Polish housing boom sees builders cash in on record-low costs
Poland's biggest homebuilders are leading the way for what may turn into an industry-wide surge in bond sales as investors seek to profit from a local property boom.
Dom Development SA says borrowing conditions are too good to wait to refinance a 120 million zloty ($30.7m) security due in February.
If it sells debt now, the favourable outlook for the industry means the builder will probably halve the premium it paid four years ago, according to Commerzbank AG's Polish unit mBank SA.
A collapse in interest rates across Europe is filtering through to Poles and driving building projects from Gdansk to Warsaw as residential property sales accelerate to the fastest pace since 2009. With more than half of 2 billion zloty in outstanding bonds issued by builders coming due in the next two years, other companies will probably follow Dom's deal, according to mutual funds Millennium TFI SA and Union Investment TFI SA.
"It's good that Dom Development moves to refinance debt earlier," said Andrzej Czarnecki, debt manager at Union Investment in Warsaw. The mutual fund, with 8.9 billion zloty of assets, held the builder's existing bonds in June. "Market sentiment for the sector is positive."
Dom Development said last week it plans to sell up to 120 million zloty of five-year bonds by year-end. The nation's biggest homebuilder paid 190 basis points over the six-month Warsaw interbank offered rate to raise 100 million zloty in floating-rate notes in June 2015, down from a spread of 350 basis points in February 2012.
Falling premiums are just part of the story. Overall borrowing costs have tumbled after Poland's central bank cut its benchmark rate to a record low 1.5pc in March 2015 and kept it there. The six-month interbank rate has dropped to 1.7pc from more than 5pc in July 2012 and there's little upward pressure seen coming from the central bank any time soon. Its rates probably won't rise before 2018, Governor Adam Glapinski said after the last policy meeting on October 5.
Poland's home sales surged 32pc in the first nine months of 2016 from a year earlier as low rates fuel mortgage lending and investors pour cash into the rental market to boost returns, data from the statistical office on the housing market show. A government help-to-buy programme has also underpinned sales.
Some money managers remain wary of the industry's volatility. After Poland joined the European Union in 2004, the underdeveloped housing market surged with prices almost doubling by 2007 as Poles rushed for new flats, funding purchases with foreign-currency mortgages.
Then, when markets seized in the global financial crisis, prices tumbled and projects were abandoned. Gant SA, Poland's third-biggest developer, went bust in 2014, defaulting on more than 250 million zloty of debt.