AMRON-SARFiN Report 4/2020
Despite the pandemic threat, the year 2020 turned out to be a good, or even very good year both for the mortgage loan sector and the housing market. The record number of completed flats and single-family houses reached 222 000 units. Such results were achieved by housing construction in the seventies of the last century! Total value of mortgage loans granted in this pandemic year was also impressive. With total amount exceeding PLN 60 billion, banking sector achieved the second lending result in the post-transformation period. It was also a good year for the AMRON Center. During the pandemic period, AMRON database grew by over 212 thousand new records on transaction prices and property valuations, exceeding the level of 3.5 million records in total. This is a very good result, especially taking into account that in 2020 banks granted over 204 thousand mortgage loans.
The first shock caused by the pandemic brought a sharp decline in demand for housing loans observed between March and May, but a gradual recovery started already in August. After tightening the terms of granting housing loans in the first months of the pandemic, in a second half of the year banks began to ease their lending policy criteria. In comparison to 2019, the number of applications for a housing loan submitted in 2020 decreased by only 0.6% and the number of granted loans was lower by 9.3%. It is worth emphasizing that this type of loan recorded the lowest decrease in demand compared to all loan products. At the end of the year, the average value of a granted mortgage loan reached a historic record level of PLN 305 thousand.
One of the most important factors determining such high lending results was a series of National Bank of Poland interest rates cuts, introduced by the Monetary Policy Council on March 18 (to 1.0%), April 9 (to 0.5%) and May 29 (to 0.1%). Combined with still disturbing level of inflation and money reprinting announcements that limit the confidence in its future value, such low interest rates questioned the profitability and reasonability of saving money on bank deposits. Therefore, it can be said that the Monetary Policy Council, with its decisions, sent Poles for shopping, including, and perhaps most of all, for purchases on the real estate market. At the end of 2020, total number of active housing loans reached the level of 2 472 thousand and the total debt on this account amounted to PLN 476.3 billion.
The year 2020 brought a dynamic increase in share of housing loans granted in the largest Polish agglomerations. At the end of the year it amounted to 73.46% and was higher than in the previous quarter by as much as 6.31 p.p. The share of Warsaw market in the structure of all newly granted loans in Poland in geographical terms reached a record level of 49.44%. Compared to the corresponding period of 2019, Warsaw’s share in the mortgage loan market was higher by as much as 10.46%.
At the end of 2020, the average mortgage loan margin accounted for 2.28%, i.e. by 0.18 p.p. higher than at the end of 2019. As a result of a significant reduction in interest rates by the Monetary Policy Council, the average interest rate of a mortgage loan at the end of 2020 was equal to 2.49%, i.e. it was lower by 1.33 p.p. compared to the end of 2019.
Despite the second wave of the COVID-19 pandemic and related restrictions, as well as pessimistic information from the rental market, housing markets in the largest Polish cities remained stable. The situation in the fourth quarter of 2020 was shaped by the same factors as in previous periods, which include first of all cheap mortgage loans, no alternative means of money investing and high price availability of apartments. However, the AMRON Centre data show that the fourth quarter of 2020 brought a clear decrease in the dynamics of price increases in most of the analyzed markets. In case of five of them (Katowice agglomeration, Wroclaw, Gdansk, Poznan and Lodz), change in the average price per square meter of a flat did not exceed one percent. Warsaw was the leader in terms of price increase – an average price per a square meter of a flat in Q4 2020 was PLN 10 081 i.e. by 5.36% higher than recorded a quarter earlier. The largest decrease in the average price, by 1.44%, was recorded in Cracow (to the level of PLN 8,015). Compared to the numbers recorded at the end of 2019, the largest increases in the average price of flats were recorded in the Katowice agglomeration and Lodz – by 15.52% and 12.19%, respectively. In Warsaw, the average price rose by 11.75%.
If any segment of the real estate market has suffered from the coronavirus pandemic, it certainly was the segment of apartments for rent. A year ago, the expected return on rent exceeded 6% annually. Today, the level of 3% seems to be satisfactory. Introduction of remote classes at universities and remote work by a large number of companies, restrictions in tourist traffic and – as a consequence – decrease in demand for short-term rent are the most important factors that determined the rent rates reductions. Decreases started already in the second quarter of 2020 year, deepened in the third quarter and slowed down at the end of 2020. The fourth quarter of 2020 brought reductions in private rent rates in all analysed cities. The average rent for a flat in Warsaw in the fourth quarter of 2020 amounted to PLN 1 666 and was lower than in the previous quarter by 2.83%. The deepest decline was recorded in Cracow and Gdansk. In Gdansk, the decrease in the average rent accounted for 4.34%, while in Cracow – 4.95%. Cracow market seems to be the most affected by the difficult situation on the rental market. This is because of the very high number of absent students, as well as the large number of flats available as short-term tourist accommodation. In annual terms, the decrease in the average rent in Cracow amounted to 16.05%.
Will 2021 be a period of continuation of the current trends? Forecasting for 2021 are of course extremely difficult. Any forecasting attempt should be taken with great reserve, as there are so many variables that can affect the market make.
In AMRON Centre’s opinion, transaction prices per square meter will continue to grow this year, although at a much slower pace than in 2018-2019 years. The price increases will also result from higher construction costs, caused among others by the new energy efficiency requirements for buildings. In addition, supply will be under pressure due to still difficult situation on the building land market. On the other hand, rents will stabilize at a lower level, adjusted in the last quarter of 2020.
The housing market remains instable. Poland is still on the last or one before last place in EU countries rankings of satisfying citizens’ housing needs. High deficit of flats is still a fact, which means that new flats will find buyers. The sale of apartments in 2021 will depend on the offer on the primary and secondary markets. Low interest rates – following the assurances of the President of the NBP to keep them unchanged in the following year – will continue to be an important factor stimulating the demand for flats. We all expect a COVID-19 vaccine that will allow us to return to normal life. We are also waiting for the inflow of European funds, including sources from the reconstruction fund, which will ensure a sense of employment stability, crucial for consumers making decisions about large expenses or incurring long-term liabilities.
On the other hand, worsening situation of banks in Poland may be a threat to mortgage lending. Banks will not be able to cope with it by themselves, as they have no influence on two the most important ones. The first is possible deterioration of repayment quality of loans granted in previous periods, caused by economy freezing, which may result in e.g. lower wages and sometimes job losses for borrowers. The labour market, however, may also revive in the event of a possible dynamic growth in the second half of 2021. The second threat, much more dangerous in terms of banks’ financial burdens, is related with possible intensification of the Swiss franc borrowers claims and continuation of the current line of adjudication by the courts in this matter.
For years, Polish Banks Association has consistently recommended the implementation of solutions and financial instruments that ensure incomparably more effective meeting the citizens’ housing needs in neighbouring countries. Systematic, long-term and universal solutions are indispensable. In our common interest we must understand the sense of collective effort and accept the commitment of public funds to meet housing needs. But these must be effective measures that build and strengthen confidence in the state and community.
The government’s housing policy should ensure the availability of rental housing, but should not impose such an option. It is in the interest of the economy, but also in building the well-being of citizens, to inspire and support the pursuit of housing ownership. In developed economies, housing ownership is an important element of retirement benefits.
In the middle of last year, Polish Banks Association together with the Entrepreneurship Council, addressed Prime Minister Jarosław Gowin with a wide range of necessary activities that should be implemented. In the Entrepreneurship Council’s opinion, such long-term and systemic solutions will allow to improve the housing situation of Polish families and to use the housing development program both as a way to overcome the pandemic crisis, as well as one of the pillars of sustainable development and economic recovery in our country.
In many countries, national housing programs appeared as a way to overcome economic crises. At the moment in Poland it would be additionally favoured by low interest rates. This is a good time to launch a fixed-rate loan, to launch a fixed-rate contract loan in the formula of building savings banks and finally to improve the lame process of issuing and trading in mortgage bonds. There are many proven ways and mechanisms to accelerate this economic flywheel, which the housing construction can and should be. It is enough for persons responsible for Poland to have a will to implement them.
The basis for success can only be an efficient system of financing housing construction. Since Poland’s accession to the European Union in May 2004, the only permanent and effective instrument guaranteeing the development of housing construction is a bank mortgage loan, including a Swiss franc loan, which enabled the implementation of nearly 3 million housing investments.
Jacek Furga,Ph.D.
Head of AMRON Centre
Download report