Archives: Raport Amron-SARFiN

It is a great pleasure to share some good news with you for the first time since last five quarters. In fact, previous quarter’s mortgage results were the weakest for four years, both in terms of volume (41.6 thousand of new loans) and value (PLN 8.0 billion). Fortunately, last quarter’s results turned out to be better than Q1 2013 and also than Q4 2012.

I believe that regular readers of the Report remember, when a year ago we stressed the fact that the results recorded in second quarter of 2012 were weaker than those recorded in first quarter, what meant disturbance in seasonal cyclicity on mortgage loans market. It seems that the situation gets back to normality. There were  44 079 new housing loans of a total value of PLN 9.160 billion recorded in second quarter of 2013. The scale of such increase is however not enough significant to infer if it is a first sign of mortgage market recovery. I believe it’s not yet, as banks seem to counteract such a recovery as they would not be interested in upswinging the loan portfolios. My last experiences in applying for mortgage loan prove that the decision-making process of the applications’ approval, restrictive formal requirements and the inordinate prudence in customer evaluation make potential borrowers finance transactions with cash or, to reduce formalities, apply for decreased loan, not to exceed 50%LtV ratio. That confirms previously received information on increasing number of housing transactions financed with no mortgage loan, particularly in segments of the cheapest and the most expensive dwellings.

Seasonal nature of the housing market was confirmed also on construction investments market, where an increase was recorded both in number of constructions started – by 31% and construction permits issued by 73% (both comparing quarter to quarter). At the same time, analysed quarter brought decreased (by 16%) number of completed housing units – total number of completed dwellings equalled to 31 367 units. Comparison of results of Q2 2013 and Q2 2012 prove the diminished supply on housing market. Number of new housing  units constructions started in Q2 2013 was the lowest since 2006 and that confirms actual slowdown on primary housing market and lowered, but stabile level of activity of all of types of investors. As the effect, we witness continuous downward economic activity trend, in particular in developers’ sector, combined however with certain symptoms of economic recovery. And that is another good news in this Report.

Housing market seems to get stabilized as well – changes in transaction prices in Q2 2013 ranged from increase by PLN 43 per square meter in Warsaw and Poznan and decrease by PLN 74 in Wroclaw. Comparing Q2 2013 and Q2 2012, the average transaction prices in all analysed cities (excluding Bialystok) decreased by no more than 10%.

Monetary Policy Council’s decisions on subsequent decreases in interest rates, as well as first signs of economic growth, should support further recovery on housing and mortgage market.

Positive signals for housing finance in Poland came from both chambers of Polish parliament. In Senate, there was held a debate initiated by Commission of Budget and Public Finance on system of saving-building banks and in Sejm, two parliamentary draft laws were notified: on reversed mortgage and on state support for long-term saving on housing purposes. Implementation of system of saving-building banks may be the impulse for stabile, long-term and constant upward trend in housing sector, which shall support not only those, who still don’t have their own flat, but also the whole economy.

Jacek Furga
Head of AMRON Centre

Due to already confirmed seasonal cyclicity of both mortgage and – which is more obvious – housing market, analyses presented in the Report refer to numbers noted in Q1 2013 in relation to numbers noted in previous quarter (Q4 2012), as well as to those of respective period of previous year, i.e. Q1 2012. Conclusions, however, are not much optimistic – Q1 2013 results turned out to be better than the results of … Q1 2009. But from the other hand, no forecasts or predictions for last quarter did presume any recovery from the market slowdown observed constantly since half of 2011. Both number of new loans (41.6 thousand) and value (PLN 8.0 billion) were the lowest since last four years.

Analysis of changes in structure of loans granted in Q1 2013 from the perspective of LtV ratio, repayment period or currency prove that banks started to adjust the offer of mortgage lending to new Financial Supervisory Authority’s requirements included in already finalised amendment of Recommendation S:

• share of new loans with LtV ratio at the level above 80% diminished by 1.4 p.p. and as for the end of Q1 2013 it amounted to 50.7%
• share of new loans granted for longer than 35 years did not exceed 1%
• loans in foreign currencies constituted 1.12% of the new loans portfolio.

In Q1 2013, declining mortgage lending results proceeded with concurrent decrease in housing development ratios. According to Central Statistical Office’s data, number of issued building permits diminished by 23% and number of constructions started was lower by 31% than last year. Slight increase (by 2% comparing year to year) was noted only in number of housing units completed.

Changes in average housing transaction prices noted in the biggest Polish cities resulted from local determinants. The greatest decrease in the average price per square meter amounted to PLN 105 and it was recorded in Katowice agglomeration. At the same time prices increased in most of the biggest cities – the greatest increase (by PLN 75 per sq.m.) was noted in Gdansk. But still, it does not mean the trend change, but only price adjustments after the “Family on Its Own” Programme. Before termination of the Programme, transaction prices were adapted to binding limits and quite often some part of the housing cost was included in prices of parking lost or other additional premises.

Further decrease in housing prices in cities surveyed for calculations of the Housing Availability Index, decrease in interest rates levels of new loans granted in Q1 2013 related to economic recession and diminishing reference rates, together with increase (by 1.43%) in the average earnings level per exemplary family resulted in increase of the HAI M3 ratio by 10.78 points comparing to previous quarter and by 22.81 points comparing to the ratio level noted in Q1 2012.

Despite progressive toning down the most restrictive requirements of Recommendation T or S, it is hard to observe the increasing interest in mortgage lending, both from the perspective of banks and purchasers. At the same time, number of housing purchase transactions financed without mortgage loan is increasing. Strong impulse from the government is necessary to make that mechanism working more efficient, for the benefit not only of potential purchasers, but also of the whole economy. Another substitutive solution like the currently discussed “Flat for Youth” Programme will definitively not result as expected.

Jacek Furga
Head of AMRON Centre

The year 2012 was not a typical year at housing market. Market players’ performance was determined by several changes in legal regulations, previously announced by the government and finally accepted by the Parliament. In purpose to omit the obligatory trust accounts enforced by the Act on protecting rights of housing unit or single-family house purchasers, which came into force on April 29, 2012, in first quarter of the year developers entered into market most of planned investments. According to Central Statistical Office, number of housing units completed in Q1 2012 increased by more than 32% comparing to the number noted in Q1 2011. As for the end of 2012, number of dwellings offered by developers on primary market amounted to over 54 thousands of units.

In Q4 2012, the above-average increased activity of potential borrowers, who eagered to benefit from terminating „Family on Its Own” Programme was observed. Number of loans granted under the Programme in Q4 2012 was the highest ever, and amounted to 15 828 loans,  41.46% more than in Q3 2012 (in terms of value it was 39.62% more than in previous quarter). In addition, as for the end of December there was over 26 thousands of new loan applications registered in banks and waiting for being proceeded.

After completing the desciption of current situation with Financial Supervision Authority’s announcements on changes in mortgage lending rules, the diagnosis seems to be quite obvious – it was not a good year for Polish construction and housing market. Legal changes, increasing anxiety among potential purchasers evoked by pesimistic economic forecasts, increasing unemployment and lack of governmental long-term strategies and programmes supporting housing development resulted in final 2012 outcome weaker than prognosed.

In 2012, the total value of new loans portfolio was 20% lower than the value of loans granted in 2011 – in terms of value it amounted to PLN 39.1 billion. Such a result was a concequence of lower (by almost 15%) number of newly granted loans, but also – almost 7% decrease of the new loan average value . Despite the decreases mentioned above, the total number of active housing loans increased up to the number of 1.732 Mio, while the value of total housing loans portfiolio remained unchanged  on the level of PLN 316 billion.

Last quarter of 2012 was already the sixth consequent quarter of the downward trend in the number of granted loans .In Q4 2012 there were 47 523 new loans granted, with the total value of PLN 8.843 billion, i.e. 11% less, comparing to Q3 2012. That was the worst quarterly result since Q1 2009, when the total value of new loans equalled to PLN 7.609billion.

Observation of new housing loans currency structure in a few last quarters allows to give up the detailed anaysis of the new portfolio currency structure in subsequent quarters. While in Q1 2012 currency loans constituted over 15% of the new loans portfolio, in Q4 it was nearly 2.5%. PLN loan definitively rules the market!

Last quarter of 2012 ended with diminished number of constructions started – by 26%, comparing to last quarter of the year 2011. Decrease was also recorded in number of construction permits issued.According to Central Statistical Office, there were 37 155 permits issued in Q4 2012, i.e. 7% less than in Q3 2012 and 13% less than in comparable period of previous year. The only factor (indicator) that increased was the number of housing units completed –, there were 29% more units completed in Q4 2012, comparing to Q3 2012. Generally, most of the housing market indicators appeared to be weaker in 2012 than those recorded in 2009.

Year 2012 was already the fifth year of continous decrease of the housing units average transaction prices at (on) the greatest housing markets.The average transaction price in Warsaw, as for the end of December, amounted to PLN 7 134 per sq.m., i.e. PLN 199 less comparing to September 2012 and PLN 522 less comparing to December 2011. In 2012, the greatest decrease in transaction prices – by PLN 663 per sq.m. was recorded in Krakow. Prices decrease resulted from systematic supply growth, observed since the second half of 2010, as well as from resirictions in banks’ mortgage lending policies.

Considering the aforementioned data and supplementing it with common conviction that 2013 is going to be the  period of the deepest  depression in Polish economy, forecasts of further, though slower than in 2012, decrease in housing prices until 2014 seems to be justifiable.

Reality of 2012 was much worse than we have prognosed in the most pesimistic prediction. Not only the forecasted result of mortgage lending (200 thousand of loans of a total value of PLN 42 billion) but  even the level of PLN 40 billion turned out to be unreachable. Actual results of the year 2012 were the weakest since the crisis year 2009 and in some terms ever weaker than those noted in 2009.

Without a prompt government’s resolves and courageous parliament’s decisions taken above political divisions I see no chance for improving the housing market in few years perspective. New governmental programme „Flat for Youth”, as far as now known only in form of draft assumptions, will definitively not be a solution for those pesimistic prognosis. On several occasions Polish Banks Association has provided central institutions with the assesment of the current status of housing market, supplemented with  projects of necessary solutions, particularly in scope of flats rental programme and a system stimulating households to long-timesaving for housing purposes. Long-term state program is the essential condition, necessary for improving either in mortgage lending, or in housing development in general.

Jacek Furga
Head of AMRON Centre

This period of last three years was a difficult time of test for Polish housing and mortgage markets in global crisis conditions. The results of that test are systematically recorded in successive issues of our Report, since the demand for reliable and dependable information is systematically growing. With a great satisfaction we observe the growing group of Report’s regular readers, including professional market participants and its observers, as well as potential investors from all European countries. Our response to increasing interest in trustworthy information on Polish market is AMRON-SARFiN Report available in English since the beginning of 2011 and since September 2011 – in extended version. Orders for specialist, individual reports, addressed  to AMRON Market Research and Analysis Division by developers and investors prove that AMRON’s reports are found solid and reliable. At the same time, we observe increasing interest in our reports on changes in average prices of housing units, construction plots and rural areas for particular locations, actualized on quarterly basis and available at AMRON Centre website. For housing units located in seven major Polish cities, property value estimation report enables to estimate a predictable value of a housing unit as for the estimation date.

We do appreciate all valuable, both positive and critical, remarks and comments to the Report, expressed in several publications, on internet discussions or in messages addressed directly to authors of the Report. I believe we have made good use of them.

Quality of AMRON Centre’s analyses and reports is determined most of all by the volume and quality of collected data. During last three years, banking and financial sector participants of the System were expanded by property valuators and brokers, who support AMRON database with high-quality data on real estate market transactions. It is worth mentioning that in the period from the first until current issue of the Report, AMRON’s database resources doubled – in November 2009 there were approximately 740 thousand of records, while now (as for October 31, 2012) there are almost 1.36 million of records. Currently, 246 financial institutions uses AMRON System for daily business operations, including National Bank of Poland. AMRON is also available for several public institutions.

Similarly to previous editions, in this issue we present results of the third quarter of 2012 related to the results of few previous quarters. Alarming conclusions unfortunately confirm continuous downward trend that has been observed already for five quarters – both on mortgage loans market and on housing unit transactions market, which is accompanied with further decrease of transaction prices. As far as volume of newly granted loans is concerned, results of third quarter were better than those in previous quarter – in Q3 2012 banks in Poland granted 50 691 loans. It seems that such a result effects from increasing purchasers’ interest in state’s subsidy granted under the “Family on Its Own” programme, which is to be terminated at the end of the year.

While the amount of loans granted in Q3 2012 is slightly higher than in previous quarter, the analysis of the value of newly granted loans prove the systematic diminishing of the total value of newly granted loans, lasting since Q3 2011. In Q3 2012 the total value of new loans portfolio amounted to PLN 10.021 Mio. At the same time, the average amount of the particular granted mortgage loan diminished as well. There is also observed a continuous increase of PLN loans share in the new portfolio – in Q3 2012 it reached the level of 97%.

Correction of the PLN exchange rates to CHF and EUR resulted in stabilisation of the total mortgage loans amount of the whole Polish banking sector at the level of PLN 313 billion (volume of the total mortgage portfolio amounted to 1 704 414 active loans).

Analysis of housing market in Q3 2012 confirmed our previous estimations on significant influence of the new Act on protecting rights of housing unit or single family-house purchasers on the developers market. After large number of constructions started in April, before the date of the Act’s coming into force, in Q3 2012 the number of new housing constructions started decreased by 42%, in relation to the previous quarter. The number of construction permits issued diminished as well – in Q3 2012, the total number of new construction permits amounted to 40 021, while in Q2 2012 there were 49 842 new construction permits, which makes a decrease of almost 25%.

Third quarter of 2012 brought further decline of average prices in all the biggest cities in Poland. The largest decline of the average transaction price of 1 sq. m. of dwelling at the level of 4.8% was noted in Lodz, while the smallest change in the average price – at the level of 0.3% – was recorded in Bialystok. In capital city, the average transaction price declined to PLN 7 303 per sq. m., what means a drop of PLN 74 (in relation to the price level of Q2 2012). Comparison of the current results and the results of the corresponding period of 2011 prove the maximal price decline in Lodz and Katowice agglomeration – with a drop of over 10%. The average housing price in Warsaw diminished by PLN 452 (5.8%), comparing prices noted in Q3 2011 and Q3 2012.

One of the most significant stimulus of the housing prices decline was increase in supply of newly-built housings observable since half-year of 2010, as well as more and more restricted availability of mortgage loans. Considering the commonly shared opinion that the year 2013 will be the moment of Polish economy’s greatest depression, a forecast of continuous, though slower than in the current year, decrease in transaction prices until spring of 2014 is probable. For the same reasons, mortgage results of 2013 may be lower than those of the crisis year 2009, i.e. at the level of PLN 37 – 39 billion. And as far as the prognosis of the final result of the current year is concerned, the estimation of the result of 200 000 granted loans for the total amount of PLN 42 billion (PLN 2 billion lower than estimated a year ago) seems to be justified.

Recently announced new government programme provisionally called „Flat for Youth” will definitively not be a solution for the above pessimistic diagnosis, notwithstanding its final assumptions and implementing date. Without a long-term program of state support for housing development, including a system stimulating households to long-timesaving, it is hard to expect any improvement neither in mortgage lending, nor in housing development in general.

Jacek Furga
Head of AMRON Centre

Lending results for second quarter of 2012, both in terms of volume (49 620) and value of granted loans (PLN 10.044 Mio) are very serious signals alarming turbulences on housing finance market. It was the first time since several years, when  second quarter results turned out to be worse than results obtained at the beginning of the year. Such situation negate the regularity observed during few recent years, when results for second quarter were even 20-30% higher than those for first quarter. This time it is not as we might have expected. While the amount of loans granted in Q2 2012 is slightly higher than in previous quarter, the total value of newly granted loans was lower. Unfortunately, this downward tendency from quarter to quarter has been lasting for over a year.

When lending figures are getting worse, data related to housing market presents surprisingly well. According to initial data published by Central Statistical Office, during the period from January to June 2012, 68 129 housing units were completed (i.e. 24.9% more than during the corresponding period of 2011). Compared to the first half-year of 2011, the amount of started housing units decreased to 80 681 (i.e. approximately 0.8%), whereas the number of construction permits issued remained stable comparing to previous year and amounted to 88 076. This result was determined by large number of constructions started in April, what can be explained with a new Act on protecting rights of housing unit or single family-house purchasers binding since April 29, 2012. Great part of developers had decided to start new investments before the new restrictions became obligatory.

Second quarter of 2012 brought further decline of average prices in all the biggest cities in Poland – it ranged from less than 1% to over 3%. Compared to the first quarter of current year, the largest decline (of PLN 182 per sq.m.) was noted in Wroclaw – the transaction price of a square meter of a housing unit in Wroclaw amounted to PLN 5 473. In capital city, the average transaction price declined to PLN 7 407 per sq. m., what means a drop of PLN 129 (in relation to the price level of Q1 2012). Comparison of the current results and the results of the corresponding period of 2011 prove that the maximal price decline in Wroclaw and Lodz – respectively by PLN 672 (10.9%) and PLN 323 (7.8%) per square meter of a housing.

One of the most significant stimulus of the housing prices decline was increase in supply  of newly-built housings, as well as more and more restricted availability of mortgage loans. Current prospect allows to forecast the constant, though slower than in the first  half-year, decrease in transaction prices, which seems to be continued at least till autumn next year.

Banks’ withdrawal from currency loans offer (share of PLN loans in the new portfolio has already reached 95%), mortgage lending restrictions resulting from new supervisory regulations and extinguishing of the „Family on Its Own” programme lead to further, drastic reductions on both mortgage and housing market. Determination of housing purchasers, who will try to benefit from subsidy available during the last months of the governmental programme may be – in my opinion – the only determinant of fulfilling my prognoses of 2012 mortgage lending results at the level of PLN 44 billion. Otherwise, the repetition of results of the post-crisis year 2009 seems to be quite probable.

Unfortunately, these clear signals of increasing crisis on housing finance market are not noticed either by government or by parliament. Necessity of a long-term program of state support for housing development, including a system stimulating households to long-time saving.

Jacek Furga
Head of AMRON Centre

Previous editions of the report confirmed the seasonal cyclicity of both mortgage loans market and – what is more obvious – residential development. Therefore, the  analysis of Q1 2012 results is performed in relation to the previous quarter (Q4 2011) results and the results of corresponding period of the previous year (Q1 2011). Despite such an approach, the unambiguously descending mortgage lending figures as for last quarter exclude optimistic prognoses. Forecasts of weakening mortgage lending results in 2012, expressed in previous two editions of our Report, has unfortunately been confirmed.

Both volume (48 700 loan agreements) and the value (PLN 1.2 Mio) of newly granted loans in Q1 2012 proved to be lower than both in Q1 and Q4 2012. On top of that, as a result of exchange rates changes (EUR/PLN, CHF/PLN), total housing loans debt declined – for the first time in analysed period – to PLN 308 billion.

The only mortgage lending indicator that reached it’s maximum was the average value of a housing loan, which exceeded the level of PLN 209 000. In new granted loans currency structure, the share of loans granted in PLN grew by 7% and it comes up to the level of 85% share in total portfolio, whilst the share of loans denominated in CHF has reduced to the level of 1% of newly granted loans.

Housing development sector results look surprisingly well against the background of weakening mortgage lending figures. According to the data published by Central Statistical Office, the number of completed housing units increased in Q1 2012 by 32% in relation to Q1 2011 results with simultaneous slight (approx. 2%) growth of number of construction permits issued constructions started.

On housing market, the continuous drop of transaction prices is still observed. The most significant stimulus of the prices decline was growing supply on the primary market, including number of new investments started by developers before the new law on trust acconts comes into force. On the other hand, decrease in mortgage lending evoked reduction in effective housing demand.

I could summarize the results of the first quarter of 2012 with words „Didn’t I say so?”. Banks’ withdrawal from currency loans offer, new requirements of Recommendation S binding since January 1, 2012 and limitation of the “Family on Its Own” programme resulted in numbers reflecting mortgage lending and housing market in the first quarter of 2012. In spite of that I consequently sustain my prognosis of the total volume of mortgage loans granted in 2012 at the level of PLN 44 billion.

I also sustain reflections presented in my introduction to the previous issues of the Report – the clear drop of lending figures should be interpreted as an urge for more radical decisions in the realm of housing policy. What we need is a long-term state programme for development and support of housing development, including long-term savings for housing purposes.

Jacek Furga
Head of AMRON Centre

Mortgage lending figures of the entire banking sector for fourth quarter of 2011 prove the decrease in both volume and value of granted loans (respectively by 13.02% and 15.54%).  However, the results of the whole 2011 were slightly better than those of 2010. The only lending indicator, which reached its maximum level in the history, was the average value of a mortgage loan granted in 2011 – it amounted to PLN 208 482. Currency structure of the new loan portfolio confirms the dominant share of PLN loans (up to the level of 78.58% in 2011). Within the denominated loans, volume of CHF loans had constantly decreased, contrariwise to EUR loans.

Quite different tendencies were observed on the housing market. During the period from January to December 2011, the construction of 162 200 housing units was started, which makes 2.6% more than during the corresponding period of 2010. At the same time, 131 721 housing units were completed (i.e. 3% less than in the previous year) and 184 101 construction permits were issued (i.e. 5.24% more than in 2010).

The downward trend in transaction prices on housing market  continued during the fourth quarter of 2011. One of the stimulus of the prices decline was the increase of supply of newly-built dwellings, noted since the third quarter of 2010. From the other hand, mortgage finance reduction resulting in decrease of the effective demand also contributed to the price reduction.

Results of the year 2011, in particular the evident downturn in both volume and value of mortgage lending,  obstruct the reliable predictions of the final results as for the whole 2012. However, it should not exceed the results of the year 2011, considering that the mortgage lending criteria are far more restrictive due to the fact that the complete scope of Recommendation S requirements came to force on January 1, 2012. Stagnancy on mortgage loans market, concurrently with the “Family on Its Own” programme, shall support further price corrections on all the greatests housing markets in Poland. More attractive level of housing prices and lack of interesting offers of long-term banks deposits together with shutdown of the one-day deposits may have a positive impact on increase of investments on housing markets. Considering such assumptions, the prognosis of mortgage lending value at the level of PLN 44 billion seems to be justified.

Reflections presented in my introduction to the previous issue of the Report seem to be reasoned. Referring to weaker results of the third quarter related to two previous quarters, I stated that if the results of the fourth quarter of 2011 confirmed the clear drop of lending figures, it should be interpreted as an urge for more radical decisions in the realm of housing policy.

The government document „Main problems, goals and directions of the housing development programme to the end of the year 2020” elaborated in 2010, was approved by the Parliament of previous term, but in accordance with the banking sector’s assessment, its contents does not correspond to Poland’s needs in scope of necessary legal order and the assured long term stabile and secure conditions of housing development. What’s astonishing, the document does not  refer to the problem of long term savings for housing purposes. At the beginning of the year 2012, Financial Supervision Commission took the initiative of multilateral discussion on the necessary steps to be taken in order to change the mortgage loans refinancing structure.

Jacek Furga
Head of AMRON Centre

Banks’ lending figures for third quarter of 2011, both in terms of volume (59 571) and value (PLN 12.8 bln), confirm the decrease of over 4%, comparing to the records of the previous quarter. Basing on the current results, slightly weaker than expected, it is hard to anticipate whether banks and potential borrowers will try to avail the time before the full version of Recommendation S becomes binding and decide to take the postponed housing loan decisions.

Mortgage loans portfolio of the entire banking sector hit the highest scores, both in terms of volume (for the first time it exceeded total level of 1.6 Mio of active mortgage loans), and a total value of granted loans, which exceeded PLN 300 billion. However, providing that the clear drop of lending figures in Q3 2011 will continue in the last quarter of the year (and as far as now, current observations of banking sector confirm the correctness of such prognosis), it may be difficult to return to the lending level of the year 2010. If this assumption turns into a fact, both the government and the parliament shall read it as an urge for more radical decisions in the realm of housing policy.

Decline tendencies were observable also at the housing market. The number of dwellings under construction commenced between January and September 2011 increased of 0.5% compared to corresponding period of 2010 (i.e. amounted to 128 296 apartments), however the number of completed housing units decreased of 10% and amounted to 87 274 units. During three quarters of 2011, the number of  permits for constructions of new housing units increased – in total, there were 141 310 permits issued.

Q3 2011 brought a further, but weaker than in previous quarters, decrease of average transaction prices (from PLN 50 to 100  per 1 square meter of the floor area) on the most of major housing markets. An exceptional decrease – up to PLN 300 per 1 square meter – was recorded in Wroclaw. Minor increases in average prices were noted in Gdansk and Bialystok. The decline of housing prices resulted from increasing supply of new flats observed since mid-2010 and – from the other hand – decline of banks’ lending activity, resulting in decrease of effective demand for residential property. Moreover, it seems that such a trend on residential market shall become unchanged in the upcoming months.

The restrictions in granting loans in foreign currency, government’s withdrawal from the “Family on Its Own” programme, as well as aggravations in procedures of customers’ creditworthiness enforced by the newest supervision regulations, have already brought the effects – but are those effects desirable?

Jacek Furga
Head of AMRON Centre

Banks’ lending figures for second quarter of 2011, both in terms of number (62,197 credits) and value of granted loans (PLN 13.395 billion), represent an increase compared to the results of the first quarter, respectively by 9.33% as far as value and 8.02% as far as number is concerned. These  results signify the return to the lending level from the Q2 and Q3 of 2010. This was mostly the result  of systematically revised downwards of the banks’ loan margins and other fees concerned with mortgage lending policies. Another important factor of the lending growth was the ongoing discussion and parliamentary works on changing the conditions of the governmental “Family On Its Own” programme. The borrowers availed the last realizable chance to benefit from this programme in the second quarter of 2011, before implementation of new regulations.

Gaining the volume of new loans at a level of almost PLN 26 billion in the first half of the year seemed to confirm the forecasted results for 2011 at the higher level than those gained in 2010 (PLN 48.7 billion). However, the unusually weak performance in June and in both traditionally slow summer months indicate that this surplus can be symbolic. Moreover,  the President signed the law amending the rules of the “Family On Its Own” programme. In result, on most of the markets it will become impossible to find a housing fulfilling the legal criteria for subsidies. From that perspective, highlighting the extension of the programme on single persons and persons in partner relationships is only a distraction from the government’s complete withdrawal from the programme, which
I believe is actually over.

Despite the continuing – since a few quarters – dominance of PLN loans in new mortgage lending (at a level of almost 80%), share of foreign currency loans in banks’ mortgage portfolios remains high – at the level of over 62%. Share of CHF loans is dominant and reaches 53% of the total loan portfolio.

Situation in the residential market is much worse than in the corresponding period of 2010.  During the period from January to June 2011, the construction of 80,010 dwellings was commenced in Poland, which makes a decrease of 1.3% on the corresponding period of 2010. The trend of dominance of self-builders is being continued – this group of investors started the construction of 48,508 units, which makes an increase of 7.4% compared to the year 2010. Real estate development companies’ sector with the number of 28,529 construction started, reached the result 9.3% lower than in 2010.

According to preliminary GUS data, during the period of January-June 2011, 55,403 housing units were completed, which makes 13.1% less than in the corresponding period of 2010. The downward trend in the number of dwellings completed is still observable in the majority of investors. Only self-builders reported an increase of 3.4% compared to the corresponding quarter of 2010. In the first half of 2011, self-builders completed 33,612 housing units.

On the other hand, the number of permits for construction of housing units issued in the period of January-June 2011 increased – it reached the level of 88,094, i.e. 7.3% more than the number of building permits issued during the corresponding period of 2010. In the light of forecasted actual demand, determined by the availability of mortgage loans and – on the other hand – willingness to borrow, will it result in an increase in the number of dwellings commenced in the coming months?

Q2 2011 brought a further decrease of average prices (from PLN 50 to 150  per 1 square meter of the floor area) on the most of major housing markets. The biggest decrease was recorded in Warsaw and Poznan. Minimum average price increases were noted only in Wroclaw, Gdansk and Katowice agglomeration. In the second quarter of 2011 the highest average transaction price per square meter among the surveyed cities was recorded in Warsaw – PLN 7,826 and the lowest in the Katowice agglomeration – PLN 3,432.

The decline of housing prices was mainly a result of the growth of supply of housing form preliminary market, observed since mid-2010. The increase in housing supply resulted from both the increase in the number of newly commenced investment and the resumption of those that have been suspended in previous years because of the subprime crisis. It also means that in the next few months the rise in house prices is rather not possible. Especially taking into consideration signals of the next wave of global economic crisis, the turmoil around the CHF loans triggered by politicians and the extinction of the “Family on Its Own” programme, which shall result in discouraging of potential buyers from financing the transaction with a mortgage loan.

Jacek Furga
Head of AMRON Centre

Banks’ lending figures for Q1 2011, both in terms of number (57,578) and value of granted loans (PLN 12.252 billion), are comparable to the results of Q4 2010. However, while summarizing the results of last year’s Q4 I highlighted a surprisingly low result, a similar result in the first quarter of this year can be unambiguously assessed as a sign of returning prosperity on the loan market. Such mutually opposing assessments of the same result in consecutive quarters are justified by the cyclical nature of the Polish market related to the seasons of the year. Without further explanations on this issue, you are referred to charts exhibiting quarterly changes in the number and value of mortgage loans.

Figures for Q1 2011 allow for moderate optimism and justify the conclusion that lending volumes in 2011 will be greater than in 2010, but still not exceeding PLN 60 billion. This is despite the fact that a new version of Recommendation S has been adopted on 25th January this year, which definitely tightens mortgage lending criteria. Moreover, not without significance for the results of subsequent quarters will be the final decision of the Polish Parliament on amendments to the “Family on Its Own” government programme.

The signals from the housing market are more difficult to interpret. In Q1 2011, the construction of 30,952 dwellings was commenced in Poland, which makes an increase of 13.6% on the corresponding period of 2010. This increase was brought about by the activity of both real estate development companies – in this period real estate development companies started the construction of 13,215 housing units (14.5% up) – and self-builders, who started the construction of 16,450 units, which is 16.6% more than in the corresponding period of 2010.

On the other hand, according to the Central Statistical Office data, 12,768 housing units were completed in Q1 2011, which is 18.4% less than in Q1 2009. A downward trend of the number of dwellings completed can be observed among both real estate development companies and self-builders. What has increased is the number of permits issued for construction of housing units, which reached 37,266, i.e. by 27% more than the number of building permits issued during the corresponding period of 2010.

Q1 2011 brought the subsequent, steady but rather symbolic (PLN 50 to 100 per square meter of the floor area) decrease in average prices in most major housing markets. One exception was the housing market of Gdansk, where prices rose by about PLN 100 per square meter.

Summarising the activity of real estate development companies that guarantees a surplus of supply over demand in the primary market, it can be concluded that for the moment housing prices are not likely to rise. Particularly when taking into account the fact that the cycle of increases in basic interest rates started by the Monetary Policy Council will – regardless of the effect of regulation – additionally discourage potential buyers from financing the transaction with mortgage loan. Indeed, the number of housing purchase transactions without bank loans has recently increased in the real estate market.

Jacek Furga
Head of AMRON Centre