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A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments.

Since October 2021, during ten monthly meetings, the Monetary Policy Council has raised the benchmark interest rate by 640 basis points. The recent increase was announced on 7 July 2022. Are interest rates going to increase even more? Most certainly the next increase in interest rates will be announced during the decision-making meeting of the Monetary Policy Council scheduled for 7 September 2022 (the meeting scheduled for 23 August has a non-decisional status, although that National Bank of Poland might change it). This is a good time to consider the advantages of sale and leaseback as a form of business financing that is independent from WIBOR.

Interest rates have been increased since October 2021 as follows (by dates of the Monetary Policy Council meetings):

on 6 October 2021 the reference rate was increased to 0.50%

on 3 November 2021 the reference rate was increased to 1.25%

on 8 December 2021 the reference rate was increased to 1.75%

on 4 January 2022 the reference rate was increased to 2.25%

on 8 February 2022 the reference rate was increased to 2.75%

on 8 March 2022 the reference rate was increased to 3.5%

on 6 April 2022 the reference rate was increased to 4.5%

on 5 May 2022 the reference rate was increased to 5.25%

on 8 June 2022 the reference rate was increased to 6.00%

on 7 July 2022 the reference rate was increased to 6.50%

In July 2022, according to the Statistics Poland flash estimate, CPI inflation reached 15.5% YOY. In accordance with the July 2022 report published by the National Bank of Poland, the main contributor to the increase in inflation was the growth in the prices of energy, including fuel and energy carriers, as well as:

• Growing dynamics of consumer goods and services prices in Poland in the first half of 2022.
• An increase in raw material prices on global markets, which has intensified after the start of Russia’s military aggression against Ukraine at the end of February 2022.
• An increase in enterprises’ operating costs (the price dynamics of sold industrial production in Poland – as in many other economies – has accelerated in recent months (to 24.7% YOY in May 2022).
• Positive domestic economic situation that facilitated the transfer of rising costs to consumer prices.
• Ongoing disturbances in global supply chains.
• The global growth in the prices of raw materials and of some goods, as well as prolonged disruptions in supply chains, have contributed to the increased dynamics of credit liabilities drawn by large enterprises. In Q1 of 2022, the growth was 6.7% versus 2.2% in Q4 of 2021 (source: National Bank of Poland “Inflation Report – July 2022,” p. 33). There is still a strong need to obtain working capital and accumulate financial resources.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments. When drawing liabilities with a bank, many entrepreneurs are not aware of the opportunities that are offered by sale and leaseback transactions, which may turn out to be a cheaper and faster alternative to obtaining financing than loans. As a result of signing this type of contract, the property owner sells it to the investor, and continues to operate in the same scope and in the same location. Sale and leaseback is a solution providing many companies with significant resources for development, which can be allocated for any purpose, and the funding amount reaches the market value of the property, which is a significant advantage over bank financing that requires own contribution.

Advantages of sale and leaseback:

• Full flexibility in spending the money earned on the sale – investments, liability repayment, dividend.
• Financing in the amount of the property’s market value.
• Long lease period, purchase option, service fees – at the parties’ decision.
• Monthly rent independent from WIBOR – a cheaper alternative in the time of increasing interest rates.
• Quick decision process

INWI is actively seeking real properties owned by companies with annual turnover above 100 million PLN. Feel free to contact us: daniel.radkiewicz@inwi.pl / tel. +48 516 192 856

Outflow of employees from Poland to Ukraine, growing prices and supply shortages – the construction industry is struggling with numerous problems, which have aggravated due to the Russian invasion on Ukraine. Will people in Poland be impacted by the construction industry problems? The Polish Association of Construction Employers shared its perspective during a meeting with Dr. Damian Kaźmierczak in May.

The key challenges that Polish construction companies are facing consist in the dynamic increase in construction material prices, which, together with further interest rates hikes, high inflation and high fuel prices, contributes to an increase of overall production costs. The threat of a wave of bankruptcies in the construction sector is becoming real. Add to that the material shortages and the outflow of workers from the construction sites to their country at war and we may soon be facing an investment slowdown. Are moods in the construction industry really that bad?

Who will be affected by the crisis?

Small and medium companies must prepare for a crisis. It is them in particular that will feel the staff shortages, as here the percentage of employees from Ukraine is clearly higher. In 2022, there were nearly 373,000 Ukrainians legally employed at construction sites. How many of them came back to their homeland? We do not know yet, but experts are expecting another wave of returns when the reconstruction process after the war begins. Construction companies in Poland are considering replacing Ukrainians with workers from the Caucasus, Belarus or Moldova. In the companies sector, we are also facing the greatest salary pression in the 21st century. In March 2022, it was 15.7% YOY.

What’s next in the steel market

The steel market is one of the industries severely impacted by price increases. We have been reporting increasing prices already back in 2021. The pandemic shook supply chains and limited steel availability threatened both private and commercial construction sites. When the prices settled in 2022, a geopolitical crisis came. It brought about new uncertainty which, unfortunately, provokes stocking up on inventories. Companies are buying massive volumes of materials, which further aggravates shortages. Both Ukraine and Russia are huge steel manufacturers. In 2021, nearly 20% of the steel used in Poland was from Ukraine (approx. 1.37 m tons) or Russia (approx. 1.36 m tons). Such serious problems with supply liquidity may disturb completion of investments or even put new ones on hold.

Increasing prices of construction material are also the result of the high oil prices and the dwindling zloty-dollar exchange rates. Prices of cement, concrete, aggregate or coking coal used in steel production are also beating all-time highs. High fuel costs translate to transport price increases. All of this is happening against a background of high demand, while construction companies are trying not to slow down. This is confirmed by wholesalers, whose profitability has increased in comparison to the pre-pandemic and pre-war time, although it cannot be denied that even then we could see rising costs.

Will we be facing construction delays?

We can rest assured that there will be some perceivable the negative consequences. What remains to be seen, for the moment, is the scale. We can probably expect lower margins in big contractor companies, worse financial position of SME subcontractors, along with a drop in demand for construction services in the private sector. What would be necessary would be an increase in public sector contracts and indexation of fees to accommodate actual cost increases. This might be the salvation for the industry.

Investment Land Market Warsaw 2021

INWI’s comprehensive report indicates that the value of transactions in the Warsaw real estate market has increased by 14% year-over-year. The contracted land area also increased. In 2021, land transactions covered 1.2 million square meters of land, which is a 17% increase compared to 2020, where transactions pertaining to over 1 million square meters were recorded.

The average price of land in Warsaw was PLN 1585 per square meter. Expressed in apartment usable area, the prices fluctuated by approximately PLN 1600 per square meter, which translates to an increase of more than 16% year-over-year. In 2021, transactions conducted based on local development plans were predominant, making up almost 68% of all transactions. A majority of contracts covered more than one plot. Most plots were sold within six to eight kilometers from the center of Warsaw. “It doesn’t come as a surprise to us that investors have less and less choice. There is hardly any land available anymore in the central locations, so suburbs are becoming the natural direction. INWI, as an investor, also seeks such land that has potential and we are often able to find the way to put a given location to optimal use” – says Mariusz Urbański, INWI Development Manager.

Land in Warsaw for multi-family housing development: a summary for 2020

According to INWI 50% more transactions were recorded in the capital compared to the same period in 2019, while the value of the Warsaw land market, measured by the total value of land transactions, increased by 22% year-on-year.

According to INWI’s analysis, last year ended with land turnover in Warsaw at the level of one million square metres, which will allow for the development of around 25,000 new flats. The average price of land in Warsaw was at the level of PLN 1,600 per square metre. In terms of PUM, the prices for land oscillated around PLN 1400 per square metre of PUM. It is worth mentioning that in prestigious locations such as Śródmieście, Żoliborz, Saska Kępa or Stary Mokotów, the number of transactions was much lower, which made prices per PUM 2-3 times higher than the average value. Compared to 2018 and 2019, there was a slight increase in the prices of residential land in Warsaw.

– After the first months of 2021, we see a sustained stable pace in the number of transactions and average prices of contracted land. Further situation on the land market, including prices and the number of transactions will depend on the demand for flats and increases or decreases in their prices, explains Mariusz Urbański, Development Manager at INWI. Invariably, the largest developers on the market replenish their land banks, which shrank sharply in 2017-2020. On the example of selected neighborhoods and the MSI (Municipal Information System), we can see which areas of the city currently enjoy the greatest interest among developers, INWI experts comment on the situation.