The most important piece is a letter from Mr. Olgierd Dziekoński, the Undersecretary of State, to Mr. Zbigniew Rynasiewicz, the Chairman of the Committee. The papers are not classified as secret or confidential, so they can be freely presented, obviously in brief, to the public, since authors of a comprehensive, based on solid statistical data study put together by the Construction and Real Estate Confederation, quite rightly pointed out that measures taken by the government to mitigate the crisis should be a public domain.

In the implementation of the Government Stability and Development Program both the Government and the National Bank of Poland “have taken purposeful activities aimed at strengthening the stability and economic growth in Poland. They include instruments designed to increase mutual trust on the interbank market and reduce cost of borrowing money, as well as mechanisms stimulating project financed from private and public funds. Significant growth of consumption spending will be driven by consistently implemented tax reductions in 2009. The Sejm [lower chmaber of the Polish Parliamnet] – says Olgierd Dziekoński – has accepted government draft amendments to the Act on the Bank Guarantee Fund. The Fund will be able to take loans from the state budget. The Sejm has also received a government draft act on providing support to financial institutions by the State Treasury. That instrument will allow the Government for quick and flexible actions toward financial institutions in case of a crisis”.

Support mechanisms provided for by act include first of all guarantees of interbank loans, credit facilities and sale of treasury bills. The role of the Bank for National Economy [Bank Gospodarstwa Krajowego], which is vital in servicing guarantees and warranties made by the State Treasury will be increased, in line with its capital.

Special attention should be paid to a package of anti-crisis measures “announced by the European Commission, which permits overhead costs in projects co-financed from the European Regional Development Fund to accounted for on a lump sum basis – as it was the case under the European Social Fund – which should contribute to faster spending of European funds. The anti-crisis package provides also a greater scope of upfront payments for project beneficiaries, even to 100% of total project costs. Another important element is a larger investment relief for newly established companies. A new business will be able to expense all investment costs up to 100,000 euro in 2009-2010 (so far it was only 50,000 PLN in one year).”
Minister Dziekoński based his diagnosis on high quality studies prepared by the Construction and Real Estate Confederation, The Polish Association of Construction Employers and the Chamber of Construction Design. Below is the statistical data from the first study showing the weakening position of the Polish construction industry.

-  Number of building permits for new housing units in January – December 2008 dropped by 7,1% compared to the previous year and amounted to 230,100.
- Building permits in January dropped by 14% compared to January 2008 (12,500 permits issued).
- Construction starts dropped by 41.5% compared to January 2008 (5.900 starts).
- In January and February this year there were 80-90% less residential transactions on the primary market than one year ago. Price reduction in that market reached even 30%. When demand and supply were relatively in balance, transaction prices were usually 5-10% lower than asking prices. Nowadays, in the crisis the difference reaches 20-30%.
- The value of mortgages in danger of default, i.e. overdue for over four months, is growing. At the end of 2008 the value of mortgages in danger of default amounted to 1.9 billion PLN, of which 738 million were loans denominated in foreign currency, mainly the Swiss franks. At the end of the third quarter of 2008 it was 1.5 billion PLN, of which 485 million in foreign currency.
- At the turn of 2008/2009 as many as 80% of banks made their lending criteria for corporations more restrictive, 86% constrained residential lending and 75% consumer loans. In that period demand for short- and long-term loans for large corporations went up a little bit. Demand for long-term loans for small and medium size companies decreased.
- Demand for building materials in January 2009 was by approx. 10% lower compared to the previous year. Compared to the previous month, prices of four categories of products went down, four categories went up and in four stayed unchanged.
- 425 bankruptcies were declared in 2008, i.e. 55 less than in 2007. This year the number can be higher by 20%. The construction sector, where 17% of companies went bankrupt last year, is likely to be the most affected. Lower dynamics of construction and assembly activity will lead to a situation when many smaller organizations will have to cease their activity, sell assets or change the core business. 
- Payments from investors to contractors tend to delay. The number of collection orders increased by 40% over the last six months. Increasingly more often clients cheat when buying building material and try to avoid payments; the situation is similar to the crisis from seven years ago.
Authors of the report prepared by the Construction and Real Estate Confederation caution that there is no longer an investor market or a client market, what is emerging is a banker market. Further restrictions in lending policies will confine both the primary and secondary market, but after two year we may see a shortage of building materials which will have to imported from abroad.

The crisis is not going to miss the construction sector, but worsening of the business climate in that industry may be not that severe; the effect may be mitigated by the construction of infrastructure and roads.

The author of the report requested by the Polish Association of the Construction Employers points out the importance of financing infrastructural works and the use of European funds, financial resources from the central budget, local authorities, and corporations as well as the role of system and organizational solutions.

“Challenges faced by the infrastructural construction are enormous; they include projects associated with European Football Championship Euro 2012, construction of roads, motorways and other investments – says the author. Infrastructural projects financed to a great extent with European funds will be under much stronger pressure.”

Some symptoms that will have a positive impact on the construction sector are already visible: in the nearest future there should be no staff problems (which so far limited the production), project preparation processes are being simplified, production capacity is expected to be shifted from residential to infrastructural construction.

“However, growth inhibitors are also present – stresses the author.  Despite stimulating measures (e.g. simplification of the Building Code) projects  continue not to be well prepared for implementation (e.g. bidding procedures, public-private partnership, local development plans, controlled environmental claims). Corporations perceive lending terms and conditions as too restrictive.”

What are the anti-crisis measures the government intends to take? Minister Dziekoński indicates some of them, those of special importance are the following:

• Changed definition of a public utility project, which should facilitate getting a site approval from local authorities.
• Removal of barriers from the process of accepting local development plans, specification of rules on which investors involved in public projects share costs of preparing the local development plan. 
• Creation of clear and available to the investor provisions defining site development and construction requirements that would make the investment process independent of one-time administrative decisions.
• Initiating projects under the public-private partnership in order to boost the investment demand.
• Development of a mechanism that would allow projects in the area of renewable sources of energy – it is proposed to support such projects with loans from public funds. Such loan facilities would strengthen demand for construction and assembly work.
• Accelerating work on the package of new legislation (acts of law and secondary legislation).

It is beyond the reporter’s role to provide commentaries.  Besides, it in not a commentary that counts in this case, but the manner and timeframe of implementation of the above anti-crisis measures. It will determine the future of one the vital sectors of the national economy.

Source:

• Letter of Mr. Olgierd Dziekoński, the Undersecretary of State in the Ministry of  Infrastructure dated 4 March 2009 to Mr. Zbigniew Rynasiewicz, Chairman of the Infrastructure Committee of the Sejm, INF-181-4-09.
• „Assessment of the Construction Market – Beginning of 2009”, report by the Construction and Real Estate Confederation dated 29 February 2009, authored by Michał Staszewski, Waldemar Mazan, Marcin Piotrowski.
• „Assessment of the Construction Industry in 2008 and Projections for 2009”, study dated 16 February 2009, prepared by Prof. Zofia Bolkowska from the University of Management and Law upon the request of the Polish Association of Construction Employers.

Source: Property Jornal Polska Giełda Nieruchomości 04-05/09