The interview is from the 03/2024 issue of A&B
Piotr Legerski has been in the real estate business since the 1980s, developing residential projects throughout Krakow. In an interview with the President of the Home Builders Association, we talk about the characteristics of the Krakow market and the need for legislative changes.
Ania Diduch:What do you think are the components of the current housing boom?
Piotr Legerski:I wonder if the current situation can be called a bull market. In the Krakow market, sales are normal, that is, we are selling less than before the best performance just a few years ago. Annually, about 10000 apartments were sold in Krakow in previous years. In 2022, about 5500 apartments were sold, and in 2023, roughly 8000. Sales have declined as a result of a drastic increase in mortgage interest rates due to high inflation, as well as the introduction of the so-called Recommendation S in banks lowering the creditworthiness of about 80 percent of our customers. Current purchases are driven by three motivations: purchases of apartments for rent, purchases of investment apartments, and apartments under a preferential loan and a two percent subsidized loan.
Ania Diduch:What is Recommendation S?
Piotr Legerski:It's a recommendation that says that if we have a creditworthiness that in real terms is 100 percent, or certainly 80 percent of the value of an apartment, we artificially lower it by another 5 percent due to anticipated high inflation. At this point, someone who wants to buy an apartment, and in fact most Poles are at the limit of their creditworthiness, does not have the opportunity to do so.
The most problematic area for housing in Krakow is the city center - Piotr Legerski points to the outskirts of Podgórze, Krowodrza and Nowa Huta as the most interesting areas for new housing projects
Photo: Wi Pa © Pixabay
Ania Diduch:Let's talk about the characteristics of the housing market in Krakow. How does it differ from other Polish cities?
Piotr Legerski:In terms of the structure of apartments sold, in terms of volume, in terms of the share of equity, it is no different from other cities. When it comes to the share of lending in Cracow, compared to the six largest Polish cities, it is the smallest. Cracovians buy with cash, as do Poznań residents, by the way. Cracow is specific for one reason. Warsaw will be specific in the same way in a moment. Well, Krakow lacks supply. We have an unbalanced, more or less for the last four, maybe five years, supply versus demand. Demand is 20 to 30 percent greater than supply.
Ania Diduch:How does this affect the speed of price increases?
Piotr Legerski:Krakow has the highest increase in the price of apartments, last year it was 20 percent or so. This is a crazy increase and it is absolutely not due to developers' margins. At the moment, in cities such as Łódź, Poznań, Katowice, Rzeszów, Szczecin you can buy a plot of land where the price of one square meter is about two thousand zlotys - buying the same property in Kraków closer to three or four thousand borders on the miraculous. There have appeared offers, in my opinion absolutely sick and unreasonable, of land on the outskirts of the second ring road, which add to one square meter of the apartment sold on account of land 18 thousand zlotys with the average selling price of an apartment in Krakow today at 15-17 thousand. There is no supply of land, the City has neglected the subject for several years. The peculiarity of the Krakow market also concerns the ownership structure. Practically only private ownership is left, there is no ownership such as in Poznań, Wrocław or Warsaw under the Bierut Decree, i.e. perpetual usufruct. The city does not sell land in Cracow, so private owners remain, most of whom have long since sold their plots.
The most problematic area for housing in Krakow is the city center, with Piotr Legerski pointing to the outskirts of Podgórze, Krowodrza and Nowa Huta as the most interesting areas for new housing projects.
Photo: Dariusz Staniszewski © Pixabay
Ania Diduch:This moves us to the next question, which areas of Krakow are currently the most attractive for the housing market? But I understand that this is what depends mainly on the ownership structure.
Piotr Legerski:As far as prices are concerned, you know, Downtown, which actually has a very limited supply, basically all the plots that were planned either have an outstanding legal status or are in preparation for the start of development. At the moment it can be said that only the outskirts of Podgórze, Krowodrza remain . Nowa Huta , in my opinion, is a big future and big opportunities. It's still underestimated, although it absolutely doesn't deserve it, because it's fantastically connected, perfectly prepared, with large, wide streets.
Ania Diduch:What would you see as the recipe for an optimal housing policy in Krakow?
Piotr Legerski:At the moment there are several sources of housing policy that should be used. The New Spatial Policy Act was passed, which causes us to revise local plans. Plans already in place and enacted should be revised. There is absolutely no justification if it is enacted in the mpzp that you can build eight stories. The question is simple, why can't eleven be built? Does it really matter so much for the silhouette of the city, for the comfort of the residents? In my opinion, no. This is the first point, and the second - there are legal regulations appearing in Krakow that say that each apartment should be assigned 1.2 parking spaces. This absolutely eliminates downtown development areas, because there there is no way on a fifteen-acre plot to enter an underground garage, which must be two stories high. If there is no reflection at City Hall, valuable spaces will not be unlocked. Anyway, the Home Builders' Association has been talking to Krakow's mayor for about three years to rationalize this, to review the plans and try to adapt them to the needs of the city and its development.
Krakow has the highest increase in the price of housing, last year it was more or less 20 percent
Photo: Pexels © Pixabay
Ania Diduch:Can your observations also be translated into more general prescriptions for better housing policy?
Piotr Legerski:I don't feel qualified to give prescriptions for a nationwide housing policy. I can, however, share my general observations, because as an Association we travel the world for workshops, we have been to most cities that have revitalized in Europe or created new neighborhoods. The conclusions are clear: if a city wants to develop, it must be investor-friendly. When it comes to deadlines, the way we approach investors, extremely unfavorable interpretations of the law, Krakow is considered the least friendly in Poland. Especially the offices of the former Provincial Conservator of Historical Monuments, the Department of Architecture or the Board of Roads of the City of Krakow.
Ania Diduch:What makes up the price of an apartment in Krakow and what is the rate of return on such an investment?
Piotr Legerski:As far as the rate of return is concerned, it cannot be clearly calculated, because no two investments are alike. Rates of return fluctuate and there are large fluctuations, which affects the price. In addition, the cost of implementation consists of the price of land and the cost of preparing the investment. Also important factors are time, the price of realizing the facility, and soft costs such as marketing, accounting, office support, sales offices, legal services, surveyors and commissions for brokers who arrange investment loans. Today, land costs have increased by 50 to 100 percent compared to when they were only 20 percent of total costs. In Lodz and Katowice this still remains at 20 percent, while in Krakow it can range from 30 percent to as much as 50 percent of total construction costs. In addition, the payback time in Katowice, Wroclaw, Lodz and other cities is about three years, while in Krakow it is five to six years. This means that the price of a plot of land, which is already much more expensive than in other cities, increases by an additional 30 percent over the three years of investment preparation due to inflation and delays associated with administrative procedures. Properties in Krakow have long waiting periods before construction can begin. In Katowice, Wroclaw and Lodz the time is shorter, and this affects their profitability. If sales prices are similar to those in Wroclaw, but land prices are higher, investment profitability is higher in Wroclaw and Katowice. Although sales prices are lower in Katowice, the difference is minimized by the total capital commitment and the investment preparation period, which is two years.
One source of sustainable housing policy should be the revision of existing local plans
Photo: Dimitris Vetsikas © Pixabay
Ania Diduch:Maybe some workshops to stimulate teamwork would be useful in Krakow then?
Piotr Legerski:As part of the Association's activities, we try to meet with the mayor in charge of the Department of Architecture and Urban Planning. For four years I have been negotiating the rules of operation between the developer and the Board of Roads and Transportation. Unfortunately, it usually ends with the fact that the employees of the Department of Urban Planning know everything best. Their mentality boils down to the fact that Krakow is unique and if something doesn't suit us, after all, new investors who want to operate in Krakow appear non-stop, so the situation is not so bad. On the other hand, we are talking about large developers who have several cities in their portfolio, so adding Krakow seems a natural step.
Properties in Krakow have long waiting periods to start construction; in Katowice, Wroclaw and Lodz the time is shorter, and this affects their profitability.
Photo: Sangeeth Sangi © Pixabay
Ania Diduch:It's a pity that this energy is not invested in something other than fighting between departments and developers. In light of the things you've said so far, should the housing industry feel a sense of designing sustainable solutions for the environment?
Piotr Legerski:This is a very important question. What we are really asking is how customer expectations shape the relationship with the product we offer. We conduct surveys within the Association at our real estate fairs, which we hold four times a year, and which are monitored by both the Real Estate Market Monitor and Obido. We ask customers about their buying preferences, such as price, location, access to infrastructure. We also ask whether they would be willing to pay 50 zlotys per square meter more for an apartment in a scenario where the price is 10 thousand per meter. In other words, for an apartment of 50 square meters, the surcharge would be 2,500 zlotys. In return, the customer would receive parking spaces with electric car chargers in the garage and a photovoltaic installation on the roof to cover electricity costs. However, 80 percent of respondents answered negatively to this question. This raises the question: for whom should we make these sustainable investments? The idea of introducing a heat pump as the third level of equipment would not pose any problem for us developers. The introduction of photovoltaics on rooftops would also, but why shouldn't it be subsidized? Since individuals can get subsidies for photovoltaic installations, why doesn't the relevant ministry fund 80 percent of the cost of photovoltaics for developers with CO₂ elimination subsidies? Why not use rainwater to flush toilets instead of sending it to the sewer system? These are important questions that need to be answered. Is everyone interested in such solutions? Shouldn't anyone subsidize such initiatives? These are questions worth thinking about. Education is also important, of course, but it is not the developers who should be concerned with this; shaping pro-environmental tastes should be done either through legislation or through initiatives of the architectural community.
The importance of designing environmentally friendly elements in residential projects does not meet with favor among apartment buyers; the problem is the lack of awareness of future owners about the need to implement green solutions
Photo: PixelAnarchy © Pixabay
Ania Diduch:In view of this, let's say in conclusion, what should be done in terms of legislation ?
Piotr Legerski:In fact, not much is needed. There was a draft provision in 2017 for land use. It proposed that if there is an enacted local plan for an area, and after all, the procedure for its establishment is many years, involving public consultations, public viewing, opinions and possible appeals against the plan, the developer is obliged to inform about planned investments in the area. The provision I am referring to stipulated that in the procedure for obtaining a building permit, the parties are the developer and the authority, there is no room for random people, for example, Jan Kowalski from Szczecin, who does not like the fact that trees will be cut down on a particular plot of land in Krakow. If the exemplary Kowalski raises objections to the developer's plans, he starts an appeal procedure before the Provincial Office, and then the Provincial Administrative Court and the Supreme Administrative Court. Proceedings before the Voivodship Administrative Court in Krakow take a year and a half, in Katowice a month and a half, and before the Supreme Administrative Court throughout Poland two and a half to five years. When buying a plot of land, everyone knows what can be built on it, but often outside groups, such as Bialystok anglers, may protest, which can delay the process. In Katowice and Poznan, the situation seems more orderly; there, protests are very rare. In Krakow, there are specialized law firms that make their living protesting investments. Simplifying the law can shorten these processes. In the investment process, speed and flexibility become crucial, not to mention the fact that every year thousands of people wait for the opportunity to move into their new apartments.
Ania Diduch:Thank you for the interview.
Piotr Legerski
Graduate of the Department of Coal Energochemistry and Sorbent Physicochemistry at the AGH University of Science and Technology. In 1984 he founded the housing cooperative Dom dla Młodych. Under his supervision, the Cooperative completed more than 1,000 apartments and 30 single-family houses in Krakow. In 2007, he founded the Arkada Inwestycje Group, which has developed residential buildings with a total area of 18,500 square meters. Since 2018 he has been a member of the board of directors, and since 2021 he has been the President of the Association of Home and Apartment Builders.
