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Buying real estate property in Wroclaw

Slowdown or crisis? The results of the Polish residential market analysis from the 4 quarter 2007

The residential market in Poland seems relatively mature compared to other countries in the Central and Eastern European region and to the new EU member states in particular. Despite high prices, the pre-sales levels remain high, not only for investments completed in 2007, but also for projects planned for completion in 2008. However, since the half of 2007 sales rates have reduced significantly, while offer prices have generally became stable. The fourth quarter confirmed that the change of climate is lasting.

The markets reacted with uncertainty. Some experts forecast a definite end of the boom on the residential market, predicting its collapse and developers' ruin. Others anticipate that the prices will continue to grow with a slower, yet consistent pace. REAS predictions, based on systematic monitoring of the largest Polish residential markets, indicate that a correction is necessary in those cities where the market became overheated. One example is Krakow, where despite clear signals the developers did not hold back with introducing new investments into the market at the right moment. The correction came immediately - already in the 4th quarter 2007 the average prices of flats introduced to the market in Krakow decreased (compared to the 3rd quarter) by 8% and were lower than in Poznan, the Tri-City and Wroclaw, while until recently the only city with higher prices than Krakow was Warsaw. However, the slight price drops do not signify a residential market crisis - it is a natural element of the dialogue between supply and demand. It should also be noted that the current situation is viewed from the perspective of a few year long period of exceptionally high dominance of demand over supply, which will not happen again. If in 2008 in most investments even 20% of flats will remain unsold after completion of the project. this will still be a favorable situation from the developer's point of view.

The year 2007 saw the best building output performance in dozen or so years, and the number of apartments and houses delivered exceeded 130,000, according to REAS estimates. Even more spectacular however has been the increase in the number of building permits issued for apartments and single-family houses. The statistics for 2007 show 247,700 permits, over 100,000 out of which were granted to developer companies. The number of housing units constructions started is expected to reach 190,000, out of which ca. 80,000 are expected to be started by developer companies.

In this situation it is not surprising that between 3rd and 4th quarter 2007 we observed a significant rise in supply on the primary residential market, which in recent years grew relatively slow. The rise was especially significant in the Tri-City and Wroclaw. This effect was reinforced by the fact that some developers decided to withhold the launch of new investments to the market, counting on the reversal of the trend.

In the fourth quarter a new phenomenon appeared of discreet price cuts by way of garage spaces and/or tenant lockers added free of charge to purchased apartments, and of VAT tax refunding. Also attractive to buyers 10/90 purchase price payment option is returning, whereby the first installment amounts to 10% of the price only, and the remaining 90% is paid at the property's acceptance.

When analyzing the new apartments market in Poland a number of significant differences between individual cities should be remembered. Unlike the already mentioned Krakow, Poznan is an example of a city where market players behave rationally, adjusting supply to demand in advance, therefore avoiding serious fluctuations. On the other hand, the Lodz market is very shallow and reacts strongly to supply changes. In Lodz we observe the largest disparity between demand and supply structure - the majority of offers is directed at investment clients (both Polish and foreign), while flats adjusted to the needs and financial possibilities of Lodz inhabitants are scarce.

Investing on the residential market in Poland in 2008

Over the last five years investing on the real estate market has been treated almost like playing on the stock exchange, i.e. as short-term involvement that will bring huge profits, yet is exposed to significant risk. Now investors' attitudes will have to change. There are many indications of return of the traditional thinking about the real estate market as a sector where as a rule investment is long-term and meant not to gain spectacular profits but to provide a relatively high chance of earning a moderate profit in a longer run.

What can be therefore recommended to investors? As always, when market prices are stabilizing and even declining a little, recommendations for the whole sector become very risky. Concrete projects should be attentively watched with focus on their quality, prospects of long-term value increase, investment risk, and likeliness of development of competitive projects nearby, or occurrence of some other adverse changes. In other words - it is back to the basics and departure from the "hit and run" philosophy, that we have already got used to.

Worth of particular attention are governmental actions aimed at implementation of revitalization programs in degraded city centers. Revitalization projects are meant to convert such downgraded urban areas into districts harmoniously combining residential and recreational/cultural uses and providing work places. The public sector's assistance to investment in real property in locations covered with such programs may be expected, as well as the property value's rise at a rate clearly higher than the city's average.
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What?     Apartment     House Office Farm Commercial Property
Where? Old Town Close to the city centre       Outer Wroclaw
How Much?  < EUR 50,000     < EUR 100,000     < EUR 200,000     < EUR 500,000   
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- Establish the primary motives behind the client's interest in Wroclaw property: e.g holiday home, personal residence, buy to let investment, business premises etc.

- Share our local knowledge with the client advising on the best location, the most appropriate size and style of dwelling, and approximate prices to match the client's target property best. This will involve a tour of the city and its districts should it be required by the client.

- Advise of potential pitfalls and restrictions of which the client should be aware and must avoid, and of the protocol of buying property in Poland.

- Inform the client with precise details of relevant properties for sale.

- Liaise between the client and local professionals (e.g lawyers, accountants, bankers) to facilitate the purchase process.
- Arrange viewings of properties in which the client has shown interest with a reputable Wroclaw estate agency.

- Introduce the client to the agent for the viewings whilst continuing to offer informed advice.

- Accompany client to viewings and arrange further visits to Wroclaw if necessary.

- Attend contracts to be signed at the Notary's office.
- Recommend professional local tradesmen for renovation projects.

- Organize home insurance and tax accountancy.

- Arrange for the letting and management of the property if necessary.

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