Waiting for discounts – about the housing market amid the coronavirus pandemic

Quite recently, the housing market in Poland was recording an impressive boom and the prospect of a correction seemed remote. Dwellings prices kept rising, flats had been sold really quickly and developers willingly started new investments. But then the coronavirus-related restrictions came, the entire economy unexpectedly stopped and all real estate participants held their breath waiting for what would happen next. Property prices have been a hot topic since the beginning of the pandemic. Potential home buyers were looking forward to discounts and bargains. Meanwhile, summer months did not bring a significant change on the housing market. After a temporary stagnation in April, resulting directly from a lockdown that made transactions impossible to conclude, the market has been slowly stabilizing.

BUYERS’ RESTREINT

Undoubtedly, in Q2 2020 the demand for housing has declined significantly. In some cities, the number of concluded transactions was lower even by 60% than in the previous quarter. Many potential buyers decided to postpone their decisions, fearing of a serious economic crisis in the country, losing their jobs and the ‘second wave’ of COVID-19, but at the same time expecting some price decreases. And this was quite rational. Another, quite numerous group that refrained from housing purchases were people who lost their creditworthiness due to the tightening of banks’ lending policies. At the same time, cancellation of lectures at universities and the return of students to their hometowns, as well as a decrease in tourist traffic and thus the interest in short-term rental (for days), might slightly limit the interest in purchasing dwellings for investment purposes.

Theoretically, a lower demand results in a lower prices. However, it has not happened so far. Banks are slowly easing the lending conditions and consumer confidence index is increasing. After a significant decline in dwellings interest in March and April, a systematic improvement has been observed since May. According to Google Trends, the popularity index of ‘flat’ in the Google search engine in the six largest Polish cities at the beginning of September this year was even higher than in 2019 – record-breaking year in terms of demand.

CHART 1. POPULARITY INDEX OF ‘FLAT’ IN THE SIX LARGEST CITIES IN POLAND

source: AMRON Centre based on Google Trends data (average for the 6 largest cities: Warsaw, Wroclaw, Poznan, Kraków, Gdansk, Lodz) – as for September 7, 2020

HOUSING MARKET RECOVERY

After a temporary weakening in housing market results in April, the following months were the time of catching up. According to data published by the Central Statistical Office, the results of housing market in June and July returned to the average values recorded in the last record-breaking year. Only in July this year constructions of 21.7 thousand apartments were started – by 60% more in comparison to April, reaching the result noted in the same month last year. In July, developers started construction of 12 thousand dwellings – twice as much as in April 2020 and by 1% more than in July 2019. In the period from January to July 2020, construction of 122 thousand dwellings was started, i.e. by 11% less in relation to the same period of the previous year, while developers recorded a decrease by 16% and started the construction of 66 thousand flats in the same period. However, it can be assumed as a good result.

The results in the number of construction permits issued were also really good. In June and July it amounted to the level close to the monthly results recorded in this category last year (despite the fact that July brought a slight decrease on a monthly basis). From the beginning of the year to July 2020, 147 thousand building permits were issued, i.e. only by 4.5% less than in the corresponding period of 2019. In the same period, developers obtained 88 thousand permits, which was by almost 5% less on an annual basis. So the results of housing market have actually returned to pre-lockdown levels.

CHART 2. DEVELOPERS’ SECTOR PERFORMANCE

source: Central Statistical Office

DYNAMICS OF PRICE GROWTH SLOWED DOWN

Price decreases were often mentioned as one of the inevitable effects of the coronavirus pandemic, but it was not visible so far, both in offers and transactions. The lockdown in March and April limited the activity on the housing market for a while and stopped price increases, but no significant decreases was observed.

A considerable drop in the number of transactions concluded on the housing market in the first months of the pandemic forced the supply side to take decisive action. Developers reacted much faster, but they have got more tools to fight for customers than the sellers on secondary market, so did not have to lower dwellings prices. Developers offered, among others, promotions such as ‘storage room for free’, better purchase conditions (e.g. favourable payment schedule: 10/90, 20/80 or 30/70, extension of booking period, the possibility of cost-free cancellation of booking) or temporary, small price reductions for selected, less attractive premises. Moreover, there is no space for price decreases on primary market currently, because building land prices continue to rise, as well as labour and building materials costs. Sellers on secondary market are generally less flexible and they react later, strongly defending prices of their apartments. Good bargains although could be found there as well, but quite rarely.

CHART 3. AVERAGE TRANSACTION PRICES PER 1 SQM OF A HOUSING UNIT ON SECONDARY MARKET IN THE LARGEST CITIES

source: AMRON Centre

Temporary and minimal declines in the average transaction price of 1 sqm of dwellings on secondary market were recorded only in April this year – in Wroclaw a decrease by 1.90% was noted, in Poznan by 1.77% and in Warsaw by 0.66% in relation to the previous month. Currently, in large cities rather a stabilization of housing prices with a slight upward trend is noted. During the summer months, minimal increases (by 1-1.5%) in the average transaction prices per 1 sqm on secondary market were noted in the largest Polish cities. A slightly higher increase was recorded only in Lodz, where the average transaction price of 1 sqm increased in August this year by 2.96% in comparison to July. However, it should be mentioned that the analysed volumes in recent few months were low, as the number of conceded transactions has decreased significantly, and data from the real estate market are delayed. Therefore, a view of the past few months on the market is not complete yet.

Currently, no indications of sudden change anytime soon are observed on the market, although situation is uncertain. The economy is recovering, the activity of the housing market participants is steadily growing, and slight changes in prices recorded so far on both primary and secondary markets cannot have any real impact on potential buyers. Of course, there are many unknown factors, and at the moment it is impossible to predict the ultimate impact of the pandemic on the whole economy. The real estate market is characterized by inertia, so there is still a risk that in the long term perspective, the factors causing the decline in real estate prices will prevail. Further development of the situation not only on the housing market, but also in the entire economy, will largely depend on a possible ‘second wave’ of COVID-19 and the related restrictions. Only a large disproportion between the supply and demand can convince sellers to change the price policy, but even in such a situation we do not expect significant decreases, but only by a few percent.

Agnieszka Pilcicka
Senior Real Estate Market Analyst