The Eurozone debt crisis continues to plague real estate markets in many countries and Poland is no exception. Studies show the country’s house prices have been falling since 2008, with some Polish cities suffering more than others. House prices in Lodz have dropped more than 35% when compared to pre-crisis levels and even Warsaw is facing declines of more than 13% as the country’s economy continues to struggle. The housing market is bogged down by oversupply and unemployment and increasing interest rates are not making it easier for citizens to enter the housing market. For more on this continue reading the following article from Global Property Guide.
Poland’s property market remains weak, with the domestic economy slowing, mainly due to the eurozone debt crisis.
During the year to end-December 2012, the average price of apartments in Warsaw, dropped by 2.49% to PLN8,002 (US$2,565) per square metre (sq. m), according to Ober Haus. House prices in other Polish cities fell more.
Both Lodz and Gdansk saw house prices falling 6.6% y-o-y in December 2012, to PLN3,814 (US$1,222) and PLN5,695 (US$1,825), respectively. In Cracow, house prices fell by 4.6% to PLN6,688 (US$2,144) while house prices in Poznan dropped by 4.4% to PLN5,450 (US$1,747).
House prices in Poland have been falling since mid-2008. Compared to pre-crisis peaks:
- House prices in Warsaw are down by 13.1%
- In Cracow, house prices are down by 17.9%
- In Poznan, house prices have fallen by 28%
- In Gdansk, house prices plunged by 27%
- In Lodz, property prices plummeted by 35.7%
Poland’s property market is expected to remain weak in 2013, as unemployment rises to a record high.
In 2012, the total number of dwellings completed increased by 16.5% to 152,527 units from a year earlier, based on preliminary data released by the Central Statistical Office (CSO). However, the number of permits granted dropped by 10.3% y-o-y to 165,092 in 2012, while dwellings under construction fell by 12.6% y-o-y to 141,798.
Total outstanding housing loans increased a meagre 0.2% to PLN320.5 billion (US$102.7 billion) in November 2012, from the same period last year, according to the National Bank of Poland (NBP). 44% of housing loans were denominated in zloty, with Swiss Franc-denominated housing loans accounting for 46%, while the remaining 10% were denominated in other currencies.
The average interest rate for outstanding zloty-denominated housing loans was 6.9% in November 2012, up from 6.7% at end-2011, and 5.9% at end-2010, according to the NBP.
“The [property] market hasn’t rebounded completely and prices may drop further still,” said Marcin Plazinski of Emmerson Real Estate. “Because some property developers anticipated a recovery in 2010 and 2011, they embarked on development projects, adding to the oversupply of housing.”
The Polish economy was estimated to have expanded by just 1.5% in 2012, the lowest level since 2002, according to the NBP. The economy grew by 4.3% in 2011, 3.9% in 2010, 1.6% in 2009 and 5.1% in 2008, according to the International Monetary Fund (IMF).
The country’s annual unemployment rate inched up to 13.3% in December 2012, the highest since 2006, based on preliminary estimates from the Ministry of Labor and Social Policy.
Market swamped by unsold units
The number of completed but unsold units increased by 11% in 2011, despite dwelling completions falling 3%. Forced sales by cash-strapped owners added to the total, so the housing market is awash with unsold units.
However, building permits recovered slightly in 2011, growing 5.2%. Dwelling starts also rose, by 2.6%.
The EU brought a housing boom
After the shift to a market-based economy in the early 1990s, the Polish economy experienced nearly two decades of 5% annual growth. Unemployment fell dramatically from 19.9% in 2002, to 7.1% in 2007, and the Polish mortgage market exploded. Outstanding housing loans increased from 1.3% of GDP in 2000, to 16% of GDP in 2009.
Buyers were typically relatively young (31 years old), had no children (80% of buyers), and bought apartments ranging from 46 to 60 sq. m.
When Poland joined the European Union in April 2004, a massive house price boom was unleashed. Having been rather static, property prices suddenly surged in Warsaw by 23% in 2005, 28% in 2006, 45% in 2007, and 13% in 2008, according to REAS. Some other cities such as Wroclaw saw even larger house price rises.
Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation.
From 2001 onwards, a large proportion of housing loans were foreign currency-denominated. The foreign currency-denominated proportion rose from 9% in 1999, to 50% in 2001.
The total amount of foreign currency-denominated outstanding housing loans is still very high, at 61% of the total in 2011, only a slight decrease from the 69% peak reached in 2008.
Interestingly, while the share of Swiss Franc-denominated new housing loans fell from 69% in March 2009 to 52% in December 2011, the share of new loans in other currencies increased from 2% to 10%.
Developers fear a regulation tsunami
The most significant event for the future of Polish property market is the so-called "developer bill", which will take effect 29th April 2012, which aims at protecting the rights of purchasers, changing the relations between the developer, the client and the banks, including the usage of escrow accounts.
In theory, this new legal framework will force housebuilders to compete for banking loans, and will improve the quality of projects and business plans. But could the new law reduce total financing?
“On the supply side, we predict that several developers will launch new projects before the law takes effect, fearing that banks will change their construction credit policy," says Maximilian Mendel of REAS. “It will also influence the demand side.
“Before the law comes into effect, we expect that a large part of prospective homebuyers will hold back their purchase decision, whereas it is likely that we will see more sales from 29th April onwards.”
Recommendation T
Another important development is the so-called Recommendation T. Before the crisis, mortgages in excess of 80% of property values were common and many banks offered 110% mortgages.
Recommendation T was approved in February 2010 and came into force in the following August. It recommends a maximum loan-to value (LTV) ratio for foreign denominated loans of 90% for 5-year loans, and 80% for longer-dated loans. Borrowers can take 100% loans only if they obtain adequate insurance.
The second part of the recommendation T, which came into force at the end of 2010, imposes a ceiling on monthly repayment installments of 50% of the income of those earning below the average national salary, and 65% for those earning more.
Curbing foreign currency denominated loans
Since June 2010 there has been stricter regulation of lending by banks in foreign currencies by the Polish Financial Supervision Authority (KNF). This has substantially cooled the housing market, as PLN-denominated loans have higher interest rates. In November 2011 the average zloty-denominated housing loan had a 6.9% interest rate, much higher than the 4.1% on euro loans.
Interest rates up!
After several cuts in the reference rate during the financial crisis, on January 2011 the Poland National Bank set out on a moderately restrictive path that has not yet been reversed, holding the reference interest rate steady at 4.5%.
The result of these measures is that loan volumes are expected to decrease considerably, according to a National Central Bank January 2012 survey:
- 86% of senior loan officers at banks expect loan grant standards to be tightened further in Q1 2012
- 40% say the tightening will be "considerable".
Thin rental market
The private rental market is thin in Poland. The social-rental market has been shrinking over the past 20 years. After the privatization of housing in the early 1990s, owner occupancy rose from 48.3% in 1990, to 74.5% in 2002 (55.2% individually-owned and 19.3% co-operatively owned).
Across Poland, rents have fallen since Q4 2009, after having been flat during the previous 3 years, with oversupply especially of high-end apartments.
Average rents in higher-end districts of central Warsaw (Sródmiescie) varied from €14.08 and €15.41 per square metre per month in April 2011, and €11.53 to €8.64 in Krakow, according to Global Property Guide research.
Gross rental yields are higher in Warsaw, varying between 5.3% and 5.4%, than in Krakow, where they range from 3.4% to 4.1%.
Economic slowdown
Poland is the only European country which avoided recession during the global financial and economic meltdown. The economy expanded by 5.1% in 2008, 1.6% in 2009 and 3.9% in 2010. GDP grew by 4.3% in 2011, mainly due to strong domestic demand.
However Poland is now feeling the pinch of the eurozone debt crisis, with domestic demand and investment declining. In the third quarter of 2012, GDP growth unexpectedly slowed to 1.4% from a year earlier, from 2.5% in Q2 and 3.5% in Q1. Domestic demand dropped by 0.7% y-o-y in Q3, from a decline of 0.4% y-o-y in Q2 2012. In 2012, the economy expanded by just 1.5%, the lowest since 2002, according to the National Bank of Poland (NBP).
The Polish economy is expected to grow by 2.2% in 2013 (government forecast). But others are more pessimistic. The OECD projects that Poland’s GDP growth will slow to 1.6%. Capital Economics expects growth of just 1%.
High unemployment
As the slowdown bites, companies are announcing layoffs. In 2012 the number of unemployed rose by 154,900.
Unemployment inched up to 13.3% in December 2012, the highest level since 2006, based on preliminary estimates from the Ministry of Labor and Social Policy - a sharp contrast to the average 2007 to 2011unemployment rate of 8.8%. In the first nine months of 2012, about 614 companies declared bankruptcy, the highest level since 2005, according to the debt collectors Coface.
