AMRON-SARFiN Report 1/2021
Despite ongoing pandemic threat, in the first quarter of 2021 both residential and credit markets remained in an upward trend. The average value of a housing loan rose dynamically as well. After a historic record noted at the end of 2020 at the level of 305 thousand, the first quarter of the current year brought further increase to PLN 313 thousand. Observed increases resulted from the factors that we defined after a short “covid” shock in the second quarter of 2020 – historically cheap mortgage loans and lack of an alternative way to invest capital. Therefore, flats are bought both by those who can afford a loan and by those who have significant savings. Rapidly rising inflation level is a new, though expected factor, shaping the situation in the housing market environment. On one hand it will certainly stimulate the demand for real estate and, indirectly, for mortgage loans, on the other, it may bring the prospect of an increase in interest rates by the Monetary Policy Council, which could significantly affect the situation on the housing market.
The number of housing loans granted in the first quarter of 2021 amounted to 57 172, i.e. 6.35% more than in the previous quarter. The value of newly granted mortgage loans amounted to PLN 17.942 billion, which meant an increase by 9.17% in relation to the result from the fourth quarter of the last year. Even compared to the very good, “pre-pandemic” first quarter of 2020 year, these values turned out to be higher, respectively by 1.27% (number of loans granted) and by 7.93% (their value).
For the first time in history, the total amount of housing loan debt exceeded the level of PLN 480 billion and the banking sector’s loan portfolio currently includes nearly 2.5 million housing loans. It should be also emphasized that the quality of housing loans portfolio remains stable, with share of non-performing loans at the level of 2.54%, i.e. unchanged both in relation to the previous quarter and situation before the pandemic. However, systematic deteriorating quality of Swiss franc loans (4.67%) with improving Polish zloty portfolio (2.02%) can be observed at the same time.
Despite further loosening of banking requirements and a systematic increase in the average value of a housing loan, the share of loans with a LtV ratio exceeding 80% has been consistently declining for a year. This means that housing purchasers applying for a loan have their contribution higher than 20% required by Recommendation S. The share of loans with LtV higher than 80% in the first quarter of 2021 was equal to 31.17%, which in relation to the first quarter of 2020 means a decrease by 9.90 pp.
The share of the Warsaw market in the volume of granted loans recorded a dynamic annual growth. In the first quarter of 2021, this percentage was as high as 53.29%, i.e. higher by 14.10 pp., at the cost of a decrease by 5.51% pp. of the share of smaller towns.
Investors in the residential market remained active. After the record-breaking year 2020, Central Statistical Office indicators for the first quarter of 2021 show a significant increases (in relation to the first quarter of 2020) in the number of started construction projects (by 21.19%), the number of construction permits obtained (by 41.95%) and the number of apartments handed over for use (by 7.41%).
Average transaction prices of 1 sqm of usable floor space also continued to increase in most of examined locations. The highest increase, amounting to 5.37%, was recorded in Cracow. Average price increases exceeding 3% occurred in Katowice agglomeration, Wroclaw, Gdansk and Lodz. On the other hand, in Warsaw, the average price of 1 sqm in the first quarter of 2021 was PLN 10 073per sqm and was slightly lower (by – 0.08%) than in the previous quarter. However, in relation to the corresponding period of 2020, it meant an increase by 9.16%, with significantly higher price increases in Katowice agglomeration and Gdansk – by 11.64% and 10.51%, respectively.
The decline in rents on the private rental market that had been observed for the past three quarters also continued, although its slight slowdown was noticeable. The deepest decline was recorded in Lodz – by 2.45% compared to the level recorded a quarter earlier. Declines in other locations did not exceed 1 pp. We will probably have to wait for the improvement of the situation and a possible reversal of the downward trend in rents until the third quarter of this year, when students are about to return to universities, provided of course that in the meantime the fourth wave of the pandemic does not start in Poland. That could postpone the return to regular classes again.
In AMRON Centre’s opinion, transaction prices per square meter will continue to grow this year, although at a much slower pace than in the period from 2018 to 2020. Price increases will also result from higher construction costs caused by rapidly rising inflation. On the other hand, the decline in rents will be halted and they will stabilize at the level adjusted in recent quarters. Banks’ ability to continue lending may prove to be a potential slowdown factor in view of rising operating costs, as well as still unclear perspective of the “franc borrowers” behaviour and the continuation of the current adjudication line by the courts.
To ensure effective meeting of Polish society’s housing needs, Polish Bank Association has consistently recommended the implementation of solutions and financial instruments positively verified in neighbouring countries. Systematic, long-term and universal solutions are indispensable. Such solutions should be the result of a certain social contract.
Prime Minister Mateusz Morawiecki described the Polish Deal programme announced by the government coalition as the new social contract. The very idea of including housing construction as one of the pillars in the Polish Deal is worth of recognition. It is in times of economic crises that housing programmes have emerged in many countries as a way to overcome such crises. It is a pity that the world-proven financial instruments and effective vehicles for supporting and inspiring citizens’ aspirations for housing ownership were not used here. This is, in fact, the way to build a middle class of the society. In developed economies, housing ownership is the basis for further economic activity of citizens and an important element of retirement pension insurance. But you have to grow up for housing ownership, as own apartment is not only a right, but also a lot of duties and responsibilities.
The preliminary assessment of the presented directions of the government’s activities shows that, at least in the housing area, we were not really interested in such a social contract. It is difficult to assess their attractiveness a few days after the announcement of the assumptions and pillars of Polish Deal, especially for people dreaming of their own flat. After the state’s failure to build cheap apartments for rent under the Flat Plus programme, the new concept assumes that this task will be transferred to the interested parties themselves – both by encouraging them to build mini-houses on their own (without any permits or any control) and by purchasing apartments from developers for money from a housing loan, with no own contribution, but with a government guarantee. In my opinion, these proposals will not dampen the aroused appetite for buying a flat, and may even strengthen them as result of fear from further increases in housing prices, which may effect from these solutions. On the other hand, a possible wave of lawless constructions may do much more harm than good.
But, of course, we will join the discussion on the specification of these proposals and we will continue our efforts to launch a fixed-rate loan, to launch a fixed-rate contract loan in the formula of building-saving banks, and finally to clear the process of issuing and trading covered bonds that has been limping for 22 years. There are many proven ways and mechanisms to accelerate this flywheel of the economy, which can and should be housing. The Polish Deal does not have to mean coming up with new ideas. It is much more practical to rely on proven experiences. Such approach would also be something new in our reality.
Jacek Furga,Ph.D.
Head of AMRON Centre
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