AMRON-SARFiN Report 1/2018

The image of safe and profitable investing in rental flats promoted in the media systematically heats the atmosphere on the housing investment market. Demand and prices were driven especially by investors looking for dwellings for short-term rental. On the other hand, accelerating the decision to invest in flats was caused by more rapid signals from the developers’ sector, pointing to three barriers that, if not significantly reduce the number of new investments, will certainly translate into a significant increase in dwelling prices in new investments, i.e. restrictions in access to new building plots, lack of employees in construction sector and increase in prices of building materials.

Another argument for investing in new dwellings for rent was the fiasco of ‘Flat Plus’ Programme announced for over two years by the government. Therefore, those who have postponed a decision, assuming that the launch of the ‘Flat Plus’ Programme – the construction by the state of cheap dwellings for rent – may significantly decrease the profitability of the private rent in the coming years, were also investing. Establishing the Housing Council on January 30, 2018 and the declaration of Prime Minister Mateusz Morawiecki on personal coordination of housing policy was welcomed – also by the Polish Banks Association – as a chance for a new opening and in the first days of February 2018 the President of the Polish Banks Association proposed to the Prime Minister and the Chairman of the Housing Council an offer to include the banking sector in works on modifications of the National Housing Programme. Unfortunately, after several meetings of the Housing Council, the most active member – the former Minister of Construction, and currently the President of the Management Board of BGK Nieruchomości, Mr. Mirosław Barszcz – described the ‘Flat Plus’ Programme announced two years earlier as unrealistic. Therefore, the Council proposed new ideas, alongside with resigning from savings system for housing purposes, recommended by ZBP for several years. The proposals for alternative solutions submitted once again by the Polish Banks Association did not meet with any interest from the government and the Council of Housing.

Of course, historically low basic interest rates were an important reason for the increase of banks’ lending activity in Q1 2018. The result of all these factors was the highest lending activity since Q3 2011 with the number of over 55 thousand of new housing loans for the total amount of almost PLN 13 billion, which meant an increase in relation to the previous quarter by 23.27% and 18.19% respectively.

Also, the developers’ sector did not slow down. After the next record-breaking year 2017, developers were trying to satisfy the growing demand of investors, but the stock of unsold housing was shrinking fast, which also translates into a significant increase in transaction prices.

In relation to Q1 2017, an increase in the average transaction price per 1 sq.m. of floor area of dwelling was recorded in all analysed agglomerations. The average price in Gdansk increased the most – by 653 PLN /sq.m. Slightly smaller increases were recorded in Wroclaw, in Katowice agglomeration and in Lodz, respectively by PLN 376 /sq.m., PLN 309 /sq.m. and PLN 288 /sq.m.

In comparison to the same period last year, increases in all categories on the housing market were recorded. The number of construction permits issued was higher by 10.84%, the number of constructions started – by 8.53%, and the number of dwellings completed – by 10.65%. Nothing confirms the imminent price correction announced by some market analysts.

The price and floor area structure of purchased dwellings and the share of loans in their financing allow to determine investors’ behavior as rational. The floor area of over 75% of the purchased dwellings was less than 65 sq.m., the price of over 75% of purchased flats did not exceed PLN 300 thousand and LtV level of 57% of granted housing loans were lower than 80% recommended by Recommendation S. In addition, the ratio of the number of transactions on primary market to the number of transactions concluded on secondary market in all major agglomerations clearly indicates that these are still unsaturated markets and are characterized by a large lack of dwellings.

I encourage you to analyse the convergence of the percentage increase in dwelling rent rates and changes in transaction prices in particular locations. In relation to Q1 2017, the average rent rate for a dwelling slightly decreased only in Poznan and in Cracow. In other cities, increases in the average rent rates were noted. The average rent increased the most in Warsaw – by PLN 142 (9.20%), in Lodz – by PLN 86 (9.69%) and in Gdansk – by PLN 79 (5.57%).

The results of Q1 2018 confirmed forecast on the possible exceeding of 200 thousand housing loans with a total value of PLN 50 billion in whole 2018.

Jacek Furga,Ph.D.
Head of AMRON Centre

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