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Apartments in tenement houses. Do they sell well?

12 September 2018

Limited access to investment land and rising land prices mean that developers are more likely to consider adding apartments in restored tenement houses to their offer. There are more and more buyers looking for apartments in buildings that combine the atmosphere of the days gone by with the convenience of new buildings. Such premises, however, are still scarce in the housing offer in Poland.

The potential of tenement houses has been discovered in Western Europe a long time ago and today, in cities such as London, Paris, Vienna or Prague, premises in such buildings are often the most expensive and the most prestigious ones. Meanwhile, in Poland, and especially in Warsaw, the availability of housing stock of this type was significantly limited. Moreover, due to their condition, not all buildings that survived the war and socialist management can be converted to apartment buildings. Are Polish tenement houses equally popular despite the limited availability?

Historical factors

The authorities of European capitals, including Paris, where in the mid-1960s regulations were introduced that made the costs of modernization of the premises located in old buildings tax-deductible, encouraged citizens to return and settle in city centres. Tenement houses regained their pre-war appearance and significance, becoming the hallmarks of Western Europe metropolises. The housing stock in Poland, in almost every major city except Kraków, was decimated as a result of the war hostilities. On a few occasions post-war authorities changed the layout of streets, sometimes demolishing entire quarters of tenement houses, as was the case, among all, in one of the parts of the Warsaw Śródmieście district. Throughout the country, the best-preserved buildings were converted into offices of local and central administration, and some of them have their seats there until today.

Expensive and complex investment process

Today, as sales on the primary market have been increasing since 2014, developers are forced to acquire investment lands located further and further away from city centres. This makes them more readily look into purchasing properties under the conservator’s protection. Commercialization of such buildings requires reaching a specific group of buyers and incurring expenses to obtain rights to the buildings. There are few companies that are ready to buy claims on their own, and finding owners of very fragmented shares is time-consuming and difficult. The developer that wants to earn money off dwellings in tenement houses also needs to prepare for the possible absence of co-financing from the State Treasury, as the renovation of residential buildings is subsidised with public funds only to a small extent.

Revitalization costs tend to be twice as high as in the case of projects on the primary residential market, and the conversion process itself is more difficult and time-consuming. Tenement houses are typically located in compact housing areas, which makes it difficult to arrange a construction site. It is often necessary to occupy the adjacent sidewalk or part of a lane, and construction works that generate noise cannot be carried out at night in view of the neighbourhood. The technical condition of the majority of tenement houses is also a challenge. Adapting them to meet the applicable building regulations is expensive and in many cases requires the supervision of a conservator.

Luxury raises the rate

In the case of many tenement houses, developers decide to upgrade the standard of finishing and introduce amenities such as lifts or underground car parks, which are rare in old buildings. The buildings that are ultimately released onto the market offer premises in the apartment segment which are priced accordingly high. These amenities, however, are not the only reason for the high prices per square meter. The cost of purchasing such premises also reflects their low availability. In 2017, developers released nearly 1,200 such units onto the market on the six largest residential markets in Poland, out of which only about 170 in the apartment segment.  In Q2 2018 those interested in buying an apartment in an old building had to prepare for a sizeable expense. In Łódź, the prices of units of this type were the lowest at PLN 5,600 per square metre on average. Buyers had to pay the most for their homes in renovated buildings in Warsaw: PLN 13,600 per square metre.

Seeing the potential of old buildings, local governments that own parts of the tenement houses also decide to finance revitalisation despite its significant costs. The renovated façades become the pride of the districts and make the area more popular, attracting young entrepreneurs and tourists, as was the case, for example, in the Jeżyce area of Poznań or the Praga district in Warsaw.

Optimistic forecasts

Investing in residential real estate is still one of the most popular methods of investing capital by Poles. Aware of the increasing value of the apartments, they decide to buy units in this market segment. Sales recorded by REAS in the first half of 2018 point to an unflagging demand for units located in old buildings. Between January and June this year, demand was higher than in the corresponding period of the previous year. Convenient location, which is an advantage of many such buildings, high-ceilinged rooms and their historical character ensure that tenement houses will stay popular for a long time, in line with the trends in European capitals.