You have been living in Krakow for 4.5 years, recently you have worked as a mortgage and property consultant/specialist, correct? So you know the market and real estate situation at first hand. What can you add to everything what was said here?
I don't really know where to start! There are so many points I could raise here.
Is there a real estate bubble in Krakow? My opinion is no, there isn't.
Perhaps this time one year ago, you could have argued that there was. Thankfully, prices stopped rising and some common sense entered the market. Prices just couldn't keep rising at the pace they were.
One year down the line, what can we see?
The average price per m2 in Krakow is 7500 PLN per m2, not much different from this time last year and now 15% below Warsaw. In the suburbs this means you could get a newbuild apartment for less than 6000 PLN per m2 (in developer's standard of course) and in the centre you can pay up to 15000-20000 per m2.
There is a lot more supply than a year ago in Krakow. The lack of spatial planning in Polish cities (which Pawian mentioned) are still an issue, but there was a lot of new apartments approved to be built in 2006/7 and they are now coming to the market.
There is still pent-up demand from the Poles for new apartments.
The fact is, the majority of Poles still live in substandard accommodation (whether it be rundown kamienicas in the centre or in blocks from the 60s and 70s in the suburbs), and as wages rise, then they aspire to get something larger and newer.
The boom in Poland in recent years was partly driven by easier access to credit as the Polish mortgage/banking market competition increased. This has halted somewhat in the past year due to the credit crunch, though the Polish experience is nowhere near as bad as in the USA or some parts of Western Europe.
So right now, we have a situation where buyers have the upper hand. They still want to buy apartments, but they are holding off, seeing if the owners/developers will reduce their prices. Alternatively, buyers can just be more discerning, waiting for the apartment that ticks all the boxes. (Pavel, this is probably not an apartment on aleja Słowackiego).
The Polish economic situation is also worth mentioning. Unemployment continues to fall (now 10%) and wages continue to rise (around 10% per annum). Inflation has moved higher, but this is a worldwide problem, and at 4%, Poland's inflation is still well below most of it's central and Eastern neighbours. The central bank of Poland has also used it's monetary policy powers to raise local interest rates and try stem inflation, something which a lot of governments around the world have failed to do. Essentially, the Polish economy still looks good, GDP growth is still high (around 6%) and foreign funds continue to flow into the economy. There are still lots of EU structural funds to be spent, which will stimulate the economy further, though we will wait to see whether the new roads and other infrastructure improvements mooted over the next few years will actually materialise!
Poland is such a big market in the region (population almost 40m) that it's property market still warrants attention from investors. You will just have to take a longer term view if investing now. Expect the prices to remain fairly stable over the course of 2008 and 2009, but for steady price growth to kick back in from 2010 onwards. This is a commonly held view if you read research from the major players in the market (maybe they are biased, but aren't we all?)
Foreign investors piled into Poland between 2003-2007. The earlier you got into Poland, the more money you made. I can now see many of these investors looking for the exit door. Not only has the PLN value of their properties risen strongly (even 100-200%, but the zloty has appreciated against all major currencies, particularly in the past year, making the gains even higher.
The argument that foreigners were responsible for the boom in Poland is flawed. They have only made up a small part of a very big market, and perhaps only influenced prices in the premium end of the market, luxury apartments in city centres for example. Some foreign developers have also paid far too much for building land as well.
So, if you look at Poland now with a foreign eye, and convert the prices on offer back into GBP/EUR/USD, sure it looks expensive. But it's all relative. The story of Poland has a long way to go, and I really think we are only in the first stage of a really impressive growth story.
I could have touched on many other issues, but must get back to work.