AMRON-SARFiN Report 4/2021
Despite continuous state of a public health emergency linked to the COVID-19 pandemic, the year 2021 turned out to be a very good, or even record-breaking time for both mortgage lending sector and housing market. Number of completed housing units reached the record level of nearly 235 thousand of flats and houses. Such results of housing construction were noted in Poland in the 70s of the last century. The total value of newly granted mortgage loans was also impressive. The amount of over PLN 86 billion was the highest ever recorded in the history of mortgage lending in Poland. It was a good time for AMRON Centre, too. AMRON database grew by over 262 thousand of new records on transaction prices and values of real estate in the pandemic times and it exceeded the level of 3,85 million of information. It is a very good result considering that in 2021 Polish banks granted approx. 256 thousand of new mortgage loans.
The second pandemic year was the time of continuation, or rather boosting of trends observed before the pandemic. Number of loans granted in 2021 was higher by over 25% than a year before. By the end of the year, the average value of a newly granted loan reached the historic level of PLN 350 thousand.
The series of NBP’s interest rates cuts decided by Monetary Policy Council already in 2020 were not without significance for such high level of mortgage lending, as it resulted with historically low interest rates on commercial loans. Together with dynamically growing inflation, low interest rates undermined the reasonability and profitability of savings on banks deposits. It may be stated that Monetary Policy Council with its decisions send Poles on shopping on housing market. Especially considering that President of National Bank of Poland has been consequently assuring the public that interest rates in Poland would be stabile for at least several following months. In the effect, at the end of 2021 the total number of active mortgage loans reached the level of 2 549 thousand and total mortgage debt of Polish households amounted to PLN 511.3 billion.
Last quarter unpleasantly surprised, particularly the group of approx. 340 thousand of fresh borrowers, who took out their mortgage loans in the period from Q2 2020 to Q3 2021. At the end of 2020 the average cost of a mortgage loan accounted for 2.49%, but at the end of 2021 it was already 4.7%, which meant an increase in a monthly instalment of an average loan for PLN 330 thousand by approx. PLN 600. What is more, three decisions of Monetary Policy Council on central bank interest rates increases, taken in October, November and December 2021, were not the last ones. We have warned against such scenarios, when we published previous editions of the Report. Fortunately this was not a disaster. Taking the decisions on granting loans, banks were obliged to analyse the creditworthiness of potential borrowers in accordance with Financial Supervisory Authority recommendations, which included the scenarios of interest rates increase by 200 – 250 basis points.
Changes to the housing market environment, including most of all several increases in central bank rates in Q4 2021, high inflation and uncertain political situation did not affect its stability. AMRON Centre’s data confirm further increases in housing prices on most of the biggest Polish markets in Q4 2021. The greatest increases were observed on Warsaw and Wroclaw markets, where growths reached the level of respectively 3.20% and 3.34% compared to values noted a quarter before. In relation to the same period of last year, the greatest increases in the average price of housing unit were recorded in Cracow – 15.85%, Wroclaw – 13.42% and Gdansk – 13.14%. The price growth in Warsaw was the lowest among the biggest Polish markets and it was equal to 9.93%.
In 2018, the nominal price of 1 square meter of a housing unit in particular cities overcame the psychological barrier determined by maximum prices noted at the peak of previous business cycle at the first half of 2008. At present, in the biggest surveyed cities the level of nominal prices is higher by 26.31% in Warsaw up to 47.87% in Gdansk, comparing to prices from 2008. But after taking into account the inflation, it turns out that in most of surveyed cities the real levels of prices are still significantly lower than in 2008.
Segment of flats for rent proved to be much more susceptible to turbulences deriving from the effects of pandemic. Q4, 2021 was the third quarter in a row, when levels of private market rent rates were increasing in all surveyed cities, moving towards to the levels recorded before the pandemic. After a period of pandemic turmoil, the market has found a balance. In most of the cities, rent rates returned to the pre-pandemic levels. In a yearly perspective, the greatest dynamics was recorded in Cracow (by 15.42%) and in Warsaw (by 13.23%). At the same time, the lowest rent rates increase was observed in Poznan (by 4.45 %).
Will the year 2022 be the time of continuation of current trends? Forecasting is difficult in current economic situation in Poland, with inflation exceeding 9%, increasing central bank interest rates and just implemented Polish Deal programme, which definitively will affect the creditworthiness of Polish borrowers. Against this economic background and in face of uncertainties related to war in Ukraine and possible implications of that conflict, also of economic nature, possible perturbations related to new, fortunately less and less aggressive versions of the COVID-19 virus, become of secondary importance.
Increase in prices of consumer goods, food in particular, but also media, make increasing prices of housing not so much incomprehensible and the need to invest savings in real estate is still observable. On the other hand, changes in income tax rules implemented within the Polish Deal programme imply the uncertainty on actual incomes, when actual incomes translate into demand on housing market. Changes in taxation will limit the net incomes of those, who earn the most, i.e. those, who usually invest in flats for rent. That may result in decrease in housing demand in that group.
Housing programmes designed as a part of Polish deal will not have a significant impact on development of Polish housing market and even smaller influence on increase in mortgage lending. Limitations and restrictions, typical for successive governmental housing programmes, including limited budget funds reserved for those programmes, will translate into maximum 1 thousand of borrowers with no down-payment. On the other hand, changes in taxation of rent incomes that introduce obligatory tax on registered income (tax calculated without deducting tax-deductible costs) will affect mainly tenants. Transitional provisions provide for keeping the other taxation rules in 2022 only by those, who used them before. Unfortunately, one should have no illusions – owners of flats for rent will not assume the entire additional costs. At least part of them will be transferred to tenants.
It is also hard to expect the great interest in building houses up to 70 sqm with no construction permit. Simplified procedure allows to shorten the period related to construction formalities and to limit the investment costs by several thousand zlotys. It is however not at all certain, whether Poles will start constructions based on new legislation on a mass scale. Previously introduces possibility to construct a house up to 35 sqm with no construction permit did not turned out to be a very popular solution.
It must be remembered that Poland, compared to other European countries, is still ranked the last or the last-but-one in terms of meeting the housing needs of its citizens. There is still high housing deficit in Poland, which means that new housing units will find buyers. Sales of flats in 2022 will be derived from the available offer on primary and secondary markets. We are still waiting for European funds, among others from the reconstruction fund, which shall assure the stability of employment, crucial for consumers when taking decisions on huge spendings or long-term liabilities.
The most probable scenarios for the nearest months on housing market include further increases in prices of flats, houses and plots of land, but with visible slowdown by at least half of the increase noted in 2021, with simultaneously weakening demand already announced by visible decrease in number of new mortgage loan applications recorded at the end of 2021. Negative real interest rates still remain important factor influencing further housing demand, as they still make investing in real estate profitable.
Indicators, which will slow the increasing trend on mortgage lending market, are:
- expected further increases in central bank interest rates, which will translate into increase in mortgage loans costs;
- probable tightening the mortgage lending criteria by banks;
- worsening housing availability accompanied by housing prices increases faster than increases in households’ incomes;
- uncertain stability of the borrowers’ revenues in face of constant changes in rules introduced by the Polish Deal programme.
In the second decade of the twenty-first century, after the subprime crisis, AMRON Centre defined a so-called “organic annual level of mortgage lending in Poland” accounting to 180 thousand of new mortgage loans of a total value amounting to approx. PLN 40 billion. If the mortgage market stabilises in the following years, the new “organic annual level” will be the number of approx. 200 thousand of new loans of a total value of approx. PLN 65-70 billion.
For many years, Polish Banks Association has been recommending launching in Poland financial solutions and instruments that in neighbouring countries allow to satisfy the citizens’ housing needs in far more effective way. Systemic, long-term and common means are necessary. We must understand the sense of common effort and accept the fact that public funds are involved in solving housing needs of the society. In our all interest. But these actions must be effective, constructive and strengthening the trust to the State and the community.
National housing programmes appeared in many countries as a remedies for overcoming the economic crises. We presently face the unique opportunity to bring order to the mortgage lending market and to convince the borrowers to the fixed-rate mortgage loans, as well as to launch the system of a contract fixed-rate loan in the formula of saving-building banks (bausparkassen) or last but not least – to finally outflow the process of mortgage bonds emission and trade, which has been ailing for last 25 years. There are many ways to fuel the development of housing construction, which should and might be a driving force for the Polish economy. If only those, who are responsible for Poland’s development, would be interested to do so.
Efficient system of financing the housing construction is the only basis for the success. Since Poland’s accession to European Union in May, 2004, the only effective and sustainable instrument that guarantees the housing construction development is the mortgage loan, including the loan denominated to Swiss francs, which enabled almost 3 million of housing investments.
Housing policy of the government should assure the availability of flats for rent, but it must not impose that option. Inspiring and supporting the property ownership aspirations is in the best interest of both the national economy and the prosperity of particular citizens. In highly developed economies, housing ownership is a very significant element of the pension system.
Jacek Furga,Ph.D.
Head of AMRON Centre
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