Archives: Raport Amron-SARFiN

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

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

Fortunately, both Polish society and Polish economy, in particular the housing market, were treated quite gently by the pandemic. After a suspension of activity on the housing and loan market at the end of March and especially in April, resulting mainly from government restrictions of personal mobility, the activity of market participants has slowly reactivated in the following months. The postponed buyers’ decisions on the housing purchase, especially on secondary market, resulted from the common expectations for a significant reduction in transaction prices.

Indeed, the number of transactions concluded in the second quarter was much lower. This decline amounted to 64% on primary market in comparison to the previous quarter. The situation on the housing loan market was much better. The number of housing loans granted in the second quarter of 2020 exceeded the level of 45 thousand, so it was lower by ‘only’ 20% than in the previous quarter, and the decrease in the total value of newly granted loans amounted to almost 19%. Certainly, three reductions of the basic interest rates by the Monetary Policy Council were a significant incentive to apply for a loan. The reference rate at the level of 0.1%, on one hand, prompted borrowers to reach for a cheap housing loan, and on the other hand, eliminated the chance of any profits from bank deposits, which additionally encouraged to invest in real estate.

Preliminary results of July confirm growing trend both in mortgage lending and in developers’ investments, which justifies a prudent forecast of total results for the end of the year 2020. This year will definitively be underperforming, comparing to the record-breaking year 2019, but a decline in the value of the lending will be probably defined as a single-digit result, while the drop in its volume may account for 12% up to 15%, compared to the results recorded last year.

After April stagnation , in the following months housing market gradually returned to high activity. Ultimately, in the entire second quarter of 2020, the number of dwellings completed was lower by only 4.5% in relation to the previous quarter. The number of constructions started decreased by less than 10% and the number of construction permits issued increased by 5.9% comparing to the first quarter of 2020.

However, common expectations for significant decrease in transaction prices have not been met. Perhaps price decrease will be observed in the coming months on secondary market, as a result of flippers’ activity reduction. Yet, generally, in the second quarter of this year transaction prices on both markets were still increasing, but slower than before. Moreover, in two of the eight analysed locations even slight decreases in the average transaction price of 1 sqm of floor area were recorded. In Wroclaw, the average transaction price of 1 sqm amounted to PLN 7 064/sqm and was lower by 1.34% in relation to the previous quarter , and in Cracow – – PLN 7 873/sqm, what represented a drop by 1.19%, . The highest increases were recorded in Lodz and Katowice agglomeration – by 3.67% and 4.34% respectively. In Warsaw the average price was slightly higher than 1%.

The increase in the average rent rate for private dwellings was symbolic in the second quarter – on average by 0.5% in relation to the previous quarter. However, the number of new rent agreements was not representative. We also do not have a chance to monitor rent cuts that took place in April and May, as well as the growing number of vacant dwellings.

The first months of the coronavirus pandemic changed the situation in many areas of Polish economy. The banks’ requirements for clients applying for housing loans has also changed. As a consequence, prudential regulations that refer to banks may result in postponing the moment when the most important social need of many Polish families, which is their own housing, is satisfied. Short-term government interventions are necessary, but it seems even more important to use the housing development programme as a way to overcome the crisis.

Pandemic perturbations in the economy should not justify easing the lending policy. Housing sector should be used, like in other countries, as one of the most effective economic driving forces. It directly and indirectly contributes over 8.4% of our GDP. Therefore, the government should support housing sector development, even if it would mean an increase in the current state budget expenditure, not exceeding 0.1% of GDP for decades.

Polish Entrepreneurship Council, which cooperates with Polish Banks Association, addressed an appeal to decision-makers to use the development of housing sector as the leading strategic, social and economic goal, the implementation of which may contribute to overcoming the crisis.

No state is able to assume the responsibility and obligation to provide housing by physical involvement of the governmental entities in the process of building, renting and managing those resources. The failure of the ‘Flat Plus’ Programme was the best confirmation of this view. The role of the government is to stimulate, inspire and coordinate the behaviour of the market participants in such a way, that those, who can afford it, could invest in dwellings for their own needs and for rent.

The government’s housing policy should ensure the availability of housing for rent, but should not impose such an option. It is important for the economy to inspire and support the housing ownership, which also contributes to building the well-being of citizens. Unfortunately, the government’s new ideas for solving the housing problem that have recently appeared in public communications, do not take these assumptions into account, but instead propose further experiments.

Jacek Furga,Ph.D.
Head of AMRON Centre

In Q1 2020, once again, a slight increase in sale of new housing loans was noted in comparison to the previous quarter, both in terms of number and value. In this period, banks in Poland concluded 56 453 housing loan agreements, i.e. by 1.82% more than in the previous quarter. The total value of newly granted mortgage loans accounted for PLN 16.623 billion, which meant an increase by 5.78%. This good results were noted despite the ‘freeze’ of the Polish housing and loan market in mid-March 2020. In comparison to the same period of 2019, in Q1 2020 the number of newly granted housing loans increased by 11.57%, while total value was higher by 22.26%. The average value of housing loan in Q1 2020 amounted to PLN 293 833, which was more by almost 4% in relation to Q1 2019, and in April it exceeded PLN 300 thousand.

On the other hand, the slowdown on the housing market was noticed. For reasons we have already discussed several times in previous reports, the number of constructions started decreased both in relation to the results from Q4 and Q1 2019. The number of construction permits issued and dwellings completed in Q1 2020 were significantly lower than in the previous quarter, but in comparison to the corresponding period of 2019 increases by 3 – 4% were noted. This situation does not give a chance for prices reduction. Besides, developers’ current production is sold out in more than half for the next year and a half.

In Q1 2020, the average transaction price per 1 sqm of dwelling continued to increase, from less than 3% in the largest agglomerations to almost 7% in Katowice agglomeration. In the capital city, the average transaction price in Q1 2020 amounted to PLN 9 228/ sqm and it was higher by 2.29% in relation to the previous quarter. However, in comparison to Q1 2019, the price increases were impressive – from almost 12% in Warsaw to over 25% in Katowice agglomeration and in Lodz. The price reduction may occur in 2021, mainly due to the entry into the offer of new investments, mostly built in a lower standard and less prestigious locations.

Increases in the average rent rate of private dwellings were much lower in Q1 2020, not exceeding 2% in relation to the previous quarter and 5% in relation to Q1 2019. In Warsaw, however, this increase amounted to 5.82%.

Now let’s get back to the coronavirus and its effect on the housing market. What awaits us in 2020? Despite the ‘freezing’ of the housing market in mid-March, sale of housing loans in March was higher than in February by 6.71% in terms of volume and by 9.32% in terms of value, and in comparison to the results of March 2019, increases amounted to 4.86% and 16,09%, respectively. However, effects of the pandemic were clearly visible in April and resulted in a decrease in both the number and value of housing loans granted by one-fifth in relation to March. One of the reasons for the decrease in banks’ lending activity could have been the restrictive requirement of 20% of the minimum own contribution introduced by all banks, and in some banks this requirement amounted to even 40%. Some banks used the reduction of interest rates by the Monetary Policy Council to increase the loan margin.

The pandemic resulted in a decrease of transactions’ number on the housing market, but this was mainly an effect of restrictions of personal mobility. A decrease in the number of transactions decreased by approx. 50%. This particularly affected secondary market because developers have moved part of the sales process to the Internet. The problem was however arranging a date with a notary. Some offices were closed and others shortened working hours, so it may mean that those interested in purchasing the flat did not cancelled shopping, only postponed it.

The significant impact of coronavirus on the long-term rental market was not yet apparent. However, this is due to the fact that spring months are not a period of high activity on the rental market. We will have to wait for the effects until traditionally the most active period on this market, i.e. September. The lower availability of housing loans should cause greater interest in renting. According to market analysts, in the scale of the whole market, rent rates should not decrease significantly and rather quickly return to the upward trend.

The coronavirus pandemic brought uncertainty and anticipation on the housing market. Today, it is impossible to answer the question about the future. To create such forecasts you need current, reliable data on what is happening on the real estate market. That is why I invite developers, real estate agents, property appraisers and other real estate market participants to cooperate directly with AMRON Centre.

I would like to emphasize very good cooperation between the banking sector and developers. Polish Banks Association together with Polish Association of Developers, organizes regular webinars with the participation of 70-80 representatives of banks and developers, where we discuss problems and ways of solving them on an ongoing basis. We also exchange opinions and numbers regarding the current situation on the housing market.

For several years after the previous crisis on the real estate market, we have used the concept of ‘organic level of lending’ in Poland. Regardless of whether governments launched a housing programmes or not, the banking sector generated at least 180 thousand housing loans each year for a total amount around PLN 40 billion. It is difficult to assess at the moment how long the current ‘freezing’ of the economy will last, but I am convinced that the results of this year’s banks’ lending activity, despite the disturbances caused by coronavirus, will be definitely higher than this organic level.

Jacek Furga,Ph.D.
Head of AMRON Centre

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

According to signals coming from developers’ sector, the primary market is stabilizing (read: decelerating). However, the newest data published by the Central Statistical Office confirmed the good situation on the housing market in Q3 2019. During this period, 51 021 dwellings were completed and construction of 63 052 apartments was started, which was more by 8.31% and 2.50% respectively in comparison to the previous quarter. At the same time, construction permits were issued for 71 736 housing units, which meant that the record-breaking result from the previous quarter was repeated. The results of the first three quarters of 2019 suggest that 2019 may be another record-breaking period in the construction activity of developers’ sector.

Banks have indicated tightening of the mortgage lending criteria, the loan margins were systematically increasing, but the sale of housing loans recorded in the first three quarters of 2019, reaching the level of 87% of the previous year’s result, allows to forecast that a record-breaking results of mortgage lending in 2019 will be announced in the next few weeks. The number of newly granted loans will exceed 220 thousand, while total amount of new loans will reach the level of PLN 60 billion, which will be a record-breaking amount in the history of the Polish banking sector. This is mainly the result of a systematic increase in the average value of a housing loan, which in Q3 2019 exceeded PLN 282 thousand.

In Q3 2019, an increase in both the number and the value of new housing loan agreements was noted. The total number of newly signed loan agreements amounted to 59 707, while the value of newly granted mortgage loans accounted for PLN 16.874 billion, which was a record-breaking result. Banks’ results were also higher in comparison to analogous period of the previous year – by 14.71% in number and by 24.34% in value. The level of banks’ lending activity in Q3 2019 was the highest in 43 quarters.

The increase in prices resulted in decrease in the average floor area of purchased dwellings. The average floor area of flats that were traded in Q3 2019 in the eight largest Polish agglomerations amounted to 53.51 sqm

Accelerating growth in lending, which also translates into faster increase in transaction prices, makes analysts concerned. In recent weeks I have had several opportunities to participate in discussions at conferences and congresses on the housing market. All participants in these debates confirmed that the boom on housing market observed since the beginning of 2013 is justified by macroeconomic indicators, but there was a sense of uncertainty. Higher loans are supported by the growth of the Polish economy and rising salaries and this is what makes increasing housing prices acceptable. Price increases were not only due to more expensive building materials, increasing prices of building plots and labour costs. Decreasing supply on primary market and the opinion, perhaps consciously created by developers, that this offer will decrease, was a new factor. What is more, the President of National Bank of Poland has systematically declared that as long as he holds his office, NBP’s interest rates held at a record low level since March 2015 will be maintained.

However, increase of transaction prices and rent rates is puzzling. I decided to sum up the effects of the government’s ‘good change’ on the housing market. I will not summarize the results of the ‘Flat Plus‘ Programme, because there is not much to write about. So I will only present how the housing market responded to this Programme, or rather to dwellings created by the government. Over the past four years, in 7 agglomerations monitored by the AMRON Centre, housing prices have increased on average by 21.5% and rents by 20.5%. However, the differences in particular agglomerations were really high. In Warsaw, Wroclaw and Lodz, rent increase was by 10 p.p. higher than the increase of the price of 1 sqm of a flat, while the opposite situation was noted in Katowice agglomeration, Cracow and Poznan. Only in Gdansk the increases of transaction prices and rent rates were similar and amounted to 38% and 35%, respectively. And those increases were the highest among all analysed agglomerations.

In Q3 2019 the average transaction prices of dwellings increased by over 4% in Bialystok (an increase in the average transaction price per 1 sqm by PLN 198, i.e. 4.20%) as well as in the capital city, where the average price amounted to PLN 8 790/ sqm and was higher by PLN 342, i.e. 4.05% than in previous quarter. In relation to the same period of 2018, recorded increases in the average transaction price per 1 sqm of dwelling amounted to almost 10%.

Is the new, higher level of banks’ lending activity, observed in the second quarter of this year sustainable? Too many factors today is difficult to assess, both those threatening the development of the housing loan market (economic downturn, increase in housing loan costs and limited availability of loans due to CJEU ruling, increase in interest rates in Poland) as well as those conducive to its development (new technologies in the banking sector, development of mortgage banking and mortgage bonds, a fixed rate loans, continuous income growth). Especially in the context of the vague exposé of the newly elected Prime Minister.

In the election campaign, the government of a ‘good change’ assured that an element of his policy would be ‘rapid construction of dwellings for rent under the Flat Plus Programme’. Unfortunately, not too much has left of the National Housing Programme announced by Prime Minister Beata Szydło 4 years ago. What is more, the Prime Minister Mateusz Morawiecki did not refer to housing at all in his exposé. The Prime Minister announced rather a continuation of existing activities in the next four years, both in the economic and social sphere. Social programmes and infrastructure projects initiated in the previous term are to be continued.

In the expose, Prime Minister Mateusz Morawiecki informed about the success, saying: ‘In the period from 2011 to 2014, approx. 143 thousand dwellings were completed on average per year. In 2017-2020 it will be over 200 thousand apartments. Our National Housing Programme, of which ‘Flat Plus’ is part, creates new perspectives.’ It is a pity that neither with banking nor development sector, which are the authors of this success, conditions and costs of these ‘new perspectives’ were consulted!

We will discuss together about prospects and possible scenarios for the housing and mortgage markets during the 16th Congress of Housing Finance, which will take place on December 5-6, 2019. You’re welcome! This year’s Congress will also be an opportunity to honour people particularly involved in development of specialist mortgage banks and mortgage bonds in Poland. This year we are celebrating the 250th anniversary of the mortgage bond. In Poland, after the economic transformation, the mortgage bond reactivated in 1998 is only 20 years old! But the further development of housing market in Poland depends, among others, on the development of this instrument.

Jacek Furga,Ph.D.
Head of AMRON Centre

The situation on housing market is getting to be interesting. For several quarters, analysts and market observers have predicted that the number of construction permits issued and dwellings completed by developers ware to steadily decrease and developers’ sale results would be weaker. And market seemed to confirm that predictions. On the other hand, banks began to be more cautious about housing lending and therefore a slight increase in loan margin was noted. Dwellings prices also increased but it was not the result of limited supply. And now, in the middle of summer, despite the holiday season, housing market caught a second wind, perhaps due to unprecedented heat.

The results of banks’ lending activity in Q2 2019 were the highest in 42 quarters. The value of new loans amounted to PLN 16.5 billion and reached the level of Q3 2008 – the last quarter before the subprime crisis reached Poland! The number of loans granted was also record-breaking – 59 thousand loans, which was the highest in 31 quarters. But in Q3 2011, total value of new loans was by 22% lower and amounted to PLN 12.77 billion. This shows how much the average value of housing loan increased over those 8 years, which resulted from increasing housing prices, but ensured by increasing salaries.

On the other hand, according to NBP’s data, more and more people decide to buy an apartment for cash. The percentage of customers buying dwellings on primary market without a loan has already exceeded 50%. The reasons for the increase in the number of cash transactions on the housing market are lower interest rates and rising inflation. What is more, according to President of NBP, further interest rate cuts are possible.

The construction market also surprised. The increase in the number of construction permits issued in Q2 2019 amounted to almost 25% comparing to the previous quarter and it was the best result since the beginning of statistics recorded by Central Statistical Office. The number of constructions started increased in the period from April to June by almost 15%, while the number of dwellings completed remained at the level from the previous quarter. In the first half of 2019, developers competed 58 765 dwellings, i.e. by 22.06% more than in the same period last year.

The number of transactions was diminishing, but prices were increasing. Developers seem not to be troubled, as sales results were satisfying. The decrease in supply mainly resulted from lack of building plots and construction workers. In Q2 2019, an average transaction price of 1 sq.m. of floor area was higher than the value recorded in the previous quarter in all analysed locations. The highest increase was recorded in Katowice agglomeration – by 6.34% and in Lodz – by 6.29%.

The prices increase resulted in decrease in the average floor area of purchased dwellings to 53 sq.m. The largest apartments were traded in Wroclaw, where the average area of the premises was 56.72 sq.m. The largest apartments were traded in Wroclaw, where the average floor area accounted for 56.72 sq.m., while the lowest average floor area of dwellings was recorded in Cracow (50.01 sq.m.).

Is the recovery on the housing market in Q2 2019 was just a last-minute effect, or was it a players mobilization in extra game time? The next quarter will provide the answers. It is difficult to forecast the results of banks’ lending activity at the end of 2019 at the moment. My forecast from three months ago that the volume of this year’s lending will be higher than a year ago is confirmed, but the surplus scale may be surprising! I did not believe, however, that it would be possible to repeat the number of loans granted a year ago. One more such quarter and my faith in this area may suffer.

The parliamentary elections are approaching, so it is worth summarizing the effects of the housing policy of the last four years. The number of dwellings completed under the ‘Flat Plus’ Programme is disappointing. However, the effects of the government’s promotion of housing for rent are noticeable. The market is developing very well. Over the last four years, market rents for dwellings increased by 33% in Lodz, by 27% in Wroclaw, by 26% in Warsaw and Gdansk, and by over 8% in Cracow and Poznan. These increases were, among others, the result of transaction prices increases, which in the last four years ranged from 34% in Gdansk to 15% in Warsaw. This is a really good change, but only for those, who purchased flats for their own needs or for rent, just after announcing the assumptions for the ‘Flat Plus’ Programme in January 2016.

Jacek Furga,Ph.D.
Head of AMRON Centre

The Polish households financial security increased, although it was built on government declarations and social transfers. On the other hand, the media created the image of investing in dwellings for rent as attractive. That is why the atmosphere on the residential investment market has still been warmed up. In addition to buyers looking for dwellings for short-term rent, the new group of investors in house flipping has emerged, looking for the cheap dwellings in poor condition on secondary market for renovation in order to quick resell. What is more, the housing loan availability in Poland increased and the President of NBP declared the stability of low interest rates. The dynamically growing average value of a housing loan was a clear confirmation of the growing availability of mortgage loans. On the other hand, a weakening developers’ enthusiasm for starting new investments encourages to accelerate the decision to invest in a flat. The number of construction permits issued was systematically decreasing, but it meant a return to normality after the construction boom period, rather than a rapid collapse on the housing market. Signals from the developers sector showed that the sale of new dwellings was over 11% lower than a year before. Developers’ activity in the following quarters may be affected – rather in negative way – by a new Developers’ Act, which will charge developers with a contribution to the Development Guarantee Fund.

In the first quarter of 2019, over 50 thousand housing loans were granted for a total amount of over PLN 13.5 billion – it was a slightly weaker result in comparison to the previous quarter.

Price increases on the housing market continued, although a slowdown in growth was noticeable. In the first quarter of 2019, the average transaction price per 1 sq.m. of floor area of dwelling in Katowice agglomeration even decreased and in Gdansk it did not change. However, in relation to the analogous quarter of 2018, the average price per 1 sq.m. of a flat increased in all analysed locations by 5-10%. The growth rate of the average dwelling rent also decreased.

What will be 2019? After three years of the high-sounding announcements of the National Housing Programme, the results so far have been disappointing. Initial declarations by the co-authors of the Programme about the planned number of completed dwellings have been quickly reduced and the time perspective was extended! In Autumn 2019, the voters will decide indirectly about the Programme’s future.

Although the number of newly granted housing loans was slightly, but systematically decreasing on a quarterly basis from the first quarter of 2018, at the same time the average value of mortgage loan was increasing, therefore the result of 2019 at the level of 200 thousand newly granted loans for a total value higher than in the previous year, i.e. exceeding PLN 55 billion, is possible to achieve.

Jacek Furga,Ph.D.
Head of AMRON Centre

Most observers and analysts were surprised by the results on both housing and loan markets in 2018. Everyone was counting on continuation of positive trends, but the results at the level of those from the period before the last crisis started concerns about the near future of the housing market, in particular the risk of the housing transaction prices collapse.

In 2018, 212 596 new housing loans with a total value of PLN 53.852 billion were granted in Poland, which was more respectively by almost 12% and 21% in comparison to the previous year. This meant that the results of banks’ lending activity in the previous year were the best since 2011 in terms of number, while in terms of value it was the third result in history after the year 2007 and 2008. The AMRON Centre forecast announcing a lending result in 2018 at a level exceeding 200 thousands of active loans with a total amount of over PLN 50 billion was fulfilled. At the end of 2018, total number of active housing loans amounted to 2 246 296 and total value of households debt due to active housing loans accounted for PLN 415.158 billion.

In 2018, as in previous years, the situation on real estate and housing loans markets resulted from the good economic situation in Poland, rising wages and incomes’ increasing purchasing power, as well as historically low NBP’s interest rates, maintaining the low level of housing loans costs and encouraging private investors to look for other options than bank deposits to invest their savings.

In 2018 another record-breaking results on the housing market were recorded. 184 783 dwellings were completed, the construction of 221 907 dwellings was started and permits for construction 257 072 apartments were issued. Even in 2007 – 2008, such good results were not noted. All this despite the same barriers as occurred in the previous year – a systematic and dynamic increase in the prices of building plots and growing costs of housing construction, both in terms of materials and labour.

Housing prices continued to increase. Throughout 2018, the growth rate of average housing prices was, however, diversified and in most of analysed cities clearly slowed down in its second half. Among the major Polish agglomerations, the largest increase was recorded in Gdansk, where the average price per 1 sq.m. of dwelling was in Q4 2018 higher by 10.49% than a year earlier.

What can be expected in 2019 on the housing market? Three years after publication of the National Housing Programme, the slogan ‘Flat Plus’ has become less frequent both in media and in politicians’ statements . It is very unfortunate that proposals of alternative solutions presented by Polish Banks Association for three years did not attract any interest from the government.

Decrease in sales on housing market confirms that after the experience of the previous crisis, developers try not to heat up the situation, but calmly distribute and introduce new dwellings on the market, not in such a number and not as fast as they used to do. Therefore, prices are stabilizing and investors are holding out on purchases and wait for declines. A drop in demand is also noticeable. Thus, a slowdown in price growth may be expected or perhaps even a slight price correction in 2019, what would be good this market.

Unless we are facing dynamic political changes in the coming months, including regulatory and economic changes on the housing market, the situation should be shaped primarily by the economic slowdown (which will affect the demand for housing) and rising production costs on the supply side, resulting from the planned new regulations and the situation on building plots market, as well as the construction sector’s standing. 2019 will probably be the most difficult period for developers compared to few last years. In the largest Polish agglomerations, a weakening dynamics of housing prices increases and a further lowering of trade volumes may be recorded. Also banks were signalling a slight tightening of lending policies in the housing loans segment, whilst at the moment the banks’ pricing policies seem not to confirm it.

Anyway, repetition of last year’s results in 2019 is rather improbable, both in scope of new housing investments and banks’ lending activity. Will we ever hear about the ‘Flat Plus’ Programme? I leave this question open.

Jacek Furga,Ph.D.
Head of AMRON Centre

According to declarations and signals coming from the developers’ sector, the primary market is stabilizing (read: decelerating). This was not jet confirmed by GUS data, which does not signal the reversal of the upward trend in housing investments for now. Although in relation to the previous quarter, the number of constructions started by developers decreased by almost 5% and the number of issued construction permits by 8%, but in relation year-to-year, both indicators showed an increase by over 30%. The results of the first three quarters of this year suggest that 2018 may be another record-breaking period in the construction activity of developers’ sector.

Banks have also signalled tightening the mortgage lending criteria, but the sale of housing loans recorded in the first three quarters of 2018 at 85-90% of the previous year’s result allow to forecast that a record-breaking results of mortgage lending in 2018 will be announced in the next few weeks. After 8 years, the number of newly granted loans will exceed 200 thousand, while total amount of new loans will reach the level of PLN 50 billion – this level has not been recorded for 10 years, i.e. since the beginning of the subprime crisis.

The average value of a housing loan was systematically increasing and in the third quarter this year it exceeded PLN 260 thousand. On one hand, good macroeconomic conditions in Polish economy and rising wages were conducive to higher loans amounts , but on the other hand this phenomenon has been forced by constant increase in housing prices and growing demand for larger floor area of dwellings. However, increases in housing prices were forced by fast-increasing prices of building materials and construction plots and, above all, higher labour costs in the construction sector. All this was driven by increased housing supply responding high demand , favoured by low-cost mortgage loans. And the whole system of gear wheels has been working well, with no  hiccups so far. All gear wheels rotate in the right direction. However, there is a question whether this system will start slowing down in the same harmonically way or one of the modules will suddenly stop and the others will break down?

The anxiety of some analysts was caused by the fact that the transaction prices of dwellings on primary market returned to the level from before the subprime crisis. The rate of prices increase was high especially in the last year. Comparing to Q3 2017, in all analysed locations an increase in the average transaction price of 1 sq.m. of floor area was noted – from almost 13% in Gdansk, through 9% in Katowice agglomeration, to 6% in Wroclaw. The rent rates for dwellings also increased. The biggest changes in the last 12 months were recorded in Warsaw (an increase by 10.07%), Gdansk (by 11.90%) and Lodz (by 12.79%). In other cities, rents increased by approx. 4%. However, the market in general seems to be optimistic. Poles supported with mortgage loans or cash, successfully implement the informal programme ‘Flat for rent’, introducing new apartments on the market.

The number of taxpayers offering at least one dwelling for rent increased from 532 thousand in 2013 to 611 thousand in 2015. According to the estimations by the Polish Residential Landlords’ Association ‘Mieszkanicznik’, this number currently exceeds 650 thousand people. The number of people earning only rental income has also been growing rapidly – in 2013 it amounted to 25 thousand people, and currently exceeds 50 thousand. It’s hard to be surprised. According to the monitoring of the AMRON Centre, rent rates were increasing in the last 4 years much faster than the transaction prices of flats.

Jacek Furga,Ph.D.
Head of AMRON Centre