AMRON-SARFiN Report 2/2016

The end of ‘Flat for Youth’ Programme is approaching very fast. On March 15 this year, Bank Gospodarstwa Krajowego announced the suspension of accepting applications for funding the purchase of dwellings from funds budgeted for 2016 and on July 5 the process of accepting applications for subsidy from funds reserved for 2017 was suspend. A ‘race’ of potential borrowers to benefit from the government Programme, accompanied by strong emotions, was continued in the second quarter, this time for funds reserved for 2017. In combination with a seasonality effect typical for Polish residential market, it led to an increase in banks’ lending activity in the second quarter of 2016. During this period, banks granted more than 49 thousand new housing loans for a total amount of PLN 10.6 billion, which was more by respectively 9.80% and 12.45% in comparison to the previous quarter. However, in comparison to the same period last year (Q2 2016/ Q2 2015), the number of newly granted loans increased by 5.62% and the value by 5.46%. Also, the results of the first half of 2016 were better in relation to the results of the first half of last year – by 5.84% when it comes to the number of new housing loans and by 5.27% when it comes to total amount. However, banks announced further tightening of loan requirements in the upcoming months, which could hamper the exceeding of mortgage lending results of 2015.

Banks’ prudent approach to new mortgage lending results from still unclear scale of possible burdens resulting from the so-called ‘spreads law’ submitted by the President to the Parliament, as well as from other costs arising as a result of not weakening claims of some groups of CHF borrowers.

Loan portfolio quality remains at the high level. The quality of housing loans in domestic currency have improved steadily since early 2015 – in the analysed quarter, the share of PLN loans with default on payment amounted to 2.63%, i.e. about 0.84 p.p. less than in the corresponding period of 2015. On annual basis, there were no changes in quality of the portfolio both in CHF (3.61%), as well as in other foreign currencies (1.55%). This very good quality of foreign currency loans confirms the lack of reasons for the statutory, general conversion of loans in CHF.

However, a further increase in share of Warsaw in total structure of newly granted housing loans from 25.02% in Q2 2014 to a record-breaking level of 43.27% at the end of Q2 2016 is alarming. This means that almost every second loan for residential investment was granted in the capital city – within the administrative borders of Warsaw or in surrounding towns and villages.CHF.

Investors’ appetite was not weakened even by government announcements that people in need will have provided housing with low-rent. According to data from the developers’ sector, sales of dwellings in 6 major cities in Q2 2016 increased by more than 5% in comparison to the previous quarter. More than 14.3 thousand flats on primary market were sold.

Moods on the housing market, resulting in a significant increase in the number of new construction permits issued, do not surprise – an increase accounted to 33% in comparison to the previous quarter and to 17% in relation to Q2 2015. The number of constructions started increased by 52% and 7% respectively. The number of 36 211 dwellings completed in Q2 2016 meant a decrease by 3% in quarterly terms, but in relation to Q2 2015 it grew by 12%.

The high demand on real estate market in Q2 2016 improved developers’ sales results and caused a slight increase in transaction prices in the largest Polish cities. In Q2 2016, the average transaction price per 1 sq.m. of dwelling increased in three of eight analysed agglomerations, i.e. in Cracow, Bialystok and Warsaw, respectively by PLN 138 /sq.m., PLN 101 /sq.m. and PLN 81 /sq.m. in comparison to the previous quarter. In Gdansk, the average price remained at the level of the first quarter this year, while in the other surveyed cities a slight declines were observed – the largest in Poznan – by PLN 134 /sq.m. and in Wroclaw – by PLN 133 /sq.m.

Attentive observation of the chart presenting changes in average transaction prices shows clearly a slight upward trend, typical for the residential market in equilibrium. The observed increase in the average transaction price per 1 sq.m. in the period from Q1 2013 to Q2 2016 in all analysed locations ranges from 3.79% for Wroclaw to 10.13% for Cracow. The increased activity of developers on one side and tightening loan requirements of banks on the other, will not change this situation in the near future.

It is also difficult to expect any significant changes as a result of the government’s activities in the area of housing policy. The National Housing Programme announced by the government is too enigmatic, especially in scope of housing loans refinancing. Polish Banks Association responded to the published document and directed to the Ministry of Infrastructure and Construction comments to the proposed solutions on July 27, 2016. Just as in a letter sent earlier to the Prime Minister Morawiecki with comments to information materials on Plan for Responsible Development published by the Ministry of Development, Polish Banks Association pointed out the need to run in Poland the building societies system. It is effective system, verified in many countries and in different macroeconomic conditions, which can help to build households’ propensity for long-term, systematic savings.

Jacek Furga,Ph.D.
Head of AMRON Centre

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