The Warsaw stock exchange (GPW) is currently going through another downward wave, propelled mainly by the sale of Polish blue chips from the WIG20 index by foreign capital. However, WIG-Real Estate appears to be going against the flow, being pushed up by the quotes of leading residential developers. The question arises as to what stock market investors are hoping for, using their own money to ensure the continuity of a 13-year bull run of a stock market developer in times of quite severe slowdown in the housing market.
The presented chart of returns from WIG – the main index of the broad market, WIG-Real Estate and Dom Development – one of the leaders in growth of residential profile development companies, clearly show differences in profitability. The average return rate of companies listed on the GPW from the beginning of the year to the week ending November 24th barely stayed positive, while the shares grouped in WIG-Real Estate earned an average of almost 20%. However, this is still little compared to the profits of shareholders of Dom Development or Develia, who can expect returns of 40% since the start of the year.
Meanwhile, the average return rate from the shares of the five development companies with the largest capitalization (Atal, Archicom, Dom Development, Develia, Murapol) was 19% for the year.
However, the situation on the primary housing market still leaves much to be desired. The supply of new flats has been dominating the limping demand for months, which is leading to a steadily increasing offer of developer flats. In November, according to BIG DATA RynekPierwotny.pl, it reached a record level of 63 thousand units, which is more than 40% higher than at the beginning of this year.
Analysts from RynekPierwotny.pl point out several factors supporting the “eternal bull market” of the WIG-Real Estate index, mainly driven by the stocks of residential developers.
Firstly, investors are still hoping for the introduction of another credit support program next year. Furthermore, the solid volume of apartment handovers this year creates a vision of a decent dividend next year, which may additionally motivate investors in developer shares.
Secondly, the outlook for interest rate cuts in Q2 2025 is now more likely due to the freezing of energy prices. Investors may also be looking at the current sales results, which are not bad at the current level of rates and may think about what will happen next year with rates reduced by at least 1 percentage point. For the years 2025-2026, the NBP forecasts around 3% GDP growth and low unemployment.
Recent predictions by the CEOs of leading housing developers Atal and Dom Development, who expect a significant increase in demand for housing next year, should not be overlooked. In connection with this, they declare the need to expand their own offer by initiating the construction of a record number of flats.
However, this makes the keep investing in developer stocks scheme look tempting but risky. The stock market is not an oracle, and as you can see, a number of selected stocks from the WIG-Real Estate index can generate not only record increases, but also equally rapid and above-average drops in a short time. If something goes wrong, and the optimistic market forecasts predicting the return of housing prosperity fail, a repeat of the summer crash of stock market quotes of real estate heavyweights may become a fact in the foreseeable future.
Author: Jarosław Jędrzyński, expert at RynekPierwotny.pl.
Source: https://ceo.com.pl/wig-nieruchomosci-pod-prad-gieldowej-niemocy-83810
