AMRON-SARFiN Report 1/2022

The narrative about the real estate market environment has definitely started to change. In last few reports, commenting events on mortgage and housing markets, we referred mostly to the impact of the coronavirus pandemic on recorded results. Today, because of war going on for three months in Ukraine, we have practically forgotten about the pandemic. Aggression of the Russian Federation on Ukraine on February 24 had a number of negative consequences for the housing construction sector, in particular in terms of workforce availability. A significant number of refugees from Ukraine has completely changed the situation on rental market, putting strong pressure on rent increases. Effects of the Russian Federation’s aggression are evident when it comes to numbers describing Polish housing market in the first quarter of 2022 and we will face them for following quarters.

In last few editions of the Report, we emphasized the impact of NBP interest rate cuts made in spring 2020 on record-breaking lending results in following quarters of 2020 and 2021. We were also warning that borrowers should take into account that low rates, contrary to NBP Governor assurances, may change. We also encouraged to take out loans with a periodically fixed interest rate. The surprise came in October 2021, after the first in 11 years decision of the Monetary Policy Council to raise the interest rates. In the first quarter of 2022, the Monetary Policy Council made subsequent increases on a monthly basis. As a result, at the end of the first quarter the reference rate increased to the level of 3.50%, what resulted in an increase of WIBOR 3M, one of the components of the mortgage loan price ratio, to 4.43% and the average mortgage interest rate to 6.70%. The impact of these changes on the credit market is clearly visible in our Report.

In the first quarter of this year the number of new housing loans amounted to 47 767, which was lower by 25.27% than in the previous quarter and by 16.45% than in the first quarter of 2021. The value of newly granted mortgage loans equalled to PLN 16.932 billion, which meant a decrease by 24.59% compared to the fourth quarter of last year and by 5.36% to the same period year ago.

The average value of a housing loan increased, by the force of inertia, to the level of PLN 351 251. Compared to the previous quarter the increase was slight, but in a one-year time horizon this increase amounted to 12.16%. In nominal terms it equalled to PLN 38 089.

Developers are also adapting to changing scale of demand on the housing market. In the first quarter of this year, they started construction of 31 675 flats, which was 17.40% less than in the previous quarter and 21.07% less than the year before. The number of apartments with building permits obtained by developers dropped by 4.70% in this period. The deepest decline was recorded in the category of completed dwellings, the number of which decreased in Q1 2022 by 33.95% in relation to the result noted in the previous quarter.

In most of the largest Polish cities, increases in the average transaction price of 1 sqm of usable floor space continued, however with a much slower dynamics. The highest increase in the average nominal price, by 2.70%, was recorded in Warsaw, where the average transaction price in the first quarter of 2022 accounted for PLN 11 382/ sqm. The first decrease among the largest Polish cities was also recorded. The average price in Gdansk decreased by 0.44%. It should be noted that in none of surveyed locations the average prices increase exceeded the level of 3%. Taking into account the level of inflation recorded in the first quarter of this year (3.80%) it means that in real terms, the average prices of 1 sqm of apartments decreased in all analysed locations. In relation to the corresponding period of 2021, the largest increases in average prices of apartments were recorded in Poznan (by 13.71%), Warsaw (12.99%) and Cracow (12.81%). The lowest increase, amounted to 8.36%, was recorded in Gdansk. Slowing prices dynamics is however visible in smaller provincial cities.

Inflow of refugees from Ukraine to Poland has fundamentally changed the situation on the rental market once again in the course of last few years. As a result, in March we recorded dynamic increases in apartment rent rates. At the moment, the situation stays dynamic and it is difficult even to imagine an equilibrium on the rental market. The market prospects, in particular prospects for maintaining current levels of rent rates, will depend both on development of the situation in Ukraine and possible refugees’ readiness to return home, as well as on the future potential absorption of a significant number of Ukrainian workers by the Polish labour market.

Increases in the average residential rent rates were noted in all analysed locations. In relation to the levels recorded in the previous quarter, the highest increase was recorded in Wroclaw – 10.18%. The average rent rate for a flat in Warsaw in the first quarter of 2022 amounted to PLN 2 042 and was higher than the one recorded quarter before by 8.27% (PLN 156).

In Centrum AMRON’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 2021. Price increases will result also from higher construction costs, caused among others by rapidly rising inflation.

Dynamically rising level of inflation and new tax rules under the Polish Order with its subsequent adjustments and changes, introduced uncertainty as to the future economic situation, as well as to the future income of potential borrowers and housing buyers. These factors, together with drastic increases in the interest rate on mortgage loans, resulted in a decline in the IDM3 Residential Availability Index, to the level noted in 2014.

The banking sector has once again founded itself between a rock and a hard place. On one hand, the Monetary Policy Council for eight consecutive months has decided to raise NBP interest rates, what resulted in increase in the WIBOR ratio and, in consequence, more expensive mortgage loans. On the other hand, the government, hand in hand with the opposition, puts the blame for increasing costs of mortgage loans on banks and uninhibitedly presents proposals, which are to to help borrowers repay their loans. Only Marek Suski, MP from the ruling party PiS, managed to speak frankly, stating: “Unfortunately, when you take out loans, you must pay them back.” I assume that he spoke in favour of approx. 20 million Poles, who participate in PPK pension scheme, are OFE members or directly holders of bank shares. All of them, as well as the whole economy, do care about the safe development of banks. In this context, it seems at least surprising when the Prime Minister and former president of one of the largest banks in Poland accuses banks of generating profits. After all, loan agreements contain relevant provisions, including repayment suspension periods in case of temporary problems with debt repayment. Since 2016, banks have been co-financing the Borrowers Support Fund established specially for such cases.

During the period of low interest rates, i.e. from May 2020 to September 2021, banks granted approx. 340 thousand new loans both for the purchase of apartments for the borrowers’ own needs and for investment purposes. During this period of low interest rates, banks, based on Recommendation S, used a buffer of 250-300 basis points when calculating creditworthiness. There is no need or justification for automatic input of the following solution for all, especially when so-called “credit holidays” will weaken payment discipline and torpedo anti-inflationary policy of the government and the NBP. Moreover, the “credit holidays” will bring only partial and temporary effect to the borrowers, limited to a short-term suspension of instalments at cost of extending the repayment period.

The solution proposed by the government is harmful, motivated by populism and above all – completely disproportionate, as the banking sector has repeatedly declared its readiness for working out a tool, allowing to support borrowers who actually need this support.

For years Polish Banks Association has consistently recommended implementation of solutions and financial instruments that in neighbouring countries ensure incomparably more effective way to meet the citizens’ housing needs. We are not only open to such discussion, but also systematically initiate it. Unfortunately, these initiatives rarely find fertile ground among decision-makers. It is a pity, because we would avoid wasting energy on solutions such as “Flat Plus” or recently launched “Flat without own contribution” programmes. According to the analyses of Centrum AMRON, the share of new loans with the LtV ratio higher than the level recommended by the Polish Financial Supervision Authority, i.e. 80%, fell from over 53% in 2013 to 26% in the first quarter of 2022. It is not a lack of the down-payment that is a problem and persuading those, who have not managed to collect even 10% of their own contribution, to take out a long-term loan of 100% of the property value is really a disservice. However, it seems that limits and restrictions to both eligible persons and premises, usually implemented in governmental programmes of this kind, will make this initiative successful if more than 1 000 borrowers will take advantage of it this year.

Of course, we will continue our efforts to popularize the fixed-rate loan, to launch a long-term savings system and a contract loan with a fixed rate in the formula of housing-saving banks (bausparkassen), and to finally outflow mortgage bonds emission and trade that has been ailing for 25 years. There are many proven ways and mechanisms to accelerate this economic flywheel, which can and should be housing construction.

Jacek Furga,Ph.D.
Head of AMRON Centre

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