AMRON-SARFiN Report 1/2017

Number of housing loans granted in Q1 2017 exceeded 50 thousand, which meant an increase in lending activity by almost 20% in comparison to the previous quarter – such increase has not been observed on Polish market since mortgage boom in 2006 – 2008 and the following period of market reaction to subprime mortgage crisis in 2010.

The developers’ sector also does not slow down. Developers are announcing another record-breaking year, in which regardless of banks’ clients applying for a loan for (another) new dwelling, more and more investors are able to finance flat purchases with cash. As far as incidental, in my opinion, increase in lending activity in Q1 2017 was caused by reopening of government ‘Flat for Youth’ Programme, systematic increase in number of cash purchases of dwellings corresponds to financial market situation, especially lack of attractive deposit offers. Moreover, investing in real estate is Poles’ natural reaction to political instability. Poles still find real estate purchase as the safest form of a long-term investment, perhaps even as an element of pension security. Fortunately, these are not speculative transactions, because rapid increase in housing prices is unlikely to appear in the coming years. On the one hand, it is assured by developers in increased number of obtained building permits as well as increased number of started investments. On the other hand, lending restrictions resulting from Recommendation S are aimed at preventing banks from financing price bubble. Act on mortgage loans and the supervision of mortgage brokers and agents adopted in February 2017 will enter into force on July 21 this year and will significantly slow down banks’ lending activity due to the increased loan costs and more complicated granting procedure.

Recognition should be given to high elasticity of the developers’ sector, which responds to rising demand on housing properties. In comparison to Q1 2016, number of issued construction permits increased by more than 42%, number of started constructions – by almost 29% and number of completed housing units – by 8%. It prevents prices increase on primary market. Additionally, price requirements defined in ‘Flat for Youth’ Programme – due to relevant share of transactions under the Programme in all concluded transactions – even caused incidental decreases in transaction prices.

In Q1 2017 significant increase in average unit transaction price was recorded only in Warsaw – by PLN 132 per square meter. However, decreases in prices were noted in Lodz and Gdansk – by PLN 169 /sq.m. and PLN 126 /sq.m. respectively.

Despite spectacular results of banking sector in mortgage lending in Q1 2017 and low transaction prices as well as record-low PLN exchange rate, we maintain our forecast for banks’ lending activity level in 2017 – it will be lower than in 2016, not exceeding the number of 178 thousand granted loans and total value of PLN 39 million.

Jacek Furga,Ph.D.
Head of AMRON Centre

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