AMRON-SARFiN Report 3/2020

After a significant slowdown in activity on the housing and mortgage markets in the second quarter, resulting mainly from government-imposed restrictions on personal mobility, the third quarter of 2020 saw a return to an upward trend in both the construction and credit markets. Compared with the same period of the previous year (Q3 2020 / Q3 2019), mortgage lending results were – understandably – weaker. The number of loan agreements concluded was 18.3% lower, and their total value decreased by 16.2%. However, compared with the previous quarter, growth amounted to nearly 8% in terms of the number of loans and 5% in terms of value. A significant incentive to take out mortgages was the assurance given by the President of the National Bank of Poland that at least until the end of 2022 the Monetary Policy Council would not decide to raise key interest rates. The reference rate at the level of 0.1% both encourages households to take advantage of cheap mortgage credit and eliminates the possibility of earning any meaningful returns on bank deposits, which further prompts investors to allocate their savings to real estate.

Mortgage lending results after three quarters—nearly 151 000 loans granted with a total value exceeding PLN 44 billion—allow for an estimate of year-end results assuming a decline in value of 6–7% and a decrease in the number of new loans by 11–12% compared with the record year 2019.

The residential investment market rebounded dynamically in the third quarter of 2020. Compared with the second quarter, the number of dwellings completed increased by 24%, the number of building permits issued rose by nearly 11%, and the number of housing starts surged by as much as 42% compared with Q2 2020. These figures also represent significant increases year on year relative to Q3 of the previous year. The only exception was the number of building permits obtained, which was nearly 3% lower than a year earlier.

There are still no signs that the expectations of potential homebuyers for significant declines in transaction prices will be met. In the third quarter of 2020, increases in average transaction prices of residential units were recorded in all surveyed locations, ranging from 3.53% in the Katowice agglomeration to 1.65% in Białystok. The average transaction price in Warsaw in Q3 2020 amounted to PLN 9,568 per square meter and was 2.54% higher than in the previous quarter.

Compared with the same period of 2019, the largest increases in average housing prices were recorded in the Katowice agglomeration and in Białystok—by 22.73% and 15.31%, respectively. In Warsaw, prices rose by 8.86%.

The rental market has behaved differently. In all surveyed locations, a decline in average rental rates was recorded during this period, with the deepest drops observed in the two largest markets in Poland. In Warsaw, the average rent for an apartment in Q3 2020 was 8.43% lower than in the previous quarter, while in Kraków it was down by 9.56% quarter on quarter.

Despite the considerable dynamics of changes taking place in the rental market—primarily in rental rates—it should be expected that these changes will be temporary and relatively short-lived.

Residential construction can and should be used, following the example of other countries, as one of the most effective engines of economic growth. Directly and indirectly, it accounts for more than 8.4% of Poland’s GDP. It should therefore be in the interest of the state to support its development, even if this were to entail an increase in current government budget expenditures, which for decades have not exceeded 0.1% of GDP.

In the previous report, I mentioned an appeal by the Polish Business Council – whose activities include the Polish Bank Association – addressed to the government, calling for the development of residential construction to be used as a leading strategic, social, and economic objective, the implementation of which could support recovery from the crisis. The response received a few days ago from Deputy Prime Minister Jarosław Gowin is shocking. It contains no reference to any of the proposed systemic solutions for the stable development of housing in Poland and its financing by the banking sector. In the government’s assessment, there is no housing problem in Poland, and the measures taken by the government and successive legislative initiatives—continuing the implementation of the National Housing Program of 2016—guarantee the continued positive development of this situation. Ms. Anna Kornecka has joined the government as Deputy Minister and will be responsible for the housing sector. We hope there will be an opportunity to discuss the proposals put forward by the Business Council.

So far, the most effective instrument for implementing housing policy in Poland since the beginning of the economic transformation has been bank mortgage lending, including foreign-currency (Swiss franc) loans, which made it possible to carry out nearly 3 million housing investments.

And what awaits us in 2021? No one knows. The risk of a credit “crunch” is growing. The unreflective automatism of Polish courts in invalidating Swiss franc–denominated mortgage loans generates the risk of a collapse of the banking sector and undermines any economic and market principles on which the banking sector operates. Will banks be able to finance the housing needs of Poles in the coming years? This is a question that should be considered by the Financial Stability Committee.

Jacek Furga,Ph.D.
Head of AMRON Centre

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