There is no doubt that the COVID-19 epidemic will put the global economy to the test. The looming recession is not good news for consumers and businesses alike. However, there are market segments which may come out unscathed from the crisis and become a safe haven for capital.
The impact of coronavirus on the property market is inevitable. It will, however, vary across the individual segments. For the residential market, the most resilient is the luxury apartment segment, which follows its own rules and is more resistant to market fluctuations both in terms of prices and demand.
Luxury in demand
The developers which offer premium apartments continue to enjoy customer interest even now. “Over the last few weeks we have had more than 20 percent more visits to our website and 30 percent more phone calls than usual,” says Iwona Nosowska, Sales Manager, Ghelamco. “Customers are seeking to buy both apartments and commercial premises in our two projects: Flisac in Powiśle district and Foksal 13/15 residence near Trakt Królewski (Royal Route).“
What drives such high interest? “Unlike the popular apartment segment, the supply of luxury properties is very limited. It is much more difficult to deliver such a product onto the market. An attractive and prestigious location, as well as care for top finishing standards, are required. The developer must also ensure solutions absent in the traditional segment, which significantly affects the delivery time. All these elements, however, increase and secure the property’s value, which is seen by many investors as a safe haven for their capital in hard times,” says Jeroen van der Toolen,Managing Director CEE, Ghelamco.
Apartment prices not prone to drops
The advantage of the luxury apartment market over other forms of investing is its greater stability and resistance to economic crises. This was clearly seen during the 2008 crisis, which hit the property market very hard. While back then the value of traditional apartments, even in a few years’ perspectives, dropped significantly, premium apartments came out unscathed from the crash. “It is still too early to predict the impact of the COVID-19 crisis on the residential property market. However, my experience is telling me that luxury properties will not be hit by it. On the contrary, in the long term their value will rise,” says Jeroen van der Toolen.
Another benefit of luxury apartments in Poland lies in the fact that they are still relatively cheap compared to similar offers in Paris, London or Milan. Even in Prague in the Czech Republic, which is in our region, the price of 1 sqm is up to EUR 16,000. “By comparison, in Foksal 13/15, our flagship premium project, which offers top standards and location in the very heart of Warsaw, the prices range from PLN 25,000 to 40,000, i.e. EUR 5,500 to 8,800,” says Piotr Łukasik, Head of Residential Department, Ghelamco.
For this reason, the Polish luxury property market has become attractive also for foreign investors and in recent years has enjoyed significant interest on the part of buyers. According to JLL, in Warsaw alone, the sales in the apartment segment (upper-middle and high-end overall) rose in 2018 and 2019 by 6 and 8 percent annually, while the total sales for all the segments combined dropped by 15 percent from 2017.
Safe investment in uncertain times
In a volatile market, when investing in the stock exchange carries even more risk, purchasing a luxury apartment may turn out to be the best safe haven for capital. Bank deposits no longer protect against inflation. Since the official announcement of the state of the epidemic in Poland, the Monetary Policy Council has cut interest rates twice (to 0.5 percent), which in the context of high inflation (4.6percent in March year-to-year according to the Central Statistical Office) makes Poles’ savings in banks shrink.
“Meanwhile a good apartment can not only retain value but also bring considerable profit. It is not a product which is prone to speculative growth. Their prices rise slowly, but thanks to that there is no risk of sharp falls in crisis times. In the long run, such properties virtually always gain in value. Apart from that, they can be rented and thus provide stable profit,” says Jeroen van der Toolen.
Definition of luxury
According to experts from JLL’s residential market team, in Poland, there are only a few projects which offer the highest standards possible, including using virtually all state-of-the-art technology solutions and adopting most prestigious practices of the development sector. “Out of the eleven thousand apartments delivered in the years, 2010-2019 only around 800 were luxury ones. Now there are 240 such apartments underway, and as at the end of 2019 the entire segment included 243 apartments, both ready and under construction,” says Katarzyna Kuniewicz, Head of Residential Market Research Department, JLL.
The availability of apartments from the premium segment is so limited due to very rigid requirements that a given project must meet in order to be classified as premium. According to JLL data, the premium segment accounts for only 1 percent of the offer available on the 6 biggest markets in Poland.
“An apartment project, in particular from the luxury apartment segment, should have the potential not to lose value over time. Even in a dozen or so years or a few decades it will serve as an example of best architectural solutions, be a topic of industry discussions and, most of all, continue to be one of the top addresses in the city,” adds Katarzyna Kuniewicz, JLL expert.
In order for an apartment to be considered luxury, it must offer much more than a traditional one, even despite an excellent location. “Our Foksal 13/15 project includes, among others, a SPA zone with saunas and jacuzzi, rooms dedicated to residents’ guests, a terrace overlooking the centre of Warsaw available to all residents, or a roofed patio with a meeting zone,” says Piotr Łukasik.
Regardless of whether it concerns historical residences or modern skyscrapers, luxury has a common, solid foundation on the property market. Its components include unique and expensive materials (often sourced from remote parts of the world), state-of-the-art technology solutions, higher and more spacious rooms, sophisticated design, and additional amenities for residents, such as top-class concierge services.