2% Safe Mortgage will bring jobs and profits to furniture industry, but there is an obstacle
The worsening financial situation of households has caused as many as 24% of Poles to give up on buying new furniture this year. However, this is not a finite decision. Nearly one in five consumers is saving money for this very purpose. The furniture industry may be boosted by the start of the 2% Safe Mortgage programme. With the current demand, there are expected to be more than 50,000 loan applications by the end of 2023, of which around 40,000 are likely to be finalised in agreements. Producers need to be ready for the increased demand. For this, investments are needed, but access to credit is severely limited by the debt of the furniture industry.
As predicted, 2023 started with declines in production and sales in the furniture industry. The CSO data shows that in January-February, there was a decrease in the production of 191 products, compared to the same period last year. In March, retail sales across the ‘furniture and household appliances’ group fell by 15.2%. The value of furniture production sold amounted to 5.72 billion PLN. This is approximately 4% less compared to March 2022.
The main reason is the financial situation of Polish households, which is becoming increasingly challenging. Inflation is not letting up, so consumers are forced to tighten their belts even more. In a survey by the Association of Financial Enterprises ‘Situation on the consumer finance market’ for Q1 2023, one-third of Poles admitted that they are already struggling to pay their bills. It comes as no surprise, then, that any major purchases that are not necessities are getting pushed back. This also applies to furniture. In Santander Consumer Bank’s study ‘Poles’ own wallets’, respondents were asked which products/services they had given up on due to rising prices. Furniture was in the top ten of the list. It was indicated by 1/4 of the respondents.
Although the statistics are bad, there are indications that there is a rebound coming in the furniture industry within a few months.
Buying furniture is not a priority at the moment, but it is still on the agenda, as the market will be boosted by the 2% mortgage
In the SCB survey quoted above, one-fifth of Poles admitted that it is furniture that they are saving money for. This goal is second only to holiday trips, renovations and household appliances. In the autumn, trips are even more likely to give way to home furnishing in shopping priorities. The industry’s problems may therefore soon be over.
This conclusion can also be drawn from the success of the 2% Safe Mortgage programme. There has been a huge amount of public interest in subsidised financing for the first flat. Although the programme only launched at the beginning of July, it has already caused paralysis in the banks. During the first week alone, they received more than 4,000 applications. By the first week of August, according to data from the Ministry of Development and Technology (MDT), more than 24,300 applications had been submitted under the ‘2% Safe Mortgage’ programme and 1,192 agreements had been concluded for a total amount of almost 410 million PLN. With the current level of interest, there will be more than 50,000 loan applications by the end of 2023, of which around 40,000 are likely to be finalised in agreements.
What’s more, in fear of a sudden rise in property prices, those in possession of cash have also lined up for purchase. As a result, even in June, demand for flats increased by 113% y/y (data from RynekPierwotny.pl). According to the estimates by the JLL consultancy, developers sold 15,400 flats in the six largest agglomerations in Q2.
‘Why is this a good sign? Sooner or later, consumers will start furnishing these flats. The industry understands that such a surge in the number of residential purchases will translate into a huge demand for furnishings. There is still some time to go, but many furniture manufacturers have to restart production lines that were shut down a year ago. Back then, the drastic drop in mortgage lending, as well as the reduction in consumer expenditures on renovation as a result of high interest rates, caused many companies to cut production. Now it needs to be restarted, and resources are needed now,’ says Mateusz Skowronek of eFaktor, a factor serving the SME sector.
Where to find the money for investing in new production lines?
The industry’s debts already amount to more than 101 million PLN, including 55 million PLN owed to banks. The furniture industry is therefore not credible enough to obtain financing there. Banks have looked at the money requests directed from this industry with increasing distrust over this year. Furniture manufacturers also often do not have sufficiently large and liquid funds of their own to invest in increasing production. What can help is to speed up the circulation of money in dealings with product buyers.
‘If banks are cautious about lending to furniture companies, and on top of that the money lent that way is expensive, then one has to look for funds elsewhere. A method that is within reach is to speed up the circulation of money and payments from customers. Many of them transfer their dues with months of delay. Of course, it will be difficult to convince them to speed up their payments from two months to two weeks overnight. However, if an intermediary – a factoring company – is involved in the settlements, it can turn out to be a win-win situation. For the recipient of the production, e.g. a large entity from the furniture industry, as well as the subcontractor receiving money from the factor immediately after issuing the invoice, which he can use to invest in increasing production capacity,’ says Mateusz Skowronek.
The risk of being refused such financing is lower than in the case of banks, because the basis for assessing the financial situation of the applicant company are agreements with business partners, e.g. furniture sales networks. This usually guarantees the granting of funds. Of course, a fee for making the money available quickly has to be added to the costs in such settlements, but it may well be worth it. What is at stake is the risk of sleeping through the hot demand period and not catching on to the boom connected with the 2% loan. All indications suggest that Poles will be rushing to furniture shops in a few months’ time.
Last Updated on August 17, 2023 by Krzysztof Kotlarski