Archives: Raport Amron-SARFiN

The housing market is heating up! In the first half of the year, the results of banks’ lending activity were the best for 7 years – almost 109 thousand new housing loans were granted. The value of new loan agreements granted in Q2 2018 – in the amount of almost PLN 14 billion – was the best quarterly result since 2010. The value of household debt in Poland due to granted housing loans for the first time exceeded the level of PLN 400 billion.

The average value of newly granted housing loans in domestic currency amounted to PLN 255 861, which was more by PLN 22 250 (9.52%) comparing to the value recorded in Q1 2018. Increasing value of granted housing loans was favoured by good macroeconomic situation in Poland together with increase in housing prices and growing demand for larger dwellings.

On the primary market, a trial of strength between developers and investors in dwellings for rent was observed, which concerned dwellings prices. In Q2 2018 developers started construction of 35 631 dwellings, i.e. by 15.94% more comparing to the previous quarter. However, the number of dwellings completed and the number of construction permits issued were lower, respectively by 12.49% and 11.90%.

High demand on the residential market and growing costs of construction work and building materials led to increase in transaction prices in the largest Polish cities. In Q2 2018, a slight decrease in the average transaction price of 1 sq.m. of floor area was noted only in Bialystok – by less than 1% in quarterly terms. In other locations, the quarter’s increases at the level from 1.5% to 3% were observed.

As a decrease in supply of new investments in the largest cities was observed, caused by suspension of investment and construction processes, and – at the same time – demand on housing market remained at the high level, continuous increase of transaction prices can be expected, which would translate into increase in value of newly granted loans. The signals from developers indicate that those purchasers, who buy dwellings for their own needs usually take out a mortgage loan, while those, who invest in flats for rent usually pay with cash.

Still no news about the government’s ‘Flat Plus’ Programme, although on  June21 this year, the ‘Housing Dialogue Forum’ conference organized by BGK Nieruchomości S.A. took place at the National Stadium. With an impressive number of over 400 participants and a full representation of the government, more than 20 debates on the most urgent problems in housing policy were held. Representatives of the Polish Banks Association participated in several of them. The organizers announced that within a year a Green Book will be prepared, based on conclusions from these debates. Meanwhile, the proposals of alternative solutions submitted once again by the Polish Banks Association did not meet with any interest from the government and the Council of Housing.

The results of the first half of the year once again confirm our forecast on the possible exceeding of 200 thousand housing loans for a total value of PLN 50 billion in 2018.

Jacek Furga,Ph.D.
Head of AMRON Centre

The image of safe and profitable investing in rental flats promoted in the media systematically heats the atmosphere on the housing investment market. Demand and prices were driven especially by investors looking for dwellings for short-term rental. On the other hand, accelerating the decision to invest in flats was caused by more rapid signals from the developers’ sector, pointing to three barriers that, if not significantly reduce the number of new investments, will certainly translate into a significant increase in dwelling prices in new investments, i.e. restrictions in access to new building plots, lack of employees in construction sector and increase in prices of building materials.

Another argument for investing in new dwellings for rent was the fiasco of ‘Flat Plus’ Programme announced for over two years by the government. Therefore, those who have postponed a decision, assuming that the launch of the ‘Flat Plus’ Programme – the construction by the state of cheap dwellings for rent – may significantly decrease the profitability of the private rent in the coming years, were also investing. Establishing the Housing Council on January 30, 2018 and the declaration of Prime Minister Mateusz Morawiecki on personal coordination of housing policy was welcomed – also by the Polish Banks Association – as a chance for a new opening and in the first days of February 2018 the President of the Polish Banks Association proposed to the Prime Minister and the Chairman of the Housing Council an offer to include the banking sector in works on modifications of the National Housing Programme. Unfortunately, after several meetings of the Housing Council, the most active member – the former Minister of Construction, and currently the President of the Management Board of BGK Nieruchomości, Mr. Mirosław Barszcz – described the ‘Flat Plus’ Programme announced two years earlier as unrealistic. Therefore, the Council proposed new ideas, alongside with resigning from savings system for housing purposes, recommended by ZBP for several years. The proposals for alternative solutions submitted once again by the Polish Banks Association did not meet with any interest from the government and the Council of Housing.

Of course, historically low basic interest rates were an important reason for the increase of banks’ lending activity in Q1 2018. The result of all these factors was the highest lending activity since Q3 2011 with the number of over 55 thousand of new housing loans for the total amount of almost PLN 13 billion, which meant an increase in relation to the previous quarter by 23.27% and 18.19% respectively.

Also, the developers’ sector did not slow down. After the next record-breaking year 2017, developers were trying to satisfy the growing demand of investors, but the stock of unsold housing was shrinking fast, which also translates into a significant increase in transaction prices.

In relation to Q1 2017, an increase in the average transaction price per 1 sq.m. of floor area of dwelling was recorded in all analysed agglomerations. The average price in Gdansk increased the most – by 653 PLN /sq.m. Slightly smaller increases were recorded in Wroclaw, in Katowice agglomeration and in Lodz, respectively by PLN 376 /sq.m., PLN 309 /sq.m. and PLN 288 /sq.m.

In comparison to the same period last year, increases in all categories on the housing market were recorded. The number of construction permits issued was higher by 10.84%, the number of constructions started – by 8.53%, and the number of dwellings completed – by 10.65%. Nothing confirms the imminent price correction announced by some market analysts.

The price and floor area structure of purchased dwellings and the share of loans in their financing allow to determine investors’ behavior as rational. The floor area of over 75% of the purchased dwellings was less than 65 sq.m., the price of over 75% of purchased flats did not exceed PLN 300 thousand and LtV level of 57% of granted housing loans were lower than 80% recommended by Recommendation S. In addition, the ratio of the number of transactions on primary market to the number of transactions concluded on secondary market in all major agglomerations clearly indicates that these are still unsaturated markets and are characterized by a large lack of dwellings.

I encourage you to analyse the convergence of the percentage increase in dwelling rent rates and changes in transaction prices in particular locations. In relation to Q1 2017, the average rent rate for a dwelling slightly decreased only in Poznan and in Cracow. In other cities, increases in the average rent rates were noted. The average rent increased the most in Warsaw – by PLN 142 (9.20%), in Lodz – by PLN 86 (9.69%) and in Gdansk – by PLN 79 (5.57%).

The results of Q1 2018 confirmed forecast on the possible exceeding of 200 thousand housing loans with a total value of PLN 50 billion in whole 2018.

Jacek Furga,Ph.D.
Head of AMRON Centre

Keeping interest rates at historically low level led some people to withdraw savings from bank deposits and to invest in dwellings for rent, while others were encouraged to take out a mortgage loan for buying a flat. The effect could only be one – 2017 turned out to be a record-breaking year both on the housing market and mortgage loans market. In 2017, banks granted over 190 thousand housing loans for a total amount of PLN 44 billion, which meant the best result of the banking sector for six years. More than a year ago, there was no sign of such an increase in banks’ lending activity, but the results of the first quarter of 2017 have forced to increase the forecasted results. These forecasts were also exceeded.

It was the third record-breaking year of dwellings sales by developers. A high demand for flats was due to a low profitability of bank deposits combined with uncertainty about other forms of investment. That’s why many Poles decided to invest funds in real estate. The market was also driven by the government’s ‘Flat for Youth’ Programme and announcement of its ending, which meant that some buyers stopped postponing the decision to buy a dwelling, wishing to benefit from government subsidies under the ‘MdM’ Programme. This resulted in developers’ extraordinary sales results, encouraging them to start new investments. In 2017, a new record-breaking result on housing market was noted – 178 258 new dwellings were built, which was by 9.1% more than in 2016. Construction of 205 990 dwellings was also started (by 18.4% more comparing to the previous year) and building permits for a further 250 218 apartments were issued (more by 18.3%). These were the best results since 2008.

The number of new building permits and started investments guarantees an interesting housing offer in 2018. Such developers’ flexibility in satisfying the growing appetites of potential buyers will maintain the trend of systematic price increase recorded since the beginning of 2013 and will ensure stability on real estate market. The predictions of a soon correction of housing prices, propounded by some market analysts, seem to be unjustified.

The President of NBP confirmed that interest rates will remain unchanged until the end of this year so nothing should cool down the appetite of potential borrowers. However, the inevitable – at the latest in Q2 2019 – increase of interest rates may paradoxically motivate potential borrowers to take out a loan this year. January has already started with a strong accent of exhaustion of the last pool of funds for subsidies under the ‘Flat for Youth’ Programme. In less than two days, the last pool of funds was distributed in the amount of PLN 381 million, which was enough for payments for 12.7 thousand borrowers, although there were many more applicants. Most of those, for whom money was not available, will most likely complement their downpayment and stand in the queue for a loan without a subsidy.

2018 may bring results at a similar level as the previous year, i.e. about 190 thousand of housing loans with a total amount of PLN 45 billion.

Two years after the publication of the National Housing Programme, the authors of the Programme are starting to talk about unrealistic assumptions and the need to modify them. It is a pity that for two years the critical comments and suggestions of alternative solutions signalled by the Polish Banks Association did not receive any interest from the government. Establishing the Housing Council was welcomed by the Polish Banks Association as a chance for a new opening and in the first days of February this year the President of the Polish Banks Association proposed to the Prime Minister and the Chairman of the Housing Council an offer to include the banking sector in works on modifications of the National Housing Programme.

Jacek Furga,Ph.D.
Head of AMRON Centre

Interest in the analysis of private rent market increased among the Report’s readers. Despite the significant supply of new flats for rent, a steady increase in rents was noted. I would like to recommend you the commentary by Artur Kaźmierczak, Co-Managing Partner of Mzuri Group.

The housing market has been recording systematic and sustainable growth for the last few years. Buying a dwelling as a capital investment appears now to be the safest form of investing money. It is affected by low interest rates and growing uncertainty and unpredictability of government and parliamentary activities in economic regulations, which have been exemplified by changes in rules of trade in land properties and changes in rules of wind farms construction and taxation. Fortunately, this growing demand for new flats is successfully met by developers. This is evidenced by slight  but constant increase in transaction prices on housing market, observed since the beginning of 2013. It is to be hoped that the ‘Flat Plus’ Programme promoted by government will not lead to disturbances on this market.

Increasing housing demand is met in a large extend with own funds of dwellings purchasers, but in spite of this, 2017 will be the best in terms of banks’ lending activity for the past six years. After the first two record-breaking quarters of 2017, a decrease in new granted loans was noted in Q3, both in terms of number and total value. However, the level of expected by AMRON Centre mortgage lending in 2017 will amount to over PLN 40 billion with the number of loans not exceeding 200 thousand of concluded agreements. Such a result will be possible due to the systematic increase of the average value of a granted housing loan to the level of PLN 238 956, which meant an increase in the last two years by over 26 thousand (i.e. over 12.6%).

These impressive results noted by developers and banks, proving the development of the housing market, should not, however, reassure those who are (should be) responsible for solving the housing problem in our country. Over 1.2 million apartments in Poland are not equipped with bathrooms and inhabitants of half a million of dwellings do not even have an access to the tap water – according to the data published several days before by the Central Statistical Office (as of 31 December 2016).

Solving the housing problem in Poland is a civilization challenge for all of us. I would like to invite you to a careful and reflective reading of the Report and active participation in discussions during the 14th Housing Finance Congress.

Jacek Furga,Ph.D.
Head of AMRON Centre

For the last few years housing market has been recording systematic and sustainable growth, which was confirmed also by the results of the second quarter of 2017. While interest rates are low, many people consider buying a dwelling as a capital investment, which brings measurable profits in a long term. On the other hand, there is also a large group of buyers, who changed their “first dwellings” purchased between 2005-2008 during property boom to larger ones in order to improve their current housing conditions. Negative interest rates decrease Poles’ propensity to invest the financial surpluses in banks and support investing in housing properties for rent, especially at such attractive and low cost housing loans. Suspension of accepting the applications for loans subsidised under the ‘Flat for Youth’ Programme did not affect either sales results or the number of new housing loans.

In the period from April to June 2017, banks basically repeated the impressive results from the first quarter and granted almost 50 thousand housing loans, the total amount of which was higher by over 6% and accounted for almost PLN 12 billion. Similar increase concerned also the average value of a PLN housing loan granted in Q2 2017, which amounted to PLN 233 thousand. Share of Warsaw in the structure of all new housing loans granted in Poland increased again and amounted to 42.83%.

The newest data published by the Central Statistical Office (GUS) confirmed the very good condition of Polish housing sector. The number of issued building permits, as well as the number of started investments have been systematically increasing. In Q2 2017, permits for construction of 70 453 were issued and 61 830 new dwellings were started, i.e. respectively more by 16.97% and 39.87% than in the previous quarter. The number of dwellings completed in the period from April to June 2017 decreased by 7.14% on a quarterly basis and amounted to 37 689.

Precise analysis of changes in the average transaction price per square meter of the floor area of dwellings in particular locations in the last few quarters indicates their high fluctuation. However, comparison of prices over the last 3 years clearly confirms the systematic, although moderate increases: in Warsaw and Gdansk by over 6%, in Wroclaw by 5%, in Cracow – by less than 3%. A decrease in the average transaction price was noted only in Katowice agglomeration – by 5% in this period.

Spectacular results of mortgage lending in Q1 2017 and continuously high lending activity in Q2 2017, despite the exhaustion of available funds under the ‘Flat for Youth’ Programme, as well as persistently low transaction prices and record-low PLN exchange rate make us change our forecast for banks’ lending activity level in 2017. Results promise to be higher than in 2012, therefore reaching 200 thousand of concluded agreements for a total value of over PLN 40 billion.

The first opportunity to verify this forecast will be the 14th Housing Finance Congress organized by the Real Estate Finance Committee at Polish Banks Association on 30 November and 1 December, 2017. During the Congress, as in previous years, we will present the next issue of the Report summarizing the results of Q3 2017. The leading topics of this year’s Congress will be the implications of the implementation and interpretation of the Mortgage Credit Act and the assumptions of the National Housing Programme, as well as the alternative proposals of Polish Banks Association to solve the housing problem in Poland. Already today, please reserve a date to participate.

Jacek Furga,Ph.D.
Head of AMRON Centre

Number of housing loans granted in Q1 2017 exceeded 50 thousand, which meant an increase in lending activity by almost 20% in comparison to the previous quarter – such increase has not been observed on Polish market since mortgage boom in 2006 – 2008 and the following period of market reaction to subprime mortgage crisis in 2010.

The developers’ sector also does not slow down. Developers are announcing another record-breaking year, in which regardless of banks’ clients applying for a loan for (another) new dwelling, more and more investors are able to finance flat purchases with cash. As far as incidental, in my opinion, increase in lending activity in Q1 2017 was caused by reopening of government ‘Flat for Youth’ Programme, systematic increase in number of cash purchases of dwellings corresponds to financial market situation, especially lack of attractive deposit offers. Moreover, investing in real estate is Poles’ natural reaction to political instability. Poles still find real estate purchase as the safest form of a long-term investment, perhaps even as an element of pension security. Fortunately, these are not speculative transactions, because rapid increase in housing prices is unlikely to appear in the coming years. On the one hand, it is assured by developers in increased number of obtained building permits as well as increased number of started investments. On the other hand, lending restrictions resulting from Recommendation S are aimed at preventing banks from financing price bubble. Act on mortgage loans and the supervision of mortgage brokers and agents adopted in February 2017 will enter into force on July 21 this year and will significantly slow down banks’ lending activity due to the increased loan costs and more complicated granting procedure.

Recognition should be given to high elasticity of the developers’ sector, which responds to rising demand on housing properties. In comparison to Q1 2016, number of issued construction permits increased by more than 42%, number of started constructions – by almost 29% and number of completed housing units – by 8%. It prevents prices increase on primary market. Additionally, price requirements defined in ‘Flat for Youth’ Programme – due to relevant share of transactions under the Programme in all concluded transactions – even caused incidental decreases in transaction prices.

In Q1 2017 significant increase in average unit transaction price was recorded only in Warsaw – by PLN 132 per square meter. However, decreases in prices were noted in Lodz and Gdansk – by PLN 169 /sq.m. and PLN 126 /sq.m. respectively.

Despite spectacular results of banking sector in mortgage lending in Q1 2017 and low transaction prices as well as record-low PLN exchange rate, we maintain our forecast for banks’ lending activity level in 2017 – it will be lower than in 2016, not exceeding the number of 178 thousand granted loans and total value of PLN 39 million.

Jacek Furga,Ph.D.
Head of AMRON Centre

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

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

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

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

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

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

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

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

Jacek Furga,Ph.D.
Head of AMRON Centre

The results of banks’ lending activity in Q3 2016 confirmed opinion presented in previous editions of the Report that race of potential borrowers to benefit from funds of the ‘Flat for Youth’ Programme was the basic reason for the high lending results in the first two quarters of this year. When subsidies expired, the highest decline in number of loans (quarter to quarter) over last 5 years was recorded. Number of new loans granted in Q3 2016 declined by 13.20% in comparison to the previous quarter, while value of newly granted loans diminished by 8.78%. Despite that, the overall results of first three quarters of 2016 were slightly better than the results of the same period last year and therefore the repetition of last year’s lending results may be expected.

The share of non-performing housing loans in the mortgage portfolio in Q3 2016 remained at the level of the previous quarter and amounted to 2.90%, i.e. less by 0.29 p.p. than in Q3 2015. At the end of September this year, PLN loans with default on payments amounted to 2.61% of all housing loans granted in domestic currency, which meant slow but constant quality improvement. Both quarterly and yearly, a slight increase in number of non-performing housing loans in foreign currencies was noticeable. This was largely the effect of the ‘historical’ portfolio, which quality does not improve, as it is noted in segment of PLN loans. In analysed period, 3.32% of all denominated housing loans were qualified for the risk group.

Analysing the geographical structure of loans brings the conclusion that such a large decline in number of loans granted in the third quarter resulted from the weakening mortgage sales in Warsaw. In the previous Report, I expressed concern about continuous increase of Warsaw share in the total structure of new loans, however, in the last quarter there has been noted a significant change in this trend. The share of Warsaw in the structure of new loans significantly decreased for the first time in several years – by 3.87 p.p. Thus, loans granted in the capital city in Q3 2016 amounted to 39.40%. This also translated into weaker sales on the primary market – by 6.3% in comparison to the previous quarter.

In the period from July to September 2016, Polish real estate sector recorded slightly weaker results than in the previous record-breaking quarters. Despite the fact that developers completed 7% more dwellings, the number of constructions started was lower by 22% and the number of construction permits issued – lower by 5% compared to previous quarter.

Nonetheless, a slight increase in transaction prices in the largest Polish cities was continued. In Q3 2016, decrease in the average transaction price per 1 sqm. of floor area of dwelling was recorded in only two out of eight surveyed locations, i.e. in Cracow and Katowice agglomeration. In Wroclaw and Bialystok, the average price did not change significantly, while in other cities an increase in the average price of dwelling was noted – in Warsaw by PLN 148 /sqm., in Gdansk by PLN 137 /sqm., in Lodz by PLN 93 /sqm. and in Poznan by PLN 60 /sqm.

Jacek Furga,Ph.D.
Head of AMRON Centre

The end of ‘Flat for Youth’ Programme is approaching very fast. On March 15 this year, Bank Gospodarstwa Krajowego announced the suspension of accepting applications for funding the purchase of dwellings from funds budgeted for 2016 and on July 5 the process of accepting applications for subsidy from funds reserved for 2017 was suspend. A ‘race’ of potential borrowers to benefit from the government Programme, accompanied by strong emotions, was continued in the second quarter, this time for funds reserved for 2017. In combination with a seasonality effect typical for Polish residential market, it led to an increase in banks’ lending activity in the second quarter of 2016. During this period, banks granted more than 49 thousand new housing loans for a total amount of PLN 10.6 billion, which was more by respectively 9.80% and 12.45% in comparison to the previous quarter. However, in comparison to the same period last year (Q2 2016/ Q2 2015), the number of newly granted loans increased by 5.62% and the value by 5.46%. Also, the results of the first half of 2016 were better in relation to the results of the first half of last year – by 5.84% when it comes to the number of new housing loans and by 5.27% when it comes to total amount. However, banks announced further tightening of loan requirements in the upcoming months, which could hamper the exceeding of mortgage lending results of 2015.

Banks’ prudent approach to new mortgage lending results from still unclear scale of possible burdens resulting from the so-called ‘spreads law’ submitted by the President to the Parliament, as well as from other costs arising as a result of not weakening claims of some groups of CHF borrowers.

Loan portfolio quality remains at the high level. The quality of housing loans in domestic currency have improved steadily since early 2015 – in the analysed quarter, the share of PLN loans with default on payment amounted to 2.63%, i.e. about 0.84 p.p. less than in the corresponding period of 2015. On annual basis, there were no changes in quality of the portfolio both in CHF (3.61%), as well as in other foreign currencies (1.55%). This very good quality of foreign currency loans confirms the lack of reasons for the statutory, general conversion of loans in CHF.

However, a further increase in share of Warsaw in total structure of newly granted housing loans from 25.02% in Q2 2014 to a record-breaking level of 43.27% at the end of Q2 2016 is alarming. This means that almost every second loan for residential investment was granted in the capital city – within the administrative borders of Warsaw or in surrounding towns and villages.CHF.

Investors’ appetite was not weakened even by government announcements that people in need will have provided housing with low-rent. According to data from the developers’ sector, sales of dwellings in 6 major cities in Q2 2016 increased by more than 5% in comparison to the previous quarter. More than 14.3 thousand flats on primary market were sold.

Moods on the housing market, resulting in a significant increase in the number of new construction permits issued, do not surprise – an increase accounted to 33% in comparison to the previous quarter and to 17% in relation to Q2 2015. The number of constructions started increased by 52% and 7% respectively. The number of 36 211 dwellings completed in Q2 2016 meant a decrease by 3% in quarterly terms, but in relation to Q2 2015 it grew by 12%.

The high demand on real estate market in Q2 2016 improved developers’ sales results and caused a slight increase in transaction prices in the largest Polish cities. In Q2 2016, the average transaction price per 1 sq.m. of dwelling increased in three of eight analysed agglomerations, i.e. in Cracow, Bialystok and Warsaw, respectively by PLN 138 /sq.m., PLN 101 /sq.m. and PLN 81 /sq.m. in comparison to the previous quarter. In Gdansk, the average price remained at the level of the first quarter this year, while in the other surveyed cities a slight declines were observed – the largest in Poznan – by PLN 134 /sq.m. and in Wroclaw – by PLN 133 /sq.m.

Attentive observation of the chart presenting changes in average transaction prices shows clearly a slight upward trend, typical for the residential market in equilibrium. The observed increase in the average transaction price per 1 sq.m. in the period from Q1 2013 to Q2 2016 in all analysed locations ranges from 3.79% for Wroclaw to 10.13% for Cracow. The increased activity of developers on one side and tightening loan requirements of banks on the other, will not change this situation in the near future.

It is also difficult to expect any significant changes as a result of the government’s activities in the area of housing policy. The National Housing Programme announced by the government is too enigmatic, especially in scope of housing loans refinancing. Polish Banks Association responded to the published document and directed to the Ministry of Infrastructure and Construction comments to the proposed solutions on July 27, 2016. Just as in a letter sent earlier to the Prime Minister Morawiecki with comments to information materials on Plan for Responsible Development published by the Ministry of Development, Polish Banks Association pointed out the need to run in Poland the building societies system. It is effective system, verified in many countries and in different macroeconomic conditions, which can help to build households’ propensity for long-term, systematic savings.

Jacek Furga,Ph.D.
Head of AMRON Centre

Emotions in the media, which in the first three months of this year accompanied a ‘race’ of potential borrowers to benefit from this year’s funds of the ‘Flat for Youth’ Programme, aroused high expectations towards lending results in the first quarter. Meanwhile, the free market behaved in its own way. The results of this year’s first quarter turned out to be significantly lower than the results of the fourth quarter of last year. Despite the high interest in ‘Flat for Youth’ Programme, a decrease both in number (by 8.15%) and value of new loans (by 10.85%) was recorded,  comparing to the previous quarter. This confirmed once again seasonality of the Polish residential market, according to which the results of the first quarter are the lowest in the whole year and lower than the results of the last quarter of the previous year. Comparison of the results recorded in Q1 2016 and those of the same period last year brings more optimistic conclusions – declines amounted to respectively 6.09% and 5.07%. However, it seems that mortgage lending results of the whole year 2015 are unlikely to be exceeded this year, especially in the light of the fact that the limit of funds under the ‘Flat for Youth’ Programme budgeted for the year 2016 was exhausted already in March.

It should be stressed out that the number of active loan agreements as for the end of Q1 2016 for the first time ever exceeded the level of 2 million.  High quality of the mortgage portfolio is also a positive signal. At the end of March 2016, non-performing loans in PLN accounted for 2.67% of all loans in domestic currency, while share of non-performing loans in foreign currencies equalled to 3.18% of total portfolio of currency loans. Very good quality of housing loans in foreign currency confirms that the statutory, general currency conversion of CHF loans is not justified.

From the other hand, further increase in share of Warsaw market in total structure of new housing loans to a record level of 40.98% noted at the end of March is alarming. This means that almost every second loan for residential investment was granted in the capital city – not only within the administrative borders of Warsaw, but also in surrounding towns and villages.

Those purchasers, who were able to pay in cash or withdrew their savings from term deposits and other financial instruments, invested it in dwellings for rent, choosing among a wide range of relatively low-priced primary market offer on stock. By far, rent profitability exceeds the investment returns offered by financial institutions. The significant share – 10.86% – of loans with low LtV ratio (below 30%) in the structure of newly granted housing loans also provides that cheap credits are spent to finance the renovation and modernization of houses and dwellings purchased a decade ago, during the credit boom.

Highly flexible approach of the developers’ sector and its adaptation to the current market situation deserves to be recognized. According to preliminary data published by Central Statistical Office, the number of construction permits issued, the number of constructions started and the number of housing units completed in Q1 2016 diminished in comparison to the previous quarter, respectively by 17%, 15% and 20%. Nevertheless, condition of  housing market is still very good, what can be observed in the annual comparison of results.

High demand on real estate market in Q1 2016 improved developers’ sales results and resulted in a slight increase of transaction prices in the largest Polish cities. In Q1 2016, the average transaction price per 1 sq.m. of dwelling diminished only in Lodz –  by PLN 65 /sq.m. In other analysed cities, there were noted slight increases – the biggest in Poznan, Cracow and Wroclaw, respectively PLN 138 /sq.m., PLN 128 /sq.m. and PLN 124 /sq.m. in comparison to Q4 2015, which meant an increase by 2.5%, 2.1% and 2.2%. One of reasons of such prices rise could be insufficient time for proper price negotiations for those borrowers, who wanted to quickly apply for subsidy from the ‘Flat for Youth” Programme.

According to AMRON Centre it is difficult to expect significant price changes on the housing market in 2016. There is no justification for such a scenario in the near future, as there are no arguments for forecasting growth in banks’ lending activity in the area of financing the housing purchases. The stream of funds withdrawn from the capital market and earmarked for housing investments is constantly dwindling, similarly to the flow of money transferred to Poland by Poles living abroad.

Despite the fact that the newly elected government has been sworn more than six months ago, the principles and rules for the implementation of ‘Flat+’ government housing programme are still unknown. On 8 March, 2016, the joint meeting of the Budget and Public Finance Committee and the Infrastructure Committee of the Senate of Republic of Poland was held with representatives of Polish Banks Association. The meeting focused on the evaluation of the draft act on building societies. The participants of the meeting, including the Chairmen of both Commissions – in presence of Deputy Minister of Infrastructure and Construction – declared that the draft act will be promptly submitted to Parliament in order to imminently launch the system of building societies in Poland. Probably this initiative has been taken over by the government and is planned to become one of the elements of the ‘Flat +’ Programme.

Jacek Furga,Ph.D.
Head of AMRON Centre