2008 shall see the delivery of more than 150 thousand residential units (apartments or houses), resulting from a relatively high number of construction starts in 2006-2007, yet the ratio of newly delivered units per 1,000 inhabitants will not exceed 4 - a rather mediocre outcome Europe-wise. The construction in question includes units constructed as regular dwellings as well as so-called second (i.e. holiday-time) homes, the latter being an estimated 4-6% of the total number of apartments and houses delivered.
In Q4, 2008, the collapse of the residential sector crediting market became visible. Not only did banks withhold funding new ventures for developers but for their clients as well. It became much harder to get a mortgage also when purchasing a secondary-market unit.
The credit crunch has translated into dropping figures for started units. In November 2008, developers commenced the construction of less than 3.6 thousand units.
A year ago, the number exceeded 9.6 thousand. On the year’s scale, after 11 months, developers started the construction of ca. 11.6% units less, part whereof being constructions ‘formally’ started. The number of construction permits has also decreased: between January and November 2008,
it dropped by 6%, coming to 214.7 thousand (as per the Central Statistical Office data).    

Consequences for the mortgage market
Dropped crediting for individual customers in 2009 as versus 2008 will highly plausibly be caused by three phenomena occurring in parallel:

• Decreased number of transactions, mainly caused by limited attainability of mortgage-secured loans, as combined with adverse changes in the labour market and reduced optimism of potential buyers;
• Reduced value per average transaction, resulting from adjusted prices;
• Lesser share of mortgage loan in the value of a mean transaction.

As a result, when it comes to conservative estimation, a dropped total value of newly granted loans can be expected by ca. 25-30% in 2009, as compared with the previous year.  

Consequences for demand
As a result, the need for apartments to let, of varied standards, will certainly increase, with respect to both social units as well as those available for moderate rents. This may cause rent increases but given the present-day rates, profitability of investing in housing for lease is too low for private capital entities, taking into account the risks involved in e.g. dweller protection regulations. Changes reducing such risks are thus worth supporting.
At the same time, a still-moderate (due to no available crediting) demand for completed housing units can be seen. Although the number of completed unsold units is growing, it did not exceed a dozen-or-so per cent for any large city of Poland as at the end of December 2008. Given the present-day moderate output, rendering the construction projects offer readily-available units should make it possible to sell most of the units under construction.    

Consequences for developers
The phenomenon is overlapping with crediting of developers proving evidently inhibited. This will expectedly translate into liquidity problems of developers, possibly resulting in several bankruptcies. The bankruptcy scale is now difficult to estimate but it may concern a few dozen companies now active in the marketplace.
One possible transitory solution would be to create a fund contracting development production in progress or carried out in order to make a later sale or to lease units at arm’s-length rental rates. Another solution could be a fund of guaranties for banks that credit developers. In either case, the basis for action taken should be an evaluation of the project being supported from the standpoint of its economic and market-related reasonability.
It is worth emphasizing that the launch of funding for developers and, consequently, an increased number of residential units brought to a condition nearing completion would in addition bring about a positive result in that the risk is reduced relative to the purchase of units and starts of mortgage-backed loans; hence, it would indirectly counteract the decreasing trend in the new lending for individual borrowers.   


Consequences for the construction sector
If there are no solutions instituted to support the sector, a drop can be forecasted in the number of units commenced in the developer construction sector, to ca. 30,000-40,000 in 2009, down from ca. 80,000 annually. As combined with the bankruptcy’s phenomenon, this will end up in a breakdown of orders placed to multi-family construction businesses. This is translated into increased unemployment, unless some other commissions have appeared to be taken up by contractors.    

Further possible consequences
Problems in the economy, particularly in the labour market, will translate into an increased number of unrepayable loans, which may entail evictions or problems encountered by banks in case they cannot get rid of insolvent debtors. The highly probable bankruptcies of a certain number of businesses will cause a loss of investments by buyers.
The number of multiple-family units under construction, particularly completed units, is rather low in comparison with other countries and demand-related potential. CSO’s data specifying 700,000 residential units and houses under construction is unrealistic: in fact, some are completed and occupied projects, some others are frozen, most of the remaining ones being single-family houses. The  output in multi-family construction will, in a few years’ perspective, bear fruit in a decreasing supply and, consequently, in prices increases.

Source: Property Jornal Polska Giełda Nieruchomości 02-03/09