AMRON-SARFiN Report 1/2016
Emotions in the media, which in the first three months of this year accompanied a ‘race’ of potential borrowers to benefit from this year’s funds of the ‘Flat for Youth’ Programme, aroused high expectations towards lending results in the first quarter. Meanwhile, the free market behaved in its own way. The results of this year’s first quarter turned out to be significantly lower than the results of the fourth quarter of last year. Despite the high interest in ‘Flat for Youth’ Programme, a decrease both in number (by 8.15%) and value of new loans (by 10.85%) was recorded, comparing to the previous quarter. This confirmed once again seasonality of the Polish residential market, according to which the results of the first quarter are the lowest in the whole year and lower than the results of the last quarter of the previous year. Comparison of the results recorded in Q1 2016 and those of the same period last year brings more optimistic conclusions – declines amounted to respectively 6.09% and 5.07%. However, it seems that mortgage lending results of the whole year 2015 are unlikely to be exceeded this year, especially in the light of the fact that the limit of funds under the ‘Flat for Youth’ Programme budgeted for the year 2016 was exhausted already in March.
It should be stressed out that the number of active loan agreements as for the end of Q1 2016 for the first time ever exceeded the level of 2 million. High quality of the mortgage portfolio is also a positive signal. At the end of March 2016, non-performing loans in PLN accounted for 2.67% of all loans in domestic currency, while share of non-performing loans in foreign currencies equalled to 3.18% of total portfolio of currency loans. Very good quality of housing loans in foreign currency confirms that the statutory, general currency conversion of CHF loans is not justified.
From the other hand, further increase in share of Warsaw market in total structure of new housing loans to a record level of 40.98% noted at the end of March is alarming. This means that almost every second loan for residential investment was granted in the capital city – not only within the administrative borders of Warsaw, but also in surrounding towns and villages.
Those purchasers, who were able to pay in cash or withdrew their savings from term deposits and other financial instruments, invested it in dwellings for rent, choosing among a wide range of relatively low-priced primary market offer on stock. By far, rent profitability exceeds the investment returns offered by financial institutions. The significant share – 10.86% – of loans with low LtV ratio (below 30%) in the structure of newly granted housing loans also provides that cheap credits are spent to finance the renovation and modernization of houses and dwellings purchased a decade ago, during the credit boom.
Highly flexible approach of the developers’ sector and its adaptation to the current market situation deserves to be recognized. According to preliminary data published by Central Statistical Office, the number of construction permits issued, the number of constructions started and the number of housing units completed in Q1 2016 diminished in comparison to the previous quarter, respectively by 17%, 15% and 20%. Nevertheless, condition of housing market is still very good, what can be observed in the annual comparison of results.
High demand on real estate market in Q1 2016 improved developers’ sales results and resulted in a slight increase of transaction prices in the largest Polish cities. In Q1 2016, the average transaction price per 1 sq.m. of dwelling diminished only in Lodz – by PLN 65 /sq.m. In other analysed cities, there were noted slight increases – the biggest in Poznan, Cracow and Wroclaw, respectively PLN 138 /sq.m., PLN 128 /sq.m. and PLN 124 /sq.m. in comparison to Q4 2015, which meant an increase by 2.5%, 2.1% and 2.2%. One of reasons of such prices rise could be insufficient time for proper price negotiations for those borrowers, who wanted to quickly apply for subsidy from the ‘Flat for Youth” Programme.
According to AMRON Centre it is difficult to expect significant price changes on the housing market in 2016. There is no justification for such a scenario in the near future, as there are no arguments for forecasting growth in banks’ lending activity in the area of financing the housing purchases. The stream of funds withdrawn from the capital market and earmarked for housing investments is constantly dwindling, similarly to the flow of money transferred to Poland by Poles living abroad.
Despite the fact that the newly elected government has been sworn more than six months ago, the principles and rules for the implementation of ‘Flat+’ government housing programme are still unknown. On 8 March, 2016, the joint meeting of the Budget and Public Finance Committee and the Infrastructure Committee of the Senate of Republic of Poland was held with representatives of Polish Banks Association. The meeting focused on the evaluation of the draft act on building societies. The participants of the meeting, including the Chairmen of both Commissions – in presence of Deputy Minister of Infrastructure and Construction – declared that the draft act will be promptly submitted to Parliament in order to imminently launch the system of building societies in Poland. Probably this initiative has been taken over by the government and is planned to become one of the elements of the ‘Flat +’ Programme.
Jacek Furga,Ph.D.
Head of AMRON Centre
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