Developers suggest how politicians can reduce real estate prices

Surcharge for some, higher prices for all.  The average price in Warsaw is already PLN 15.2 thousand.  zloty

In 2022, developers listed on the WSE reached 31%. gross margin, i.e. revenue. It seems like a lot, but the vice-president of the Polish Association of Developer Companies argues in an interview with that in the context of an investment that lasts several years, the margin is not high at all.

The price of a square meter of an apartment in Warsaw in July 2023 was PLN 14,140. According to the report of the Primary Market in Krakow, we paid an average of PLN 14,066 per square meter of real estate. In Tricity PLN 13,250/m2, in Wrocław PLN 12,350/m2, in Poznań PLN 11,061/m2, and in Łódź PLN 9,791/m2. This means a huge (and growing!) wage gap. In July, the average salary was PLN 7,485.12 gross, i.e. just over PLN 5,000. PLN net – and in addition about 70 percent of us have a salary lower than average. To buy a square meter of an apartment in a district on the outskirts of a large city, an average Pole has to work for almost three months, and this is under the unrealistic assumption that he does not spend money on anything else.

Great interest in the “Safe 2% loan”.

Despite the horrendous prices, the interest in purchasing real estate is not decreasing. We have been observing a huge revival in the market since July 3, when the “Safe 2% Credit” subsidy program was launched. Data from the Credit Information Bureau (BIK), published at the beginning of September, show that almost 38.9 thousand people applied for a loan in August. people. It is estimated that approximately 60 percent of them are participants of a government program.

Is there a chance that apartments will become cheaper? This is unlikely, but prices may stabilize. Only since December 2022, prices have increased by 13%. in Tricity, 12 percent in Krakow and 9 percent in the capital city. No price increases would be good news for buyers. This may happen when the first wave of interest in purchasing apartments under the government program begins. Demand is huge now, so sellers can afford to raise prices. Next year, restrictions will come into force in the program, so it will finance fewer apartments, which will reduce demand.

Real estate. Is there a chance that apartments will become cheaper? asked developers what can be done on the supply side to slow down the price increase. They pointed to the simplification of administrative procedures. Konrad Płochocki, vice-president of the Polish Association of Developer Companies (PZFD), said that if a developer buys a plot of land for an investment today, he will hand over the keys to the apartments to customers only in the winter of 2028. The investment process takes on average five years, of which three years are spent preparing the documentation.

— If we could complete construction projects in an average of 2.5 years, the developer’s margin could be reduced by as much as half, and we would have the same profit. If only the state improved the processes related to issuing various consents, the price of an apartment could be 5% lower. than now, said Płochocki.

He also pointed out that the process of obtaining consents is complex and complicated. The industry has to ask for permission from an increasing number of state authorities, which means that the decision usually takes years. Therefore, developers propose the introduction of the so-called tacit consent.

— If the conservator did not raise any objections to the investor’s proposal within a specified period of time, the investor could proceed with the construction, explained Płochocki.

Developer margins. A lot or average?

How much do developers earn on each property sold?

In 2022, developers listed on the WSE reached 31%. gross margin, i.e. revenue. It seems like a lot, but’s interlocutor argues that this number should be looked at in the context of the several years it takes to complete the investment.

– After deducting all costs incurred by the developer during the project implementation, the net margin of the same companies amounted to 16.9%. Importantly, developers achieve such a gross margin on a product that takes an average of 5 years to produce, because we do not have a wholesaler with apartments. We use the PLN 100 million acquired for investment once every few years. Meanwhile, companies from other industries are able to turn over capital several times a year and make money on it. Until people realize this, our margins will remain impressive – argued the vice-president of PZFD.

We write more about margins in the article below.

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