AMRON-SARFiN Report 4/2016

In 2016, there were no major changes recorded on the housing market in Poland. Sale of dwellings, especially on primary market, remained at a high level and in the largest Polish cities prices confirmed clearly a slight upward trend ongoing since 2013. According to our forecasts, despite historically low interest rates, banks’ lending activity turned out to be weaker than in 2015. During the whole year 2016, 178 409 new housing loans of a total value of PLN 39.496 billion were granted, which meant a decrease by 1.61% in terms of volume and an increase by 0.45% in terms of value, comparing to the results recorded in 2015. The government actions were also not quite conducive to the development of the housing loans market. So-called ‘bank tax act’ adopted in January 2016 resulted in increase in banks’ charges and loan margins, which contributed to weaker banks’ lending activity.

Purchasers withdrew their savings from the financial market and invested in dwellings for rent and therefore a significant increase in share of cash transactions on housing market was noted. This resulted in high developers’ sales results, encouraging them to start new investments. In 2016, new record-breaking results were noted on housing market – 162 727 new dwellings were built, which was by 10% more than in 2015. Construction of 173 932 units was also started (3% more compared to the previous year) and permits for construction of 211 565 new dwellings were issued (12% more). These were the best results since 2008. Activity of developers still was concentrated in major cities, because there is the greatest demand. In smaller towns, individual building was dominated, because the plots were much cheaper and many people prefer to build a house than to buy a dwelling.

Profitability of lease – especially in Warsaw, reaching even 6% before taxation – is far higher than the returns offered by financial institutions and is one of the most significant factor that generated such a high demand on Warsaw primary market, financed both in cash and by housing loans. Also a higher sale of housing loans was recorded In Warsaw, which accounted for 41.37% of the total value of new loans, i.e. increased by 3.95 p.p. comparing to Q4 2015.

A new regulations on agricultural land trade, which entered into force in summer 2016, resulted in far-reaching consequences for both housing market and mortgage market. Reducing the mortgage value to the market value of the property meant that banks were unable to establish an adequate collateral on agricultural property and therefore suspended lending activity in this segment of the market. These regulations constituted the main reason for tightening the banks policy in the mortgage lending activity observed last year and even the rushed amendment did not mitigate the negative impact on the market. New law generated a significant decrease in number of transactions on agricultural market and no rational conditions for any changes in that matter are observed.

The number of construction permits issued and started constructions guarantees an interesting offer in 2017. Unfortunately, after several months of interest rates on historically low level it is more than probable that interest rates will increase in 2017, what may reduce the potential borrowers’ appetite. The projected increase in interest rates will result not only in a decline in the potential borrowers’ creditworthiness, but also in a lower attractiveness of residential investment for rent. On the other hand, it can be an impulse for those, who consider housing purchase, to speed up the decision on creditworthiness verification at a low loan cost.

The solutions for CHF borrowers were still under discussion. The consequences of various solutions presented in public, could in the worst case bring not only significant increases in the costs of banking services, but also limit the ability of some banks to grant new loans.

Despite the low transaction prices and historically low interest rates, we anticipate further decline in banks’ lending activity in 2017 to the level of 175 thousand housing loans of a total value not exceeding PLN 39 billion. However, it does not mean that access to mortgage loans will be more difficult. At the beginning of 2017 the obligatory borrower’ downpayment required by the Polish Financial Supervision Authority in Recommendation S has increased to the level of 20%, but formally most banks have already implemented this requirement, while offering insurance of the low downpayment to 10% of LtV ratio or accepting other mortgage collaterals. Therefore, banks’ financial requirements to potential borrowers will not increase and borrowers can still apply for a housing loan with a 10% downpayment.

The effects of the ‘Flat for Youth’ Programme on housing loans market in 2017 are not even worth mentioning. Due to the great interest of customers in the Programme observed at the beginning of 2016, some banks suspended the acceptance of new applications for loans subsidised from the funds for the current year. Practical solutions of National Housing Construction Programme accepted at a governmental meeting by the end of September 2016 and announced with great fanfare are still unknown. By now, the announcement of its implementation had no significant influence on the situation on the housing market and we do not expect it to have it also in 2017.

Jacek Furga,Ph.D.
Head of AMRON Centre

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