Article Avenue - free articles and downloads - Polandâ€™s Construction Problems are Good News for Investors

In the second quarter of 2007 Polish property prices rose just over 8% but there are higher increases hidden behind the headline figure. Tim Hill from the Anglo-Polish property portal Mamdom.com digs a little deeper and finds profit in a Polish problem.

12 months ago houses made up 44% of the available residential stock selling on the Polish market, today it is less than 20% and dropping.

With apartment sales making up a larger percentage of transactions there is a natural drag downwards on the average price of all residential offers although a look underneath the figures shows the truth is very different. House prices (per square meter) have risen 16%, Lublin heading the field with a 25% increase, while apartment prices (per square meter) are up nearly 10%, over 30% in Poznan.

But before taking a closer look at the performance of individual cities it is worth considering why there should have been such a dramatic change in the mix of property types over such a short time period. There can only be two possible reasons â€“ demand is not there or supply is drying up. The former is certainly not true. The wealth of Poles continues to rise and top of the priority list for most block dwellers is a move to detached bricks and mortar on their own plot of land. So why canâ€™t the market supply?

The key to the problem lies partially in labour issues (as skilled workers seek better paid employment abroad) but mainly in a shortage of materials. Poland is in the middle of a construction boom with over 150 developments progressing in Warsaw city alone. Such a flow of materials has never been required on this scale and supply simply cannot keep up with demand.

While the larger companies concentrate on apartment blocks the building of houses is left predominantly to individuals or small enterprises. Naturally the former have the greater buying power and the latter must wait in line. This is all nothing new but it is happening to a greater extent with every month that passes.

The results are two fold. There are not enough houses which causes the value of existing stock to rise, and there is a restricted upward chain for Poles looking to move out of their apartments which in turn reduces the number of flats available and thus causes their value to rise in turn.

All in all the domestic troubles of Poland are good news for foreign investors seeking capital gain. There are short term gains now and, even when the supply of materials improves, the country will still be short of some two million homes. The profits from Polish property are immediate and long term. From a regional point of view changes in price per square meter are currently the most accurate way of measuring performance due to the shifting balance in the mix of stock from houses to apartments.

Krakow is showing a recovery from stagnant prices at the start of the year and in the second quarter the price per square meter rose just over 6%. Warsaw continues to show consistency with prices rising a stable 8% over the quarter but Poznanâ€™s 30% jump shows how increasingly attractive it is with it proximity to Germany and the rest of Europe. Lublin also showed exception growth with apartment prices up nearly 19% for each square meter. In fact using this measure none of the five major cities showed decreases.

Without doubt Poland continues to show long term promise as foreign investment increases and the countryâ€™s aging infrastructure sees rapid regeneration. And although the supply problems of today make for good profits, they will not last for long and so not affect stability. Poland is a free market economy, and the free market will balance supply and demand.

oz