House prices in Poland went into freefall during the global financial crisis and continued to plummet throughout the European debt crisis, but reports from Ober Haus show that price falls are slowing. From comparatively healthy Warsaw to struggling Lodz, prices still remain between 15 and 37% below pre-crisis levels, respectively, but the housing economy is improving and demand is on the rise. Despite predictions for modest economic growth in 2014, great improvement will be difficult in a market that is oversaturated with supply and slowed by high interest rates. For more on this continue reading the following article from Global Property Guide.
Poland’s property market is now gradually improving, as the economy slowly recovers. House prices continue to fall, albeit at a decelerating pace. Demand is also rising. However, residential construction activity remains down.
During the year to end-November 2013, the average price of apartment in Warsaw, the capital, dropped by 2.86%, to PLN7,781 (€1,853) per square meter (sq. m.), the lowest annual decline this year, based on figures from Ober Haus. When adjusted for inflation, property prices in Warsaw fell by 3.57% over the same period.
House prices in other Polish cities continued to fall, albeit at a slower pace. During the year to November 2013, Gdansk saw the biggest house price fall of 5.9%, to an average price of PLN5,472 (€1,303) per sq. m. Both Poznan and Lódz recorded a house price fall of 3.2% over the same period, to PLN5,283 (€1,258) per sq. m. and PLN3,738 (€890) per sq. m., respectively. In Cracow, house prices also fell by 2.6%, to PLN6,522 (€1,553) per sq. m.
House prices in Poland have been falling since mid-2008. Compared to pre-crisis peaks:
- In Warsaw, house prices are down by 15.5%
- In Cracow, house prices are down by 20%
- In Poznan, house prices have fallen by 30.2%
- In Gdansk, house prices plunged by 29.9%
- In Lódz, property prices plummeted by 37%
Demand is rising. During the third quarter of 2013, residential property transactions rose by 18% q-o-q to about 9,600 units, the strongest since the peak of 2007, according to REAS. Over the past four quarters, about 33,500 units were sold in the six Polish cities analysed.
Moreover, the total volume of outstanding housing loans rose by 3.7% to PLN335.93 billion (US80 billion) in November 2013 from the same period last year, according to the National Bank of Poland (NBP). About 50% of the total housing loans were denominated in zloty, an increase from 44% during the same period last year. The remaining 50% of the housing loans were denominated in foreign currencies, with majority of it denominated in Swiss Franc.
Poland’s property market is expected to improve substantially in the next two years. “The years 2014-2015 may bring a period of visible and quite rapid improvement in market performance,” according to a REAS report.
In the third quarter of 2013, the Polish economy expanded by 1.9% from the same period last year, up from 0.8% annualized growth rate in the previous quarter, thanks to strong domestic demand, according to the CSO. The economy grew by 1.9% in 2012, after expanding by 4.5% in 2011, 3.9% in 2010, and 1.6% in 2009, according to the International Monetary Fund (IMF).
Market swamped by unsold units
The number of completed but unsold units increased by 11% in 2011, despite dwelling completions falling 3%. Forced sales by cash-strapped owners added to the total, so the housing market is awash with unsold units.
However, building permits recovered slightly in 2011, growing 5.2%. Dwelling starts also rose, by 2.6%.
The EU brought a housing boom
After the shift to a market-based economy in the early 1990s, the Polish economy experienced nearly two decades of 5% annual growth. Unemployment fell dramatically from 19.9% in 2002, to 7.1% in 2007, and the Polish mortgage market exploded. Outstanding housing loans increased from 1.3% of GDP in 2000, to 16% of GDP in 2009.
Buyers were typically relatively young (31 years old), had no children (80% of buyers), and bought apartments ranging from 46 to 60 sq. m.
When Poland joined the European Union in April 2004, a massive house price boom was unleashed. Having been rather static, property prices suddenly surged in Warsaw by 23% in 2005, 28% in 2006, 45% in 2007, and 13% in 2008, according to REAS. Some other cities such as Wroclaw saw even larger house price rises.
Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation.
From 2001 onwards, a large proportion of housing loans were foreign currency-denominated. The foreign currency-denominated proportion rose from 9% in 1999, to 50% in 2001.
The total amount of foreign currency-denominated outstanding housing loans is still very high, at 61% of the total in 2011, only a slight decrease from the 69% peak reached in 2008.
Interestingly, while the share of Swiss Franc-denominated new housing loans fell from 69% in March 2009 to 52% in December 2011, the share of new loans in other currencies increased from 2% to 10%.
Developers fear a regulation tsunami
The most significant event for the future of Polish property market is the so-called "developer bill", which will take effect 29th April 2012, which aims at protecting the rights of purchasers, changing the relations between the developer, the client and the banks, including the usage of escrow accounts.
In theory, this new legal framework will force housebuilders to compete for banking loans, and will improve the quality of projects and business plans. But could the new law reduce total financing?
“On the supply side, we predict that several developers will launch new projects before the law takes effect, fearing that banks will change their construction credit policy," says Maximilian Mendel of REAS. “It will also influence the demand side.
“Before the law comes into effect, we expect that a large part of prospective homebuyers will hold back their purchase decision, whereas it is likely that we will see more sales from 29th April onwards.”
Another important development is the so-called Recommendation T. Before the crisis, mortgages in excess of 80% of property values were common and many banks offered 110% mortgages.
Recommendation T was approved in February 2010 and came into force in the following August. It recommends a maximum loan-to value (LTV) ratio for foreign denominated loans of 90% for 5-year loans, and 80% for longer-dated loans. Borrowers can take 100% loans only if they obtain adequate insurance.
The second part of the recommendation T, which came into force at the end of 2010, imposes a ceiling on monthly repayment installments of 50% of the income of those earning below the average national salary, and 65% for those earning more.
Curbing foreign currency denominated loans
Since June 2010 there has been stricter regulation of lending by banks in foreign currencies by the Polish Financial Supervision Authority (KNF). This has substantially cooled the housing market, as PLN-denominated loans have higher interest rates. In November 2011 the average zloty-denominated housing loan had a 6.9% interest rate, much higher than the 4.1% on euro loans.
Interest rates up!
After several cuts in the reference rate during the financial crisis, on January 2011 the Poland National Bank set out on a moderately restrictive path that has not yet been reversed, holding the reference interest rate steady at 4.5%.
The result of these measures is that loan volumes are expected to decrease considerably, according to a National Central Bank January 2012 survey:
- 86% of senior loan officers at banks expect loan grant standards to be tightened further in Q1 2012
- 40% say the tightening will be "considerable".
Thin rental market
The private rental market is thin in Poland. The social-rental market has been shrinking over the past 20 years. After the privatization of housing in the early 1990s, owner occupancy rose from 48.3% in 1990, to 74.5% in 2002 (55.2% individually-owned and 19.3% co-operatively owned).
Across Poland, rents have fallen since Q4 2009, after having been flat during the previous 3 years, with oversupply especially of high-end apartments.
Average rents in higher-end districts of central Warsaw (Sródmiescie) varied from €14.08 and €15.41 per square metre per month in April 2011, and €11.53 to €8.64 in Krakow, according to Global Property Guide research.
Gross rental yields are higher in Warsaw, varying between 5.3% and 5.4%, than in Krakow, where they range from 3.4% to 4.1%.
Modest economic growth in 2014
Poland is the only European country which avoided recession during the global financial and economic meltdown. The economy expanded by 5.1% in 2008, 1.6% in 2009 and 3.9% in 2010. GDP grew by 4.3% in 2011, mainly due to strong domestic demand.
The Polish economy is estimated to have expanded by just 1.3% in 2013 because of an economic slowdown in the first half of the year, according to the Central Statistical Office (CSO). But in September 2013, retail sales expanded by about 3.9% from a year earlier. Moreover, industrial production was also up by 6.2% over the same period.
In 2014, the economy is projected to grow by 2.4%, according to the IMF. Poland is the only European country which avoided recession during the global financial and economic meltdown. The economy expanded by 5.1% in 2008, 1.6% in 2009 and 3.9% in 2010. GDP grew by 4.5% in 2011, mainly due to strong domestic demand. However in 2012, the economic growth slowed sharply to just 1.9%, the lowest since 2002, mainly due to the adverse impact of the eurozone debt crisis.
The country’s budget deficit was estimated at 3.5% of GDP in 2013, down from 3.9% of GDP in the previous year. In 2013, public debt stood at about 55% of GDP.
The National Bank of Poland (NBP), the country’s central bank, decided to hold its benchmark interest rates steady at a record 2.5%, in an effort to buoy the economy. The central bank has indicated that there is not much chance of it increasing its record-low key rates before mid-2014.
In October 2013, the country’s overall inflation rate slowed to 0.8% from a year earlier, down from 1% in September and 1.1% in August 2013, mainly driven by falling fuel and food prices. This was far lower than the NBP target inflation rate of 2.5%.
As the slowdown bites, companies are announcing layoffs. In 2012 the number of unemployed rose by 154,900.
Unemployment inched up to 13.3% in December 2012, the highest level since 2006, based on preliminary estimates from the Ministry of Labor and Social Policy – a sharp contrast to the average 2007 to 2011unemployment rate of 8.8%. In the first nine months of 2012, about 614 companies declared bankruptcy, the highest level since 2005, according to the debt collectors Coface.
This article was republished with permission from Global Property Guide.