AMRON-SARFiN Report 3/2019

According to signals coming from developers’ sector, the primary market is stabilizing (read: decelerating). However, the newest data published by the Central Statistical Office confirmed the good situation on the housing market in Q3 2019. During this period, 51 021 dwellings were completed and construction of 63 052 apartments was started, which was more by 8.31% and 2.50% respectively in comparison to the previous quarter. At the same time, construction permits were issued for 71 736 housing units, which meant that the record-breaking result from the previous quarter was repeated. The results of the first three quarters of 2019 suggest that 2019 may be another record-breaking period in the construction activity of developers’ sector.

Banks have indicated tightening of the mortgage lending criteria, the loan margins were systematically increasing, but the sale of housing loans recorded in the first three quarters of 2019, reaching the level of 87% of the previous year’s result, allows to forecast that a record-breaking results of mortgage lending in 2019 will be announced in the next few weeks. The number of newly granted loans will exceed 220 thousand, while total amount of new loans will reach the level of PLN 60 billion, which will be a record-breaking amount in the history of the Polish banking sector. This is mainly the result of a systematic increase in the average value of a housing loan, which in Q3 2019 exceeded PLN 282 thousand.

In Q3 2019, an increase in both the number and the value of new housing loan agreements was noted. The total number of newly signed loan agreements amounted to 59 707, while the value of newly granted mortgage loans accounted for PLN 16.874 billion, which was a record-breaking result. Banks’ results were also higher in comparison to analogous period of the previous year – by 14.71% in number and by 24.34% in value. The level of banks’ lending activity in Q3 2019 was the highest in 43 quarters.

The increase in prices resulted in decrease in the average floor area of purchased dwellings. The average floor area of flats that were traded in Q3 2019 in the eight largest Polish agglomerations amounted to 53.51 sqm

Accelerating growth in lending, which also translates into faster increase in transaction prices, makes analysts concerned. In recent weeks I have had several opportunities to participate in discussions at conferences and congresses on the housing market. All participants in these debates confirmed that the boom on housing market observed since the beginning of 2013 is justified by macroeconomic indicators, but there was a sense of uncertainty. Higher loans are supported by the growth of the Polish economy and rising salaries and this is what makes increasing housing prices acceptable. Price increases were not only due to more expensive building materials, increasing prices of building plots and labour costs. Decreasing supply on primary market and the opinion, perhaps consciously created by developers, that this offer will decrease, was a new factor. What is more, the President of National Bank of Poland has systematically declared that as long as he holds his office, NBP’s interest rates held at a record low level since March 2015 will be maintained.

However, increase of transaction prices and rent rates is puzzling. I decided to sum up the effects of the government’s ‘good change’ on the housing market. I will not summarize the results of the ‘Flat Plus‘ Programme, because there is not much to write about. So I will only present how the housing market responded to this Programme, or rather to dwellings created by the government. Over the past four years, in 7 agglomerations monitored by the AMRON Centre, housing prices have increased on average by 21.5% and rents by 20.5%. However, the differences in particular agglomerations were really high. In Warsaw, Wroclaw and Lodz, rent increase was by 10 p.p. higher than the increase of the price of 1 sqm of a flat, while the opposite situation was noted in Katowice agglomeration, Cracow and Poznan. Only in Gdansk the increases of transaction prices and rent rates were similar and amounted to 38% and 35%, respectively. And those increases were the highest among all analysed agglomerations.

In Q3 2019 the average transaction prices of dwellings increased by over 4% in Bialystok (an increase in the average transaction price per 1 sqm by PLN 198, i.e. 4.20%) as well as in the capital city, where the average price amounted to PLN 8 790/ sqm and was higher by PLN 342, i.e. 4.05% than in previous quarter. In relation to the same period of 2018, recorded increases in the average transaction price per 1 sqm of dwelling amounted to almost 10%.

Is the new, higher level of banks’ lending activity, observed in the second quarter of this year sustainable? Too many factors today is difficult to assess, both those threatening the development of the housing loan market (economic downturn, increase in housing loan costs and limited availability of loans due to CJEU ruling, increase in interest rates in Poland) as well as those conducive to its development (new technologies in the banking sector, development of mortgage banking and mortgage bonds, a fixed rate loans, continuous income growth). Especially in the context of the vague exposé of the newly elected Prime Minister.

In the election campaign, the government of a ‘good change’ assured that an element of his policy would be ‘rapid construction of dwellings for rent under the Flat Plus Programme’. Unfortunately, not too much has left of the National Housing Programme announced by Prime Minister Beata Szydło 4 years ago. What is more, the Prime Minister Mateusz Morawiecki did not refer to housing at all in his exposé. The Prime Minister announced rather a continuation of existing activities in the next four years, both in the economic and social sphere. Social programmes and infrastructure projects initiated in the previous term are to be continued.

In the expose, Prime Minister Mateusz Morawiecki informed about the success, saying: ‘In the period from 2011 to 2014, approx. 143 thousand dwellings were completed on average per year. In 2017-2020 it will be over 200 thousand apartments. Our National Housing Programme, of which ‘Flat Plus’ is part, creates new perspectives.’ It is a pity that neither with banking nor development sector, which are the authors of this success, conditions and costs of these ‘new perspectives’ were consulted!

We will discuss together about prospects and possible scenarios for the housing and mortgage markets during the 16th Congress of Housing Finance, which will take place on December 5-6, 2019. You’re welcome! This year’s Congress will also be an opportunity to honour people particularly involved in development of specialist mortgage banks and mortgage bonds in Poland. This year we are celebrating the 250th anniversary of the mortgage bond. In Poland, after the economic transformation, the mortgage bond reactivated in 1998 is only 20 years old! But the further development of housing market in Poland depends, among others, on the development of this instrument.

Jacek Furga,Ph.D.
Head of AMRON Centre

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