According to the monthly report for January from Rednet, the average price per m2 of apartments sold in this month stands at 6950 PLN. This compares with just over 8000 PLN in Warsaw, 6500 PLN in Wroclaw and 7500 PLN in Poznan. The price of flats sold in Krakow is approximately 11% lower than the average of the prices offered, showing the strong ability of buyers in the current market to be able to negotiate significant discounts.

Rednet has observed an increase in transactions since late last year, as developers and other vendors of property have lowered their prices to meet the market, and stabilization in prices is beginning to be observed. Consistent with the current view of PKG Real Estate, Rednet recommends that the current time represents a good opportunity to enter the market. Buyers have a significant number of attractive apartments to choose from at increasingly attractive prices. Developers are lowering their prices and beginning to offer incentives such as free garages and storage spaces, even new cars! On the secondary market, buyers can choose new and completed apartments (with less risk than buying off-plan) in attractive locations, and many sellers are increasingly distressed, offering the chance to pick up bargains.

Whilst new foreign buyers have been thin on the ground since the market peak of mid-2007, the current weakness in the Polish zloty against the major currencies offers a good buying opportunity. With the Polish zloty having fallen from 3.2 to 4.7 against the EUR in the past six months, property prices in Krakow are considerably cheaper to buyers from Western Europe.  Although there is a lot of negative press concerning the whole region of Central and Eastern Europe (CEE) at present, the focus is on countries such as Ukraine, Hungary and Latvia, all of which are in a much worse economic situation than Poland. One of the biggest potential risks in Poland is the fact that more than 50% of Polish mortgages are denominated in Swiss Francs (CHF). The zloty has fallen heavily against CHF in the past six months, exposing many borrowers to significantly higher repayment costs on their mortgages. Our view is that the number of defaults as a result of this movement will be low. Only those borrowers who paid high prices at the end of the boom in 2007 and took out unattractive high-LTV mortgages are in a position of negative equity. Many of these borrowers were amateur foreign or Polish investors. We believe that the average Pole who has a long-term mortgage and steady employment will be able to ride out this period of higher repayments.

The more significant question here is the state of the Polish economy, and whether the situation will worsen over the course of 2009-10. As in much of the developed world right now, the signs are not good, but by the same token, not all bad. In January, new industrial orders in Poland fell by 20% year on year, and the unemployment rate increased from 9.5% in December to 10.5% in January. However, retail sales in Poland grew by 1.3% in January. Poland is on track for GDP growth of somewhere between 0-2% in 2009, which compares favourably with Western Europe, in which recessions are gripping all economies. Whilst the steep recent fall in the Polish zloty is harming borrowers and the many businesses which bet wrongly on the currency last year, it is positive for Polish exporters’ competitiveness. The Polish government of Donald Tusk faces its biggest test in 2009 in responding effectively to the threats to the economy. The government has already shown its willingness to step in and support the zloty, and despite opposition from President Kaczynski, is keen for Poland to push ahead with entering the ERM2 mechanism for the adoption of the EURO, perhaps as early as 2012/3. The huge amount of structural funds from the European Union available to Poland also represents a positive for the economy. Effectively using these funds in the coming year or two could positively influence the way in which Poland survives the current crisis.