How will the Developer Guarantee Fund affect housing prices?
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Will residential prices continue to rise? Will the introduction of the Developer Guarantee Fund, progressing inflation, rising costs of construction and land purchase, or delays in issuing administrative decisions translate into further price increases in the residential market? How much more expensive can a flat become this year? A survey was conducted by the real estate service dompress.pl.
Andrzej Oślizło, President of Develia S.A.
From our point of view, the introduction of the Developer Guarantee Fund is an unnecessary solution. We are of the opinion that since the entry into force of the so-called Developers’ Act in 2011, flat buyers in Poland have been duly protected under the applicable law. The practice shows that the Act in its current form functions very well. This is why we are convinced that the only noticeable effect of the introduction of DFG for buyers will be an increase in residential prices by approximately 2 percent. However, this is not the end of the increases. Developers have limited opportunities to acquire land for new investments, and coronavirus restrictions have made obtaining the relevant building permits much longer. Add to this rising inflation and record demand for housing. In Q1 2021, nearly 19,500 new flats were sold in Poland’s largest cities. This is the highest result in the history of our housing sector. According to various estimates, residential real estate in Poland went up by an average of 10 to 12 percent last year. The aforementioned factors guarantee that this result will be at least repeated this year.
Zbigniew Juroszek, president of Atal
The introduction of the Developer Guarantee Fund will probably not be without an impact on housing prices. However, at this stage we cannot yet clearly state what the increase in non-refundable contributions will entail. This will only become clear after the fund comes into force.
The increase in housing prices is strongly determined by the rising costs of conducting investments. In recent months, there have been significant increases in construction costs, with year-on-year increases reaching 10-12 percent. The main reason is the significant increase in the prices of some raw materials and materials. Expectations that this is a seasonal or temporary situation have not been fulfilled. Rather, it looks like raw material prices will stay at higher levels for longer. Another aspect contributing to the increase is the rising price of land and limited availability of plots. Higher prices of subcontractor services are also to be expected. All this is reflected in housing prices. It is worth noting, however, that although prices are growing, they are still not high compared to Europe and the growth rate in some foreign markets is more dynamic.
Małgorzata Ostrowska, Director of Marketing and Sales Division in J.W. Construction Holding S.A.
Both the developers and the Polish Association of Developers believe that the planned regulations and the necessity to pay contributions to the Developer Guarantee Fund are, after new, stricter construction and energy requirements, another factor that will influence higher investment implementation costs. And it is not the only one, as the enactment of local plans is still too slow, which affects the low supply of land, the scale of the increase in the prices of most raw materials and the pressure on wages due to the deficit of employees are still worrying. Therefore, we cannot expect increased supply in the coming years. If the announcement of easier access to mortgages comes true, which will increase demand, an inevitable increase in prices can be expected. I estimate that it may reach 5 per cent, although experts are known to forecast 7-10 per cent growth.
Bartosz Kuźniar, CEO of Lokum Deweloper S.A.
Prices of flats depend on the ratio of supply and demand as well as the costs of producing them. Currently, the demand is very strong, so the volume of flat sales is limited mainly by the developers’ ability to supplement their offer. The government’s announcement of support for purchases through the provision of guarantees to cover 100% of the value of the flat and subsidies for families for the purchase of flats, contributes to the expansion of the group of customers interested in fulfilling their own housing needs. At the same time, slow administrative processes are limiting the construction of flats.
The industry is experiencing an increase in a number of costs. Not only the higher prices of workmanship and materials, but above all the galloping prices of plots for construction and the necessity to credit them for several years – until a building permit is obtained, as well as the increasingly stringent technical requirements result in an inexorable increase in the cost of producing flats.
The currently considered Developer Guarantee Fund will also have a major negative impact here – the 2% contribution to the housing price that the developer will be forced to finance already at the contract conclusion stage, before receiving the funds from the customer, and numerous formal obligations related to the handling of these funds, will translate into a real increase in the housing cost by ca. 2.5-3%. And this is the minimum amount that the customer will be forced to pay additionally.
At the beginning of the year, we estimated that the increase in housing prices this year would reach 10 percent. Considering the announced introduction of DFG, I am afraid that the increase may be higher.
Joanna Chojecka, sales and marketing director for Warsaw and Wrocław at Robyg SA.
Flat prices have been rising steadily since 2020. This year they will increase by 5-10 percent, depending on the location. Besides, since the beginning of the year, flats have increased in price by 4 per cent on average. Customers’ preferences have certainly changed, and they are looking for flats with balconies, terraces or gardens in the first place. We expect this trend to continue within a year or two. If prices are higher in some locations, it is most often a result of the increase in land prices, especially in large cities where the land base in attractive districts is shrinking.
Adrian Potoczek, Sales and Marketing Director at Wawel Service
The introduction of the Developer Guarantee Fund and the increase in land prices will cause an increase in the prices of flats. We estimate that due to the growing inflation, construction costs and administrative fees, flat prices will be higher by approximately 4-5 percent. The increase will also be caused by contributions that developers will have to pay to the DFG. This is an additional cost, borne by the companies, which will affect housing prices. This trend is particularly visible in Krakow, where the supply of investment land is low. Buyers will feel the increase in property prices mainly in the largest cities.
Zuzanna Należyta, Commercial Director at Eco Classic
According to the data for the first quarter of 2021, the prices of flats in Warsaw and Wrocław were higher by 5.5 and 5.7 per cent, in Kraków by over 6 per cent year on year, and in the Tri-City by 1 per cent, and this during the pandemic. As a result, we expect further increases of several per cent in 2021. The need to pay 1-2 per cent to the DFG will easily translate into price increases.
Janusz Miller, Sales and Marketing Director at Home Invest
Prices of flats have been growing for several months now and we expect them to continue growing, mainly due to the unflagging demand and limited supply of investments on the residential market. On the other hand, the Developer’s Guarantee Fund, rising construction and land costs will further drive up housing prices. We predict that rates could rise by a few more per cent this year.
Boaz Haim, president of Ronson Development
Any law that increases certainty and security for real estate investors is good and will encourage more to invest. Thus, the Developer Guarantee Fund is, in principle, a very good solution, because it significantly reduces the potential financial risk for customers. The fund will make investing in real estate not only more profitable than keeping money in the bank, but also much more secure. As far as the increase in prices of flats caused by the necessity to pay into the Fund is concerned, our experience shows that prices of flats have been growing consistently for many years. This is, of course, due to many factors, such as delays in administrative processes, limited availability of attractive land and more expensive building materials. I do not think that the payment into the Fund will automatically lead to an increase in prices, and certainly not in a 1:1 ratio, but this additional factor will certainly affect the final price of the property.
Jarosław Kozak, President of the Management Board of Waryński S.A. Holding Group
Another cost factor, which will be the contribution to the Developer Guarantee Fund, may affect the final price of the product. However, the project is still at the consultation stage, so it is difficult to make a definitive statement about the potential effects. In addition, the profitability of ongoing projects may change, not only due to the lengthening administrative processes, but also due to the lack of manpower. The observed, especially in the first quarter, upward trend in construction services and prices of materials, including steel, concrete, insulation materials and wiring systems is also likely to increase implementation costs and thus housing prices.
Wojciech Chotkowski, CEO of Aria Development
We believe that the increasing costs of construction and building materials, land, stagnation in issuing permits and inflationary pressure will contribute to a significant increase in residential prices this year. But it is worth noting that while housing prices in Poland are rising steadily, they are not as much as in other European countries. In Estonia, they have risen by 12.1 percent, in Lithuania by 15 percent and in Luxembourg by as much as 19.2 percent year on year.
Mariola Żak, sales and marketing director of Aurec Home
It is most likely that the creation of the Developer Guarantee Fund will cause an increase in prices, but our customers should not worry about it. As representatives of the industry, we fight to make the increase as little noticeable to the buyer as possible. Currently, there is talk of two per cent, but while we consider the idea to be good, we would not like the premium to exceed 0.5 per cent of the value of the flat.
Edyta Kołodziej, sales and marketing director at Nickel Development
I try to be cautious with forecasts, so I will only admit that I agree with the statement that prices will continue to rise. Referring to the Poznań market, which we know best, I think that we will see a further stable increase in flat prices here.
Planned investments will already take into account the burdens of the new regulations on thermal protection and the Developer Guarantee Fund. The limited supply of land has been a growing problem for many years and will also have an impact on price rises.
However, I would like to draw attention to construction costs. A lot depends on the development of wages in the construction industry, as well as on the costs of purchasing construction materials, as they may have an impact on a possible additional increase in prices of flats.
Barandziak, CEO of Dekpol Deweloper
DFG will certainly increase the level of security of purchase of real estate on the primary market. We are convinced that thanks to this, customers will be better prepared to buy such an apartment instead of a flat from the secondary market. On the other hand, the increase in developer contributions will undoubtedly have an impact on housing prices. We estimate that it may amount to ca. 2-3 per cent. As regards the increase in prices of flats, one should additionally take into account the still rising prices of land, construction materials, shortage of construction workers on the market and lengthening deadlines of administrative procedures related to starting and carrying out investments, as well as the existing pandemic. We estimate that all these factors may contribute to the increase in the prices of premises at the level of about 3-5 per cent.
Tomasz Czubak, Director of Development Projects Preparation at Jakon
The Developer Guarantee Fund will cause developers to raise prices by as many percentage points as the premium will be. We do not assume that any of the companies will cover this cost without compensation in the price of the finished product. Certainly, the increase in prices of construction materials has a huge impact on housing prices. This can be seen especially in the prices of reinforcing steel and polystyrene foam. We estimate that in the second half of the year, the prices of flats will increase by another 5 percent.