluators, credit agents, financial and credit institutions etc.) act together in large real estate markets. Again Polish real estate market is still characterized by limited number of players and low level of services differentiation although having clear tendency for expanding. Therefore in the current context the key object is creation of efficient policy (mechanism) of faster growth of real estate market control to guarantee stable development of national economy.

References:

  • 1. Асадзума Ю. Японская экономика «мыльного пузыря» и ее крах / Ю. Асадзума // Проблемы теории и практики. – 2005. – № 3. – С.18–23.
  • 2. Білоброва Т.О. Глобальна фінансова криза і ринок нерухомості: напрями подолання негативних наслідків / Т.О. Білоброва // Вісник Хмельницького національного університету. – 2010. – №1, T.1. – С.179–184.
  • 3. Official Site of the Ministry of Treasury– www.msp.gov.pl.
  • 4. Польская коммерческая недвижимость в 2009/10 гг.[Электронный ресурс]. – Режим доступа:http://www.realestate-foreign.ru/news_poland. php?id_ article=86014.
  • 5. Поможет ли футбол польскому рынку недвижимости? [Электронный ресурс]. – Режим доступа:http://www.cre.ru/journalnews/5525/.
  • 6. Рынки торговой недвижимости Европы: осень 2010 – Польша [Электронный ресурс]. – Режим доступа: http://tranio.ru/world/analytics/poland_retail_market_autumn_2010/.
  • 7. Rybak J., Shapoval V. Еffect of the World Financial Crisis on Real Estate Market in terms of Рoland and Ukraine/ J. Rybak, V. Shapoval //European Journal of Business and Economics. – 2010. –Vol. 1. –Р.51–57.
  • 8. Official Site of the Central Statistical Office of Poland – http://www.stat.gov.pl.
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