IS REAL ESTATE A GOOD INVESTMENT DIRECTION TODAY? HOW TO INVEST CAPITAL IN THE MOST EFFICENT AND SAFE WAY?
The surprise that 2020 has prepared for us will certainly make many changes in our reality. The coming months will show the extent of damage suffered by the real estate market and the time necessary to recoverfrom them. The crisis triggered by COVID-19 cooled down the demand and halted the rise of the real estate prices that for several years could have been observed in our country. For market players, however, this is a great moment to engage into transactions at bargain prices. Poor results of capital markets and the interest rates dropping a level close to zero, making the bank deposits unprofitable, only seem to confirm that real properties are the most stable investment assets today.
BARGAIN HUNTING
Starting from the very first days of the lockdown, expedient investors were active, hunting for opportunities. Investment funds have also become very alerted in all world markets. Bargain hunting, both among individual and institutional investors, is very noticeable, but it has not resulted in any spectacular price reductions on the market yet. The prices of developer premises so far have only been slightly adjusted.
There is not much downward price pressure, because there is a low supply of premises on the primary market. Soon there will be fewer offers because the developers are not expanding their current ones. In May, half as many premises as usual were introduced on the market. The production slowdown was expected, but the scale of this phenomenon is still difficult to predict, as the the new premises originate from projects the had already been in construction phase.
The full effects of the ‘freezing’ of the economy are yet to come, and they will be felt for many months, thus the big price bargains will certainly appear on the market. How big? It is hard to say today. It all depends whether we are only dealing with a short-term stagnation or rather a longer period of slowdown.
LUXURY REAL ESTATE INSTEAD OF DEPOSITS AND EQUITY ASSETS
The capital that today is being withdrawn in great number from bank deposits largely goes to the premium real estate market, which is most resistant to the crisis. In Poland, properties of this class are of comparable standard and arrangement to the properties placed in this segment anywhere else in the world. However, their prices are much lower, which means that there is potential for their growth in the best locations. Luxury properties in our country are almost twice as cheap as in New York or London. However, their value is, slowly yet consistently, rising.
The prices of the most prestigious Warsaw premises have increased by one quarter in the last four years. Luxury apartments are a core capital investment. Regardless of the circumstances, the best places in the biggest Polish cities are still increasing their value. It is a product that is not susceptible to speculative growth and economic fluctuations. The prices of the top class apartments are rising regularly and in the long run they allow to make a nice profit. This is why our premium real estate market has become increasingly attractive for foreign investors.
On the other hand, it should be noted that there have been many recent developments that do not fully meet the criteria of luxury properties, i.e. a product unique by definition, not designed only in order to achieve the largest possible amount of usable area (PUM). To avoid disappointing investments, it is necessary to ensurethat the property really stands out on the market due to its exclusive location, architectural solutions and top quality workmanship. Only small-scale projects, offering the highest standard and unique design, situated in prestigious locations, are a safe choice for potential investors, an investment resistant to any market turbulence.
In recent weeks, we have seen investors in the Tri-City rapidly moving from short-term to long-term leases. Also, investors became disappointed of holding shares in condo hotels, which were supposed to be a profit guaranteeing investment. The new social and economic conditions in which we operate today have a great impact on the rental market too.
PROFITABILITY AND STABLE TENANCY AS THE KEY SELECTION CRITERIA
When investing in real estate in times of a crisis, the choice should be an option which ensures stable rent and good profitability of the investment. This applies to both residential and commercial properties. At LBC Invest, we specialise in corporate rentals. We offer our clients a comprehensive investment programme, including the purchase and preparation of a residential or commercial property for lease. We also supply reliable and proven tenants and we manage the lease on behalf of the client. At the same time, we carry out all the necessary formalities. The properties we select for our clients are thoroughly analysed to ensure their potential to become an investment that shall generate stable income in the long term. All investors receive a certificate from us.
For clients looking for opportunities to invest bigger sums, we recommend investments in warehouse properties and retail parks. Today, it is one of the most promising business development directions in the commercial sector. Chain brands are currently verifying their expansion strategies and it is only a matter of time before they appear in retail parks while expanding their online sales networks. The rapid growth of turnover in the e-commerce sector translates into a rapidly growing demand for warehouse space.
HOUSES ARE TRENDY AGAIN
Recent months have also changed the preferences of individual investors who are now looking for real estates for their own needs. Houses of 150-250 sq.m. and apartments over 100 sq.m. with gardens or large terraceshave become more popular. Recreation and construction plots are also gaining in popularity. Clients are looking for either large plots of land on the outskirts of cities, planning to sell tchem later for development projects, or plots of land for a house where they can escape from the city, either permanently or for short rest.
The real estate market is evolving. Investors who purchased real properties for a quick and profitable resale and those who aimed at short-term renting have disappeared from the residential segment. In the long run, the crisis will certainly leave its mark also on the office rentals. Some of the space will be vacated due to a change in the nature of work and the the default home office style of working for a certain number of employees. However, the final impact of the economic slowdown on the demand for offices and rental prices shall remain unknown until next year.
Nevertheless, we can see that the companies have initiated sell-off their assets as a result of the need to improve their cash flow. These are mainly investment plots and commercial properties. The difficult situation in the market may also be an impulse to accelerate the consolidation processes of companies. It seems all the more probable that for the first time since the last financial crisis in the years 2007-2009, despite the interest rates in Poland being reduced twice, the interest on the loans for developers have started to increase.
NO MORE INVESTMENT LOANS
The banks have tightened their lending policy. Financing is becoming increasingly difficult to obtain. In practice, it is only available in a few banks. Most of the credit offers have been canceled, or greatly limited, and some sectors, including real estate, have been excluded from any form of financing. The financing of such commercial projects as hotels, shopping malls and office buildings have come to an almost complete halt. Smaller developers who have attractive plots of land are looking for partners for joint ventures. This will certainly benefit the large development companies.
It is also likely that the competitiveness of the residential propertymarket will increase, as companies which previously operated in the hotel and retail sector, have suffered the most from the lockdowns of the economyand are now thinking about moving to production of residential property. That’s why the blocks of flats may yet turn out to be quite resistant to the crisis emerging from it as one of the stronger class of assets.
However, the condition of the Polish economy will be crucial for the real estate market. This market is closely tied to the overall economic situation in the country.
Author: Agata Karolina Lasota, Managing Director at LBC Invest.
