AMRON-SARFiN Report 2/2020

Fortunately, both Polish society and Polish economy, in particular the housing market, were treated quite gently by the pandemic. After a suspension of activity on the housing and loan market at the end of March and especially in April, resulting mainly from government restrictions of personal mobility, the activity of market participants has slowly reactivated in the following months. The postponed buyers’ decisions on the housing purchase, especially on secondary market, resulted from the common expectations for a significant reduction in transaction prices.

Indeed, the number of transactions concluded in the second quarter was much lower. This decline amounted to 64% on primary market in comparison to the previous quarter. The situation on the housing loan market was much better. The number of housing loans granted in the second quarter of 2020 exceeded the level of 45 thousand, so it was lower by ‘only’ 20% than in the previous quarter, and the decrease in the total value of newly granted loans amounted to almost 19%. Certainly, three reductions of the basic interest rates by the Monetary Policy Council were a significant incentive to apply for a loan. The reference rate at the level of 0.1%, on one hand, prompted borrowers to reach for a cheap housing loan, and on the other hand, eliminated the chance of any profits from bank deposits, which additionally encouraged to invest in real estate.

Preliminary results of July confirm growing trend both in mortgage lending and in developers’ investments, which justifies a prudent forecast of total results for the end of the year 2020. This year will definitively be underperforming, comparing to the record-breaking year 2019, but a decline in the value of the lending will be probably defined as a single-digit result, while the drop in its volume may account for 12% up to 15%, compared to the results recorded last year.

After April stagnation , in the following months housing market gradually returned to high activity. Ultimately, in the entire second quarter of 2020, the number of dwellings completed was lower by only 4.5% in relation to the previous quarter. The number of constructions started decreased by less than 10% and the number of construction permits issued increased by 5.9% comparing to the first quarter of 2020.

However, common expectations for significant decrease in transaction prices have not been met. Perhaps price decrease will be observed in the coming months on secondary market, as a result of flippers’ activity reduction. Yet, generally, in the second quarter of this year transaction prices on both markets were still increasing, but slower than before. Moreover, in two of the eight analysed locations even slight decreases in the average transaction price of 1 sqm of floor area were recorded. In Wroclaw, the average transaction price of 1 sqm amounted to PLN 7 064/sqm and was lower by 1.34% in relation to the previous quarter , and in Cracow – – PLN 7 873/sqm, what represented a drop by 1.19%, . The highest increases were recorded in Lodz and Katowice agglomeration – by 3.67% and 4.34% respectively. In Warsaw the average price was slightly higher than 1%.

The increase in the average rent rate for private dwellings was symbolic in the second quarter – on average by 0.5% in relation to the previous quarter. However, the number of new rent agreements was not representative. We also do not have a chance to monitor rent cuts that took place in April and May, as well as the growing number of vacant dwellings.

The first months of the coronavirus pandemic changed the situation in many areas of Polish economy. The banks’ requirements for clients applying for housing loans has also changed. As a consequence, prudential regulations that refer to banks may result in postponing the moment when the most important social need of many Polish families, which is their own housing, is satisfied. Short-term government interventions are necessary, but it seems even more important to use the housing development programme as a way to overcome the crisis.

Pandemic perturbations in the economy should not justify easing the lending policy. Housing sector should be used, like in other countries, as one of the most effective economic driving forces. It directly and indirectly contributes over 8.4% of our GDP. Therefore, the government should support housing sector development, even if it would mean an increase in the current state budget expenditure, not exceeding 0.1% of GDP for decades.

Polish Entrepreneurship Council, which cooperates with Polish Banks Association, addressed an appeal to decision-makers to use the development of housing sector as the leading strategic, social and economic goal, the implementation of which may contribute to overcoming the crisis.

No state is able to assume the responsibility and obligation to provide housing by physical involvement of the governmental entities in the process of building, renting and managing those resources. The failure of the ‘Flat Plus’ Programme was the best confirmation of this view. The role of the government is to stimulate, inspire and coordinate the behaviour of the market participants in such a way, that those, who can afford it, could invest in dwellings for their own needs and for rent.

The government’s housing policy should ensure the availability of housing for rent, but should not impose such an option. It is important for the economy to inspire and support the housing ownership, which also contributes to building the well-being of citizens. Unfortunately, the government’s new ideas for solving the housing problem that have recently appeared in public communications, do not take these assumptions into account, but instead propose further experiments.

Jacek Furga,Ph.D.
Head of AMRON Centre

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