Developers’ margins are soaring, even though they claim they have no way to reduce costs

Monday’s “Gazeta Wyborcza” cites the example of Ronson Development, which in 2017 had an average margin of 17.9 percent, a year later it was already 19.5 percent, in 2020 it exceeded 21 percent, and in 2023 it reached 35.2 percent. “Contrary to appearances, the government program is not responsible for this great result. This would seem so at first glance, because the support came into effect in July last year and strongly stimulated developers’ activity,” writes “GW”.

High margins are not due to subsidies for loans

The effect of the program will be visible two years after its launch, i.e. in 2025.

– This is because the financial result of a development company is based on data after the transfer of ownership of the property. In Poland, on the other hand, apartments are purchased at the initial stage of the investment, when construction work is just starting. The ownership of apartments purchased under the government program will therefore be transferred in 2025 and the data of development companies in this period will show what impact the support had on the market – explains Patryk Kozierkiewicz, legal counsel of the Polish Association of Development Companies, quoted by the newspaper.

The Polish Financial Supervision Authority drew attention to high margins in 2022. It did so while appealing to developers to change recommendations that would make customer creditworthiness checks more beneficial.

“If developers are truly guided by real concern for the availability of apartments for young Poles, they have the opportunity to adjust their own margin policy in this respect. Data from the KNF Office show that the average gross profitability of the development sector on sales for 2021 amounted to 31%, and for the first half of 2022 – 29.4%,” the Polish Financial Supervision Authority wrote in a press release.

The developer “gets” more from a luxury apartment than a studio apartment

The size of the margin depends on several factors: for example, premium projects are high-margin, while low-budget investments have lower margins. The margins of small investors and the stock market elite are also different.

– However, it is important to remember that nothing comes for free. Every developer must have a multi-million contribution and remember about the commercial risk. It is also worth recalling that during the last housing boom in 2005-2008, margins were as high as 40 percent – said Marta Kubacka, an expert from the GetHome.pl portal, quoted by us in 2022.

Margin is not the developer’s profit

Margin is not the same as developer profit. Margin is the difference between the sales price and variable costs. These costs include, for example, the purchase of land or construction materials – and these are constantly growing. From the margin, the investor pays fixed costs, such as loan installments, administrative staff salaries, pays tax and covers other costs, such as those related to sales or promotion.

— Considering the operating profit margin in 2023 and the one forecast for 2024, developers’ margins in Poland are indeed significantly higher than in Western Europe or the US. While a 20% operating margin for a listed developer is not a problem in our country, the median in Europe is 11-12%, slightly higher in the US. Many factors have an impact on this, but one of the main ones is that the local real estate markets have been hit harder by interest rate hikes. In our country, the increase in the cost of money has been mitigated by the state program to subsidize loan installments — Krzysztof Pado, an analyst at BDM Brokerage House, explained in the media in 2021.

He added that developer margins change with the economic cycle and market situation. In addition to the demand for apartments, the dynamics of land prices, construction and materials have an impact. – The current margins of Polish developers are much higher than in previous years, and especially than in the 2014-2015 trough – he said.