The estimated return on equity (ROE) for residential developers from investment projects remained steady at approximately 23% in the third quarter of 2024, consistent with the previous quarter, according to a report from the National Bank of Poland (NBP). “This level of ROE reflects the increase in transaction prices for apartments, which outpaced the rise in production costs. It also accounts for the developers’ financial strategies, including reliance on their own funds, customer prepayments, and other liabilities,” the NBP stated in its report, Information on Housing Prices and the Situation in the Housing and Commercial Real Estate Market in Poland in Q3 2024. The report highlighted regional disparities in ROE. For investments financed entirely from equity (with a loan-to-value ratio of 0%), the ROE was 3.3% in Warsaw, 3.2% in six other major cities, and 3.1% in seven additional provincial cities. However, for projects financed 50% by housing loans (LTV 50%), the ROE turned negative, with figures of -1.3% in Warsaw, -1.4% in six major cities, and -1.6% in the remaining seven cities. Compared to the same period in 2023, this reflects a slight decline. For highly leveraged investments (LTV 80%), the profitability dropped further, with ROE at -14.9% in Warsaw, -15.3% in six major cities, and -15.6% in other provincial cities during Q3 2024. The NBP noted that the ROE for rental property investments funded entirely by equity showed a slight improvement. However, when financed with leverage of 50% or higher (LTV 80%), profitability remained negative. “Returns on investments in rental apartments—excluding transaction and renovation costs as well as potential changes in property value—were lower than the interest rates offered by bank deposits and returns on 10-year treasury bonds,” the report added. The NBP’s findings underscore a challenging environment for leveraged residential investments in Poland, with equity-funded projects maintaining moderate profitability. However, rental investments continue to struggle to compete with safer financial instruments like deposits and government bonds, highlighting the need for strategic financial planning in the sector. Source: National Bank of Poland and ISBnews