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Residential real estate values go down in Poland


gumishu 11 | 5,596
9 Jan 2012 #241
gumishu:
oh, sorry - one magnitude too much (I mean cut one zero in both prices) :) - my mistake

So it was possible to buy an apartment for as little as 33,000zl at the peak of the market? So much for the great bubble!

a 26 square metre studio flat, no gas, a bigger village 30 km from Opole and the price almost trippled in 8 years
f stop 25 | 2,513
9 Jan 2012 #242
So it was possible to buy an apartment for as little as 33,000zl at the peak of the market? So much for the great bubble!

Almost 300% price increase? Go ahead, Harry, tell us what is a bubble.
Harry
9 Jan 2012 #243
Go ahead, Harry, tell us what is a bubble.

It is trade in high volumes at prices that are considerably at variance with intrinsic values. Still want to claim there is a bubble in Poland or that there has ever been one?
milky 13 | 1,657
9 Jan 2012 #244
my mum bought a studio flat in a very small place in Opole region in the year 2000 for 120 000 PLN and we sold in in 2008 for 330 000 PLN

and that's because there's a bubble, as obvious as water is wet. Some people are in denial ahahha.
pip 10 | 1,661
9 Jan 2012 #245
no, still not a bubble.
milky 13 | 1,657
9 Jan 2012 #246
ah well, the power of denial eh..
Harry
9 Jan 2012 #247
Perhaps you could explain the way in which there is trade in high volumes at prices that are considerably at variance with intrinsic values?
f stop 25 | 2,513
9 Jan 2012 #248
It is trade in high volumes at prices that are considerably at variance with intrinsic values. Still want to claim there is a bubble in Poland or that there has ever been one?

First of all, does anyone know why only "at variance with intrinsic values"? Shouldn't it be at prices higher than the value? Is there a bubble if prices are much lower than the value?

And secondly, with this definition, I'm surprised you don't agree that we had a bubble around 2007, Harry. There was high volume trade at inflated prices, no?
Avalon 4 | 1,068
10 Jan 2012 #249
I'm surprised you don't agree that we had a bubble around 2007, Harry. There was high volume trade at inflated prices, no?

But there is no mention of large amounts of foreclosures (as in the UK, Ireland and the States) neither have the prices dropped 50%, so where is the bubble?
f stop 25 | 2,513
10 Jan 2012 #250
Maybe it's not over?
Do these real estate "bibles" specify the duration of the bubble as well?
PeterWeg03
10 Jan 2012 #251
The farm I bought for 175K in 2009 was purchased for 35k in 2000 by the previous owners. That doesn't look live normal price growth to me.

Prices have been falling for two years or so, so if there was a bubble, its deflating slowly. A market correction .. whatever. the bubble has popped.
gumishu 11 | 5,596
10 Jan 2012 #252
in Poland property was seen as the best investment by many for quite a time perhaps not to the extent it went in Britain where property was the only good paying investment for quite some time (was in England at that time - stock market had very low returns (though it wasn't shrinking yet)) - this and the convinction that it's going to last forever (the price growth) is the recipee for a bubble

now in Poland the bubble is not as big as in Britain because people just had no such money as in Britain - and remember one thing prices won;t go down quick unless there is a crash in the economy for one simple reason - people don't want to think that they will have to part with the returns they hoped for - now there is still the question of renting - I repeat myself but again rent prices for your average flat will not go down considerably in the coming year or 2 perhaps even 3 - untill a serious trouble in the economy (we are on the track to that trouble though) - I have no idea what are your typical returns from buying and then renting property at the moment but porperty investment may still seem safer than bank accounts (though rather not new built flats with high monthly bills)
PeterWeg03
10 Jan 2012 #253
and remember one thing prices won;t go down quick unless there is a crash in the economy for one simple reason - people don't want to think that they will have to part with the returns they hoped for

This is why death was invented - so people will stop hoping for a price they will never get. When there is no pressure to sell high prices fall slowly. In the UK its 1-5% per year, but the rent return will not support higher prices and so sales levels go down, gradually eroding sales prices. Whether it takes six months of six years prices will return to viable levels, a few percent per year.
Foreigner4 12 | 1,769
10 Jan 2012 #254
In theory, Pip is correct.How can you call a bubble until it has popped, you may believe that Poland is going through a ' Economic bubble' this is not a property bubble as truly defined, you can say '

"Like pearls before swine!"
How has this post gone unanswered by the forum experts?
pip 10 | 1,661
10 Jan 2012 #255
I am waiting too.
cms 9 | 1,271
10 Jan 2012 #256
It is trade in high volumes at prices that are considerably at variance with intrinsic values. Still want to claim there is a bubble in Poland or that there has ever been one

Well that is remarkably close to the wikipedia definition. If Milky were to quote that then no doubt Harry and Delphian would be deriding his dodgy source before segueing into some personal abuse about his family and him being idle.

But I agree its a reasonable way to look at it. Presuming you understand intrinsic value, you will agree that it is the present value of the future cash flows from an asset.

I have 5 properties here of different sizes and location and all would work similarly but lets take one apartment that is easiest to use as an example because the market for selling is more liquid than it is for farming or houses.

The flat is 50sqm, in a reasonable area, 4km from centre of a big town. bought in 2001 for 150.000. I rent it furnished to reliable tenants for 1400 and after tax and costs have about 1100 in my pocket. They are not students so I get rent 12 months round.

So the intrinsic value is the annual income of 13200 divided by a cost of capital that would be something like borrowing costs - growth rate in rents. I havent moved the rent for 3 years and I dont think I could in this market. So that is zero. I have no idea what the cost of borrowing is for inidividuals but with base rates at 4,5% then I guess around 7% once you chuck in mortgage insurance etc.

So intrinsic value is 13.200 / 7% is PLN 188k or 25% appreciation over a 10 year period. Maybe a little low but sounds reasonable. I didnt negotiate especially hard at the time. I have ignored sales taxes, repairs and transaction costs all of which should logically depress the intrinsic value.

A neighbour in the same block has his flat up for sale and want PLN 350k for it. That is circa PLN 7k per sqm and 86% above the intrinsic value. Asking prices for this type of flat are indeed 6-7k per sqm.

Of course you could argue about every assumption in my calculation but the general theory is correct - that relative to intrinsic values then there is a bubble.
gumishu 11 | 5,596
10 Jan 2012 #257
I have no idea what the cost of borrowing is for inidividuals but with base rates at 4,5% then I guess around 7% once you chuck in mortgage insurance etc.

the end price of a bank loan in Poland is much higher than 7 per cent - be it a cash loan (which are more expensive) or a mortgage - your typical consumer goods credit in 2008 was more than 15 per cent after credit insurance and the base rates were very similar to the current ones
milky 13 | 1,657
10 Jan 2012 #258
some personal abuse about his family and him being idle.

No pains man, as they have no idea who I am; so, It's just as I said a hundred time before a snark attack, by those who have no logical backbone to their vicious ranting.
PeterWeg03
10 Jan 2012 #259
How has this post gone unanswered by the forum experts?

Its the wrong question.

Prices have already fallen so the bubble has popped.
Harry
10 Jan 2012 #260
Well that is remarkably close to the wikipedia definition. If Milky were to quote that then no doubt Harry and Delphian would be deriding his dodgy source

Wikipedia is only as good as its sources. And, unfortunately its subject matter, which is why the articles about things like Polish history tend to be so poor.

But I agree its a reasonable way to look at it. Presuming you understand intrinsic value, you will agree that it is the present value of the future cash flows from an asset.

Funny how you only use half the definition, I wonder why that might be.

after tax and costs have about 1100 in my pocket

You don't feel that you're putting yourself at somewhat of a disadvantage by not following what seems to be prevailing market practice with regard to rents?

That is circa PLN 7k per sqm and 86% above the intrinsic value. Asking prices for this type of flat are indeed 6-7k per sqm.

So you are expecting an 86% fall by when?

Of course you could argue about every assumption in my calculation

Or one could present an alternative calculation. In 2000 I was renting a 39 sq. m flat in central Warsaw for 2000zl per month (which was the market rate), using your calculation of (12 x rent) / 7% would give us an intrinsic value of 342,857zl. But I managed to buy a flat which was 25% larger and only 500m away for 171,000zl that year. This might suggest that your calculation is less than accurate. However, the market rent for that flat would still be in the region of 2000zl per month (so still 342,857zl) and while the asking price would probably be 11,000 or even 11,500zl / sq. m, actual sale prices would be more like 10,000 / sq. m. Not such a huge difference between market price and intrinsic value there.

the general theory is correct - that relative to intrinsic values then there is a bubble.

You've presented a calculation showing there is. I've done an identical calculation which shows there is not. And another calculation showing that either property in Warsaw was undervalued by 50% in 2000 or that the calculation in question is not hugely useful.

But, given that you accept the definition of bubble as a "reasonable" one, could you perhaps be so kind as to explain how the current real estate market in Poland meets the "trade in high volumes" part of the definition?
Foreigner4 12 | 1,769
10 Jan 2012 #261
Prices have already fallen so the bubble has popped.

Based on what people claim a "bubble" to be, a 10% fall in prices shouldn't be evidence of a "bubble." I think he's right though, whatever a "bubble" is in real estate terms, it can only be identified after a massive drop in prices.
f stop 25 | 2,513
10 Jan 2012 #262
unless we can define what increase in trade constitutes "high" volume or "considerable" variances, nobody can be right or wrong here.

But, keep in mind that most of the information you google out there is geared toward attracting the foreign investment to Poland. You have to dig deep to find actual statistical graphs.
Wroclaw Boy
10 Jan 2012 #263
Property bubble: property that has experienced unexpected growth untill it reaches an unsustainable level?
milky 13 | 1,657
10 Jan 2012 #264
Poland's property bubble, is one of the most obvious in Europe at the moment. Fact.
pip 10 | 1,661
10 Jan 2012 #265
how is it fact? because you say it is. just because you say it is doesn't make it true.
Harry
10 Jan 2012 #266
unless we can define what increase in trade constitutes "high" volume or "considerable" variances, nobody can be right or wrong here.

We can certainly compare the number of sales taking place per month now to the number per month in 2008. I would very much imagine that the numbers a quite a lot down. We could also compare the number of transactions per 100,000 people (or per 25,000 average sized households, that would be better) in Poland and in other EU nations. Anybody know where to get such figures.

Poland's property bubble, is one of the most obvious in Europe at the moment. Fact.

When is the sky going to fall, Chicken Little?
Wroclaw Boy
10 Jan 2012 #267
how is it fact? because you say it is. just because you say it is doesn't make it true.

It is a fact IMO. whats the biggest bubble in the last 15 years? I would say Dubai, tens of thousands of luxury flats that nobody wants to buy or rent.

As for Europe there are many BUBBLES and Polands massive surges in a reltively short time period are hard to beat. Ireland is one, Spain is another, Bulgaria's one. Bulgaria is on a similar level to Poland, both have experienced huge gains in specific/investor areas.

The investors in Poland played a huge part in sky rocketing prices.
f stop 25 | 2,513
10 Jan 2012 #268
I think the graphs for the last 10 years would tell us more.
Milky, didn't you post a link to something like that before?
Harry
10 Jan 2012 #269
I would say Dubai, tens of thousands of luxury flats that nobody wants to buy or rent.

If nobody wants to rent them, that would mean that the intrinsic value is very low and thus, assuming that the volumes being sold were high, there most certainly was a bubble.

Polands massive surges in a reltively short time period are hard to beat. Ireland is one, Spain is another, Bulgaria's one. Bulgaria is on a similar level to Poland, both have experienced huge gains in specific/investor areas.

But that would have been due to prices being far below the intrinsic values (as perhaps shown by the example of the flat I was renting in 2000). Why prices were so far below intrinsic values is another matter, I'd say that the inability of people to get reasonably priced credit was a significant factor, as was the unwillingness of people to take out 30-year loans.

The investors in Poland played a huge part in sky rocketing prices.

In some places yes, but outside investment does not explain the increases in places like Slupsk.
f stop 25 | 2,513
10 Jan 2012 #270
Just to put things in perspective, check out the first graph in the link below (provided before by milky, I believe), S&P Index for the bubble and bust in USA. Some in US still call it "leveling out". Keep in mind, the Y axis is % change from year before.

I wish I could find a graph like that for Poland... it might be about 10 years behind.


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