AMRON-SARFiN Report 4/2019

During the whole year 2019, 225 073 new housing loans of a total value of PLN 62.629 billion were granted in Poland, which was more respectively by almost 6% and over 16% in comparison to the results recorded in 2018. This meant that the lending result in 2019 in terms of volume was the best since 2010, while in terms of value it was the best result in history. The increase in value of housing loans granted in 2019 was largely due to the growth of the average value of a loan – by almost 10%. At the end of 2019, total number of active housing loans amounted to 2 389 311, and total value of households debt accounted for PLN 443.1 billion. As in previous years, the situation on housing and mortgage markets was influenced the most by favourable economic conditions and increase in salaries, as well as record-low NBP’s interest rates, which provided low mortgage servicing costs and encouraged to look for alternative investment options for bank deposits.

Despite the prosperity on the housing loans market that has been going on for several years, the debt to GDP ratio was still one of the lowest in the EU, so further growth is still possible. Also the quality of housing loans repayment was at high and stable level.

In 2019, the Polish housing market reached a new record – 207 224 dwellings were completed, i.e. by 11.91% more than a year ago. It was the best result since 1989. At the same time, construction of 237 281 dwellings was started (by 6.93% more compared to the previous year) and 268 483 construction permits were issued (more by 4.44%). And all this despite the same barriers as last year – a systematic and dynamic increase in building plots prices and construction costs, in terms of costs of both labour and building materials.

The prices on housing market continued to rise. In this respect, Lodz was in the lead, where the average transaction price of 1 sqm of dwelling increased by as much as 19.90% during the year. Bialystok and Katowice agglomeration was also catching up with average price increases by 15.65% and 15.10% respectively. The lowest increase was noted in Poznan – by 8.41%. Price increases in Warsaw, Cracow and Gdansk amounted to approx. 12%.

On annual terms, growth of the average rent rates of flats was significantly lower than in previous quarters in all surveyed cities. The cost of renting a flat in Gdansk increased the most – by 6.96% and in Warsaw – by 5.71%. In other cities, the changes did not exceed 5%.

Due to insufficient supply on primary market, customers were looking for ‘second-hand’ dwellings, where a greater variety of products could be found, a large price range was noted, but the most important advantage of secondary market was the availability of flats ready to move in, which cannot be guaranteed by developers. The high interest in this market wad enhanced by the so-called ‘flippers’, whose activity additionally strengthened the transaction prices increase on the secondary market.

Growing prices have contributed to decrease in the average floor area of purchased dwellings. The average floor area of flats traded in 2019 in eight major Polish agglomerations diminished to 53 sqm.

The accelerating increase in lending, which also contributed to faster increase in transaction prices, gave rise to analysts’ concern. Although the economic situation on the housing market observed since the beginning of 2013 has been justified by macroeconomic indicators, some analysts explicitly warn against growing speculative and price bubble. We do not share these concerns. Mortgage lending nowadays is definitely different than it was 10-12 years ago. First of all, housing loans are currently granted at a lower level of DTI ratio. The average DTI ratio for new borrowers in 2019 amounted to 36%. Secondly, present borrowers’ approach and the nature of financed purchases differs markedly. We did not observe the irrational behaviour of market participants, but it may be worrying that the majority of loans were granted with a variable interest rate and the fact that high-value loans are potentially at higher risk of defaults, but it has always been so. Real increases in transaction prices were not as high as it was generally believed, reaching the price level of 2006, and the housing deficiency in Poland is still high.

Higher loans were supported by the growth of Polish economy and increasing salaries. This, in turn, made it possible to accept increasing housing prices, which were growing not only because of more expensive building materials, rising prices of building plots and rising labour costs in the construction sector. All this was superimposed by the declaration repeated systematically by the President of the National Bank of Poland that as long as he holds his office, the interest rate of PLN (at record-low level since March 2015) will not increase.

And what will happen in 2020? The development of the housing loan market will primarily be affected by growing housing prices. Increases are also favoured by still high demand and possible further rise in number of investment purchasers. The lack of building plots may translate into decrease in number of developers’ dwellings on stock and may be a barrier of further development of housing market, as well as changes in lending policy resulting from the probable change in the loans cycle, which will reduce the availability and therefore increase the loan price. A high concentration on the housing loan market may also be a risk, currently approx. 75% of all mortgage loans were granted by 5 banks, which meant that a change in lending policy in one of them may reduce supply. And in the period of forecasted mergers and consolidations it is not difficult to make such a move.

The opening of German border to Ukrainian citizens, who are currently the main driving force of Polish building companies may be another threat. If specialists from beyond the eastern border move to the West, labour costs may increase, significantly raising housing prices and negatively affecting the domestic real estate market.

Unless there will be no dynamic political changes in the upcoming months, including regulatory and economic changes in the housing market environment, the situation on the market will be shaped primarily by the economic slowdown, which will decrease demand for apartments gradually and in a long-term perspective. In press reports, it could be read that the government is considering introducing regulations that will make difficult to take out mortgage loans, and on the other hand the idea of second or next dwellings taxation appeared.

At the background of the dynamically developing housing market, the government’s ‘Flat Plus’ Programme, which has been implemented for more than 4 years, looks bad. And nothing indicates improvement in this area. It is difficult to assess what means the programme’s reset announced recently by the new government member – Minister of Development, but previous actions in this area suggest scepticism. The implementation of government programmes lasts so long and costs so much that the possible profit (for the whole country, for society) is lost, and before apartments are built under government programmes, the realities of the market change again and it turns out that another thousands of people cannot afford a flat, because it has become more expensive, and the programme runs out. Can Minister of Development be more effective than Prime Minister Mateusz Morawiecki, who in February 2018 personally took over the chairmanship of the Housing Council, which included 6 “full” ministers?

The government should focus on organizing the operating environment of mortgage banks, in particular preparing the capital market for the adoption of following issues of mortgage bonds, as well as on creating long-term household savings for housing purposes by launching savings and building societies. An efficient housing financing system is the basis of success. Since Poland’s accession to the European Union in May 2004, the only permanent and effective instrument that guarantees the development of housing market is a mortgage loan, including CHF loan. Without this banking offer, which has been so criticized for several years, the results noted by housing building market in the period since Poland’s accession to the European Union would have been smaller by at least 20%.

‘Flat Plus’ Programme do not develop the housing market and do not motivate to active participation in such development of those most in need. The government should not eliminate the duty of citizens to take care of and solicit their own affairs, including providing their own dwellings. Building dwellings for rent by the government and paying additional rent to those who will move into these ‘cheap, because built by the government’ flats is an aberration. It is not difficult to build cheap, but we all will bear the high costs of maintaining and operating such dwellings and negative environmental effects, for example, by funding rent subsidies for the residents of these dwellings.

No government can afford a housing free distribution. Solutions that motivate additional efforts and reduce consumption in society are necessary. It is urgent to take action to educate and promote saving and financial morality, and reliability in fulfilling commitments, including financial ones!

In order to be successful in meeting housing needs of the society, housing system, financing system and system of meeting these needs must become part of some kind of a social contract. System, long-term and common solutions are needed. We must understand the sense of collective effort and accept use of public funds for housing. In the interest of us all. But it must be effective and it must build and strengthen confidence in the government and the community.

We must remember that Poland is still on the last, sometimes next to last, place among European countries in the rankings of meeting the housing needs of citizens.

Jacek Furga,Ph.D.
Head of AMRON Centre

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