Any investors sell a Polish property second hand?

Rhino 1

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HI,

Just gatering information before family purchase in Poland.

They are just back from Ludz, looking at new "paddy property" and met a couple of agents - in the course of there visit they found out from the agents that second hand property is roughly half the price of new property.

If that is the case the huge growth in property prices would be totally negated.

By the way I hear it is nigh on impossible to buy second hand property in Poland.

Anyone have any experience to add to this.

Thanks
 
If that is the case the huge growth in property prices would be totally negated.
You mean the huge growth speculatively predicted by some people would be totally negated? Obviously quesions need to be asked why the sale price seems to be twice the resale price!
 
In many of the former eastern bloc countries, second hand proerty tends to be a bit cheaper than new build, primarily because local buyers want to move out of old communist style blocks and into new stylish apartments. In addition, renters prefer new-build with off-street parking. In some extreme cases, this may mean that new is twice as expensive, if you are not comparing like with like -- ballymun versus killiney if you know what I mean.

However as a general rule, comparing similar properties in the same area, there shold not be anything like this level of disparity between old and new -- 10 or 15 percent should be the most of it. It is quite likely that a certain level of "paddy factor" is at play here.
 
I totally agree with you Auto320, that you have to compare like with like.

In Budapest, I could have either bought the newly renovated apartment, which I currently live in, (located in a building, which needed total renovation) for €70,000 or pay around 65% more for a new build of the same size next door.

Three years later, the building I live in is in the process of being totally restored, while the building next door is already in the process of falling apart and looks dreadful. It was thrown up over the course of a few months and has no design merit whatsoever. My building is 100% owner-occupied while I'd estimate that next door is more or less the opposite, which, generally speaking, has a major impact on how a building is maintained. The new building is likely to deteriorate over time, whereas the classic buildings of the city are likely to improve with regeneration.

With new build projects aimed at the western investor market, it's much more likely (both in Budapest and in Lodz I'm sure) that the shiny new buildings of 2004 will, in 2007, be occupied by a majority of renters or even left unoccupied. It is almost inevitable that such buildings will not be maintained as well as a building, where there is a higher percentage of owner-occupiers.

The higher price tag at the time is paid by investors who generally don't research the local market and a few years down the road, (IMO) they often have to come to realise that the type of tenants who used to want to live in their bland monstrosity want to move on to the brand new one down the street.

My argument is only valid in city centres, where period properties are available alongside new builds and of course there will be some exceptions (e.g. Kiraly Udvar in Budapest), but for the most part, if I were to buy in any city centre in CEE, I would extensively check out the second hand market first.
 
Thanks for the responses.

I think you are talking a lot of sense Buda with regard to what happens to the new properties - which scares the hell out of me when i see what is being sold to the Irish all over CEE.
 

Rhino1
There is both a positive and negative to the responses and I believe both are true. The fundamental points about groundwork and comparing like with like are the most important. I have not yet been to Lodz but am involved in another city in Poland. There is quite a number of the older building about and as mentioned above tenants are leaving these to move to new blocks. One reason is the lack of insulation in the old buildings another is the prosperity in some of the larger cities.

Can you tell me why you picked Lodz? I know Dell are opening there, are there many other sign of the city taking off?
 
Comparing like with like is important and that applies to people too. Just because we would prefer to live in a renovated classical building does not mean Polish or Hungarians would too. It's quite the opposite. Maybe in time they will apreciate the potential of the older buildings but that adds to the gamble.
46% of Polish buyers are looking for a new build 2 room (1 bed) apartment of about 50 -55 sqm. We can argue here about what they should want, but that is not our point. If I move to Poland I would like to buy an older property but not as an investment. And very few want to live in a panalak, so you can almost name your price on those.
 
I agree with you somewhat, Johnny D, that some locals, in Budapest at least, like the idea of living in a new building, mainly because they require no renovation, attract lower stamp duty rates, and are usually easy to live in. However, most if not all Hungarians I know personally (generally in their 20s or 30s) would much prefer to live in an apartment in a classic building if they could find a good one. The main problem is that competitively-priced, good quality renovated apartments in renovated classic buildings are almost impossible to find in the city centre. Those who have one generally know its value and the good ones that come to the market tend to be purchased within a couple of weeks. Availability should get better with time, as more and more buildings are restored. Neo-classical style buildings are commonly believed to be the most prestigious and if a developer renovates them in their entirely, they can be sold at a premium. Two recent examples are Andrassy Palace Gardens and Avenue Gardens on Andrassy ut.

From a longer term point of view, I cannot see the logic in believing that the cheaply constructed buildings of 2006 built in the central districts will fare well, when compared with classic buildings, which are being renewed at a growing rate.
 
Many of the classical buildings in Budapest, (eg District V) are registered as historical monuments and protected. Many of these buildings are quite simply incredibly beautiful, and are really "one-offs" the like of which will just not be re-created. In District V, they also enjoy a prime downtown location with all the amenities on their doorstep that matter to tenants and owner-occupiers alike. I agree with the comments made by Budapest. The real gamble is in relation to most (but not all) of the new-builds where price has never borne any relation to value, real or perceived.
 
I can't argue with what you say about Budapest. I really don't know the market there. I do know Poland and there is just not enough classical buildings there to have a strong effect on the market either way.

It is true that in a number of years there may be a problem with the up keep of these apartments but if there in the right location and demand is strong I'm sure there would be a market for them. Being honest I don't tend to look beyond 5 years for an investment myself. If I could see a problem arising I think I would try and get out of it.

Best of luck with your investments and I think we all answered the original question.
 
There are four reasons why local buyers go for new build in many of these cities.

The first is the better layout found in a new apartment; the older ones were often chopped out of a larger apartment with awkwardly shaped rooms, poor use of space and general unsuitability for a modern minimalist lifestyle.

The second issue is parking: new build is the only way (with a few exceptions) to get an off-street parking space. A lot of professionals like to have a car for weekend use in particular, and parking has become a real issue downtown in many cities.

The third is the poor condition of common areas in many classical buildings.

The last is the problem with high ceilings and draughts that make cassical apartments difficult to keep comfortable in wintertime.

I have one very nice classical apartment in a well maintained building (in Budapest, District V) that consistently fails to deliver as well as some new apartments that I own in the same city. Although I prefer the look and character of the old one, the others out-perform it by a significant factor. While I wish it were otherwise, that is my experience of it.

My concern in an earlier part of the post though was for new versus old communist era blocks; the latter should be avioded like the plague if you are looking for investment in the medium to long term. Locals aspire to get out of them into nice new apartments.
 
I'm surprised, Auto320, that your District V apartment is not doing as well as your new builds. Most people I know are able to rent out their classic apartments quite easily and getting a return of 6-7% is not difficult in the current climate, if you purchase the right property and furnish well. There is still a lack of good quality apartments in the downtown area available at reasonable rents.

Rental return on good quality new builds tends to be around the same in my experience, but the main issue for most smaller investors in particular is capital appreciation potential and neo-classical buildings in Districts V and other central areas should (IMO) strongly outperform the properties that I've seen built over here recently. There is real value and huge potential in these buildings, something that is lacking in many of the horrendous constructions of the past few years.

I appreciate what you say about the problems with older apartments in CEE cities and completely agree with the reasons you give for people sometimes choosing new builds. However, none of these problems is insurmountable. It just takes that little bit more effort at the outset. Many investors are put off by the though of it, but thankfully, labour is good value, so re-jigging layout is not a huge expense. I've been very careful about who I hire to do work and have had only good experiences so far. I'm currently renovating a 76sqm two bedroom apartment in District V in its entirety, including moving almost every wall in the place and it's costing approximately €12,000. Common areas are quickly being restored and secure parking spaces are currently good value and easy enough to find in the vicinity of classic buildings. Residential on-street parking is also a possible cheaper alternative for many residents at very low rates. Most international students/young professionals I know, who come to live here for a few years, don't use a car as it's completely unnecessary. Those that do, tend to prefer to live either in larger properties in Buda, higher-end developments in the city centre or in new apartment blocks in the near suburbs such as in parts of District XIII.
 
auto320, I can confirm of having dificulties in finding a tenant for classic apartments. There is another reason why tenants prefer new build residential properties. Old buildings are occupied by retired people and they are usually not happy with tenancy and foreign owners and tenants.

Neighbours are also important when tenants decide which apartment being rented. Even Budapest's downtown is the area of old people.

Yield of second hand apartments is around 5-6% instead. New build apartments have higher yield around 7-8%.

Higher capital appreciation is expected to be achivable for classic apartments in long run while yield and renting potentials are favourable for new build apartments in short and long term.

The last reason is related to all other issue that is no-existed rich and poor quarters in districts of Budapest. Poor and rich people live together in the same district and building. This is a kind of chaos. As a result new high standard buildings with services mean new lifestyle and living space for people at higher living standards. Expats and local professional also want to join these new areas.

Probably other CEE Capital Cities are in the same boat. After communism was fallen down, social problem of financal differences between man and man is a hot issue. Real-estate market in Budapest is now especially effected by social differences: drop in sales price for classic apartments in downtown and extremly high sales price for new builds. New build apartments have usually double price comparing to classic apartment's market.

This would be a neverending story.
 
Excellent thread guys and one that any prospective investor would be well advised to read before taking the plunge with any foreign purchase. While I can't speak about Budapest I have been researching the Polish market in detail and, while the prospect of owning new build X for 90K is enticing (paddy price or no paddy price), the thought of trying to sell it 7 or 8 years down the line scares the hell out of me. It is so easy to get caught up in the hype that people simply turn a blind eye to the second hand market. Afterall buying the property is only half the investment. Selling it (and trying to make a profit) is the second half of the battle. If you don't get step one right then forget about it. Simple as that.

As has been pointed out there are alot of new builds that should appreciate well, but neo-clasasical buildings for the most part have stood the test of time, and IMO are sure to outlast the majority of new builds that are going up nowadays. IMO as the Polish economy grows the demand for such apartments will also become stronger. Last Summer a Polish friend of mine bought an off-the-plan apartment in Gdansk (part of the tri-city area on the Baltic coast) for 75K and plans to return there in a couple of years to live. It is not an investment as such. According to him the developer [broken link removed] is one of the most reputable in Poland and they have several developments in tri-city. His brother-in-law operates a construction firm out there so he will be able to fit the shell out for next to nothing when the development completes in a few months. If one looks at all the Inpro developments i don't think theres even a handful left in the 50-55M2 bracket. They get snapped up very quickly. This is where the demand is for local buyers. I'm in the fortunate position that he will be able to show me around the area, and if i see something in a good location that needs a little renovation work i should also be able to get the work done for a resonable price. Sopot really interests me. In the words of my friend it is the most desirable place to live in Poland (he rented a place there a couple of years ago), and there is little room for new developments. It is quite expensive, but you never know what you'll find by having a noose about the place. And you can also never beat some local knowledge. I'll keep you guys posted if find something interesting.
 
Although this thread has already strayed far enough off post to be ridiculous, I feel compelled to reply to the last poster.

The expression 'There's no such thing as a free lunch' springs to mind.

The more central 'classical apartments' as they are being referred to here will, in most CEE cities, always return better capital appreciation than the less well positioned new-builds simply by virtue of their location, architectural merit, ambience etc.

The new builds, with their superior finish and lack of renovation costs will, of course, rent easier to the foreign tenant and indeed, therefor, will be more readily bought by the foreign buyer. That said either you want the 'free lunch' i.e you buy a new apartment, rent it to another ex-pat (if you're lucky) and forget about it, or you delve more deeply into what investment is all about.

I'm not trying to be obscure here (although I'm sure I'm succeeding!) but I always thought that investment should be viewed as a means to best managing your current resources with the expectation of equally exciting gains in the medium to long term. Anyone entering this game and unwilling, for example, to engage with neighbours who are more advanced in years than themselves and, perhaps, not as well heeled as themselves should not be considered 'investors' rather 'speculators'. Certain developments and opportunities will not appeal to speculators simply because of the effort involved, but therein often lie the greatest opportunities.

Look at the gentrification which has taken place in our own fair capital city over the last 20-odd years in areas such as Rathmines/Ranelagh and areas of Dublin 8 & 9 (to name but a few). Canny 80's buyers in those districts were, to my mind anyway, shrewd investors.

I guess what I'm trying to say is that it always comes down to the amount of work you are willing to put into it. Work hard and get great returns. Work averagely and be rewarded with similar average returns.

It's always easiest to take the path of least resistance and I appreciate that many Irish people are too busy in other areas of their personal and professional lives to take the time to really get down and dirty with their choice of foreign purchases.

I take my hat off to individuals such as Auto and Budapest who recognise, and never forget, the old adage of 'location, location, location' rather being enticed by the easy lunch. I'm endeavouring to put myself in a similar situation to them but with a lot less experience. It's starting to yield results but its far from a walk in the park.

Remember when you were in school? The nerdy kid who listened to the teacher and did all his homework on time, studied hard and didn't always follow the herd did best of all didn't he? Well didn't he?

Unless you are extrememly lucky and a whole lot of factors, over which you have no control, don't collide to enrich you then you'll find that selling the sort of new builds on offer to the average Irish investor (sorry! speculator) at a profit to be a difficult proposition be it in Poland, Hungary, Romania or Bulgaria.

Your success or failure all comes down to doing your 'nerdy-kid' homework. It's never to late to change the habits of a lifetime!
 
I don't really disagree with any of the previous posters, but there is one issue that needs clearing up -- the assumption that all the new-builds are (a) overpriced, and (b) of a low build standard.

To take the first, going back to Budapest again because I have more direct and recent hands-on experience there, you can buy some very decent new-builds in excellent residential parts of the 13th district for instance for under 1500 euro per sq m. These properties are sold mostly to local buyers and are eagerly sought after by local buyers and renters. The "paddy factor" doesn't get a look in, as these never make it to the property exhibitions here. I already have some similar properties and they have not only performed better than classic, but have far less "down-time". It can be very hard to let even a nicely renovated classic apartment to a local professional -- they simply prefer these new places with parking and nice clean and smart landings. The character of older buildings appeals more to expats who have just moved to the city.

With regards to standards, the new build in many cases (not all, to be sure) are built to a very high standard and the building code is well policed by the local authority. Planning permission forces the developer to provide a percentage of green space in many cases that is not available in old properties. Standards are higher that in Ireland, and are enforced.

When you take the combination of better use of space, secure parking, and nice comon areas, as well as the exclusivity that a complete new building offers vis a vis a mixed old one, the new will win out every time. It gives a higher rental return and a better return on capital against classic, in Budapest at least.

Ancutza is right about some other locations right enough. I looked at a block of beachfront apartments in Mamia (north of Constanta in Romania) a couple of years ago for a client who wanted to buy the block and flip it to individual British buyers. The standard of work was apalling, the steel was already starting to rust and cause spalling of the concrete, and this in a building that was less than a year old and not yet complete. The workmanship smelled of shortcutting and backhanders -- certainly it wouldn't have passed in Budapest.

Apologies for deviating from the thread, but the discussion seemed to grow legs!
 
I completely agree with you Auto320 that not all newly built apartments are overpriced/of low build standard. That's great that you sourced some good ones in District XIII, an area which locals seem to be very fond of. I'm sure they will continue to do well for you. However, in the city centre at least, the standard of design of non high-end newly built properties is generally awful - they would not get planning permission in Ireland and the choice of materials used is incredibly poor. These buildings are mainly aimed at the Western investor, who tends to buy off-plan so they don't really see what they are getting. They may pass whatever inspections are necessary, but barely. I would also worry about how above-board this whole process is in CEE cities. Poor maintenance also seems to be a major problem with many recently-built properties and I would be very worried about the future potential of these buildings.

In my experience, standard new builds do not always even rent that easily in the city centre. Take a look and check out how many newly built apartments there are for rent in District VI alone. I checked during the week on a recently constructed new building on my street and only 12 out of 40 apartments have been occupied. (However, there may be discrepancies here such as some investors holding onto unfurnished apartments). Sometimes I feel that I've met every expat living over here (at least the ones who go to bars a lot!) and I honestly don't know anyone who would prefer to live in anything other than a renovated classic building in the downtown area. Incidentally, many of these people have been living here for several years. (Of course I'm aware that this is not for everyone). Any careful investor I know who has purchased recently in a good central area is getting returns of 6-7% and it's certainly not difficult to rent out a high quality classic apartment - finding a good one at a reasonable price is the difficult part, as local estate agents will tell you.

I completely appreciate that the situation is probably different in many Polish cities like Lodz/Warsaw, which lack the type of buildings that Budapest has, but I'm guessing that there is great value to be found on the local second hand market for people who take the time to research it. Meanwhile, in Budapest, I cannot see how a long term investor will do better than taking their time, ignoring almost everything that's aimed at the Western market and buying a high-quality second hand property with good potential for the future in a well-respected central location.
 
As a private person I send this post to Budapest.

I have been living here in district 5 (next to Ferenciek tere and close to Deak and Astoria)for a couple of years. The apartment is beautifully renovated, nicely furnished. I like it but building, neigbours are not in my dreams. However, it is a normal a building and looks ok but it is dark and doves make it dusty all the time.

I have decided to move out in the Spring as follows:

- lack of shops for food and vegatables (short opening hours)
- low range of foods, drinks, etc. and low quality of them
- higher prices for foods, etc.
- my friends have difficulties in finding a car space when they want to visit me
- my friends have to pay for parking at Saturday till 2 pm as well
- streets are dirty like everywhere in Budapest but "dog things" are very hot issue in district 5
- all neighbours are over 60 and 70 at the floor and I am the youngest resident in the building (25) while next resident is around 35

I have go shopping other districts such as 7, 8, 9 and 13 due to wide range of products, better price-value, longer openning hours, etc.

I do not think everybody intend to live in district 5. It is a nice district but it is not the best place for living. It is a best place for staying a couple of days in a hotel for instance.

I do not want to go into deeper but it is better to know that most of residents who live here is suffering from lack of chance for change. I mean prices in other districts are almost the same(you can find most expensive developments in district 7, 9, XIII and buda side) and you cannot get a good value for the apartment in district 5. All in all, most of 30,000 residents in this district would be happy to leave it and relocate to a nicer area.

It seems a good time to purchase a classic apartment in district 5 but buy to let is not a good approach in this area. If you have min. 10 years for waiting, probably I suggest you invest here. Otherwise, find a better investment with better returns. District 5 is absolutly an extra long term investment with high risk of low return in the next couple of years

Finally, prices are dropped in district 5, so this is also a sign of changes. It is attractive for investors who had never ever invested here before but is scary for the other side who are concerned about lack of appreciation.

Best of luck in district 5
 
Its all about location at the end of the day, and if you add a well built property with nice finishes, and you can buy it at or below market price, you will be able to keep it let and sell it at a profit whn you need to exit. Almost as important, a well located property will sell quickly in the event that you need to cash it in.

Of the mass market stuff that was bought in Ireland at exhibitions etc, only a few met with all these criteria. The "Madach" project (Autoker Holdings) was probably the best of these and anyone who bought it at the original price will be happy. The second rate stuff in that project-- the attic apartments with their sloping walls, are now selling for a lot more than the original units, and to local buyers.

Autoker also sold some excellent projects in the city end of the 13th district, Caesar/Cleopatra and Romei haz are all doing well and are giving in some cases spectacular returns vis a vis other stuff sold at the same time. It is hard to find an apartment to rent in these projects right now.

Some of the other Autoker stuff though was overpriced, and consisted of massive developments in areas that are not sought after by local renters or buyers. The majority of the owners in these projects are foreign, with a high proportion of Irish. In general, they paid to much.

Apartments in some individual apartment buildings down town were also sold to Irish buyers at inflated prices by a rash of agencies who moved into Budapest with little knowedge of the market and hoovered up all the available property regardless of where it was or how well it was designed. In some cases, the dreaded "rental guarantee" was a feature, and made for even higher prices.

For many Irish buyers, Budapest may look like a minor mistake, but even so, most of their investments will come good in time. The worst off are the people who bought in the worst areas; a lot of stuff was sold to Irish buyers in bad areas of the 8th etc, and at prices more correctly related to the city centre. The ones who did a bit of research and bought with their heads instead of their hearts though have been enjoying good returns and steady appreciation, and this looks set to continue. Anyone who bought in one of the small infill developments in good residential areas, and bought at local prices, has enjoyed a nice return both in rentals and capital growth. Personally, I am betting on further growth and I am adding new units to my portfolio in Budapest all the time, but you won't see me buying at a property exhibition!

I bought an old apartment in the 5th a good many years ago, before most Irish people even knew where Budapest was, but it hasn't done any way as well as the new build, with several rental gaps, and even now that it is let it is giving a mediocre return relative to its current market value. Even so, I would be loath to part with it; it is a beautiful living space and its day will come, but it isn't what the market wants. A pity, but that's the truth of it.

As a byestander on the sidelines of the buying spree in Budapest in the last few years, I was astounded at the lack of planning and forethought of the Irish buyers. What saved most of them from a complete roasting was the fact that a few of the market leaders in the field were good operators, and sourced the best product. Even the ones who bought the rubbish will escape with their money though; if you buy (even secondary locations) in a major city that has growth in the market you will eventually do ok, even if your returns over the interim period are small.

I watched with consternation when the fashion switched to Bulgaria; the same cross-section of the populace made the same mistakes of listening to salesmen with no real market insight, but in this case they rushed into a market with none of the saving graces of a major and growing city. They are the ones I feel sorry for.

Now how did we get here from Poland? Apologies for the drift.

I suppose that the thrust of the post is the same -- the day you buy is the day you sell etc. Unless the demographics suggest that there will be potential buyers when you want to exit, then you have no exit strategy and you are probably going to lose money.
 
Its all about location at the end of the day, and if you add a well built property with nice finishes, and you can buy it at or below market price, you will be able to keep it let and sell it at a profit whn you need to exit. Almost as important, a well located property will sell quickly in the event that you need to cash it in.


Exactly right, regardless of it been new or old. Location Lo..etc
I HEAR PADDY PRICES ARE RIFE THERE AT THE MOMENT. Would not a well located decent condition building be a better investment if the price variant is that much?? I am sure there is a lot of grey area and good value to be found between these new developments (that everyone over there is supposed to want to pay extra for) and the panlaks.

It is clear there is a lot of hype going on at the moment and although there are interesting points been made here, they are just points of view and no-one knows where the Polish market will be in next few years. This should be kept in mind - There are safer bets out there for those in particular who may be borrowing on their Irish homes to fund such ventures.
Not comparing, but a lot of people thought they couldn't go wrong investing in Bulgaria a couple of years back. Who is to say there wont be over supply building wise in Poland in a couple of years. Reports were made proving demographically that this could not happen in Bulgaria in 2004, but it has terribly.
Is the average wage increases there improving remotely in line with these property prices, from already very low average salary's. Is it all investors buying to rent in a country where people dislike renting.
A Polish man told me last week that 5 people will get together and buy a cheap apartment sooner than rent..He bought a small site.
Just some thoughts
Be carefull of hype - as Poland is new to everyone and no one can claim to be an expert on such a market
 
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