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When Padraic Coll began looking for investors interested in putting money into Poland a decade ago, he had a ready audience among Irish farmers who had seen their own property values balloon and wanted to get in on the ground floor of another economic success story.

The Irish, followed later by Spanish investors, were calculating that the conditions that had caused their own property sectors to boom in the 1990s and the early 2000s would be replicated in Poland after it joined the European Union in 2004.

Those who invested early did very well – with apartment prices more than doubling in Warsaw to about 10,000 zlotys a metre (currently $3,387) in 2007.

But then prices stagnated as flats became unaffordable for the middle-class Poles who were the ultimate buyers. After the collapse of Lehman Brothers and the onset of the global economic crisis in late 2008, property prices dropped about 10 per cent, much less than in Ireland or Spain but enough to cause big problems for overoptimistic investors.

The steep falls seen in the Spanish and Irish real estate markets have also strained investors’ finances and made them more risk averse. As a result, Mr Coll is no longer looking to Ireland to provide investors: instead he is raising funds in Poland, the only EU member to be spared a recession last year and one of the bloc’s fastest-growing economies in 2010.

“There is no appetite in Ireland for property investment,” said Mr Coll, president of Irish Developers Group, which has €500m ($669m) in Polish property investments.

While Mr Coll’s company is large, most Irish investors tended to be small-scale, often a group of people buying a few Polish flats, hoping to flip them for a quick profit. Marcin Golebiowski, vice-president of RedNet, a real estate consultancy, said his firm helped in more than 2,000 property sales to investors, many of them foreign.

Some made a fortune – buying flats from developers for a 10 per cent down payment with 90 per cent owed when the building was completed and selling on after price rises of 50 per cent or more before the final payment came due. But when prices stopped increasing in late 2007 those flips no longer made sense. Now, investors squeezed by difficulties back home are unwilling to make the final 90 per cent payment to complete the transaction

“The price they signed for two years ago is no longer achievable,” said Kazimierz Kirejczyk, head of the Reas property consultancy. He estimated that 300-400 such purchases failed to go through in Warsaw every quarter – about a 10th of overall turnover in new apartments. It is unclear how many of those transactions were by foreigners.

Even if investors wanted to finalise the purchase of a flat, “no bank would ever give them a loan to cover the outstanding 90 per cent because real estate prices have fallen”, said Mr Kirejczyk. Just as with the Irish, Spanish property developers thought Poland was a mirror image of their home markets from before their own real estate boom.

Many Spanish companies came into Poland in 2006 and 2007, paying prices for undeveloped land that made their more experienced Polish rivals balk.

“The Spanish added a whole different level of exuberance to the market,” said John Banka, a partner with Colliers International, the real estate firm, noting that he had sold a property in Warsaw for a third of the price that the original investor paid before the crisis.

The problem for many of the ambitious Spanish and Irish developers who overpaid for land at the top of the market is that, at current prices, it is difficult to come up with a building project that can earn enough to make the land investment profitable.

“These properties are to a large extent frozen,” said Mr Kirejczyk, adding that the investment only made sense if forecasts of a steady increase in real estate values had held true – instead Poland’s boom was too short.

While Mr Coll’s company is becoming more Polish, some Spanish investors are heading in the opposite direction, abandoning the difficult Polish market in favour of hunting for deals at home.

“There are many more opportunities in Spain,” said Ivan Espinosa de los Monteros, whose Aris property fund owns two office buildings in Poland.

Copyright The Financial Times Limited 2017. All rights reserved.

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