The beginning of this year has seen a strong upward trend on the Warsaw Stock Exchange (GPW) that has not been witnessed in a long time, which is already being referred to as the preliminary phase of a probable “generational bull market” by stock market analysts, only six weeks into its duration. However, according to experts from the portal RynekPierwotny.pl, the investment euphoria seems to be largely bypassing property developers, whose stock market valuations have been stagnating for weeks, unable to break free from the ensuing lethargy.
GPW Leading the Way
The local stock exchange has emerged as the absolute leader of European capital markets in recent weeks, something that has not happened in a long time. The main WIG index effortlessly reached its historical peak, with a near 16% increase since the beginning of the year. The WIG-Construction recorded an almost identical rise, with an even greater progression of nearly 18% noted by WIG-20. On the other hand, WIG-Real Estate with a mere 4% improvement in its rating this year has been stuck in deep-seated stability, manifesting its inability to adopt any trend other than a horizontal one.
The robust indices of GPW were fuelled by the anticipated end of the war in Ukraine ahead of the approaching Munich Security Conference. Then, last Monday, the Prime Minister of Poland added fuel to the fire by presenting the principles of the “Poland. Year of Breakthrough” program, right from the trading floor, announcing a significant escalation of this year’s investment budget to a record level of nearly PLN 700 billion.
There is a question as to why the long-unseen investment euphoria of the domestic capital market is not affecting the real estate companies.
An Unexpected Role Reversal
In November last year, that is, just three months ago, analysts from the RynekPierwotny.pl portal communicated a significant advantage of the economic situation of companies grouped in the WIG-Real Estate index over the main indices of GPW mired in stagnation.
However, the current situation is exactly the opposite, with the quotations of real estate companies increasingly lagging behind the prevailing upward trend on the GPW. It appears that stock market investors do not consider developers and other real estate companies to be the main beneficiaries of the expected economic and geopolitical events.
The prospective, and increasingly likely, end of the war on our eastern border will undoubtedly trigger the process of Ukraine’s reconstruction, creating a difficult-to-estimate multi-year market for construction services and materials. This will generate new long-term prospects for domestic construction and building materials producers. It is therefore not surprising that the WIG-Construction index has risen nearly 15% in just the first six weeks of this year.
And the anticipated and rather inevitable record demand for construction services and materials may primarily mean a rise in their prices and a decrease in their availability to some extent. Meanwhile, due to the difficult staffing issues to be resolved, the quick adaptation of the construction sector to changing market conditions and the inevitable investment boom may prove to be challenging and spread over time. It is not difficult to guess that, as a result, the costs of residential developers in the near future may come under serious pressure, which could prove challenging given the market circumstances of slowing housing sales.
Price Correction Without Full Materialization
If the prices of apartments in Poland depended solely on the intensity of media publications on the subject and journalistic pressure to decrease, we would probably currently have a year-on-year decrease in the prices of new apartments by at least one third. Unfortunately, the price of new apartments on the primary market is influenced by completely different factors, and media opinions frequently fall under the known market rule that the majority is usually not right. Will it also be the case this time?
Unfortunately, in light of the inevitable development prospects of the national economy and the very potential end of the war in Ukraine by the end of this year, the chance of a typical price correction of developer apartments, i.e., nominal decreases in offer rates lasting at least several consecutive quarters, seems completely unrealistic. Moreover, at least moderate increases seem more likely from the middle of this year. This would be a consequence of the developers’ rising costs, another stage of improving the country’s economic situation and prospects for increasing the wealth of Poles, or finally the implementation of the delayed and accumulated demand for new apartments.
Author: Jarosław Jędrzyński, expert from the RynekPierwotny.pl portal.
Source: https://managerplus.pl/dlaczego-euforia-na-gpw-omija-spolki-indeksu-wig-nieruchomosci-23997
