"Where do we come from? What are we? Where are we going?" by Paul Gauguin (Image)
What's going on?
To begin, we have absolutely no idea what is going to happen to either the Polish property market nor to the Polish economy as a whole in the next 3 months. But at the heart of understanding the future, or at least trying to, is to understand what exactly is happening now.
Yesterday (March 9th), world stock markets, including the Warsaw Exchange, opened and immediately fell in value by levels not seen since the depression of 2008. The immediate headlines suggested that coronavirus is behind this collapse but this would be to ignore the underlying problems that were built into world growth beforehand.
After 10 years of growth many experts expected a correction or even a recession in 2020, although nothing to compare to 2008. There is no doubt that a spreading Coronavirus was an accelerator to slowing growth but the key to the recent market fall is too high levels of debt and the Russian/Saudi Oil war on the American Shale Oil industry.
Before all of this, we were preparing an article on how property is an excellent way of guarding yourself against increasing inflation. There is no doubt that inflation was the biggest danger to the Polish Economy. The Central Bank were expected to raise Interest rates in their last meeting to try to manage this inflation spiral, as is their job. They didn't.
This week, they have amended their inflation update for 2020 from 2.8 to 3.7 % but reduced their GDP forecast. So inflation is still an issue and slowing growth is expected.
The reduction in oil prices and the shock to the world economy, which is essentially a demand and supply problem, normally it's one or the other, would suggest that inflation and growth forecasts at the moment will be a moving number.
We continue to believe, based on existing data, that Poland will repeat it's trick of 10 years ago and not be affected by this economic slowdown as much as other countries as debt levels still remain comparatively low. It will be affected As economic activity decreases a lot of businesses and property developers will be squeezed resulting in opportunities for those investors who like risk.
"When there is fear, get greedy, when there is greed, be fearful" - Warren Buffet, 1986
Expect the Zloty to lose value in the coming period as investors move to safe haven currencies like the Euro, US Dollar and the Swiss Franc. The Central Bank does a pretty good job of keeping the currency stable but they may let it drift a bit to help with exports. We would see it going from the current 4.32 to the next level of 4.41 and possibly beyond in the coming days/weeks.
What to do
We would not suggest that anyone tries to gamble on when we get back to "normal", but there will be an end to the current turmoil. If you were planning to invest in Polish property this year, you should be prepared to move fast to catch a bargain.
As a preparatory checklist, do an inventory of your financial strength.