The Residential Market
The residential market in Poland is by far the largest market in the CEE region. Amongst the ten EU member countries within the CEE, Poland comprises approximately 40% of all residential units built in the region. Despite the market slowdown of 2009 Warsaw remained the largest single market and it continued to be one of the most stable housing markets within the CEE. Out of 25 cities with the largest housing production in the region, almost half are Polish cities.
The residential market in Poland has developed in a fairly sustainable way during the last 15 years, growing proportionally to the overall growth of the country’s economy, development of the mortgage industry and positive demographic trends in the largest Polish metropolises. Although the global property boom and the EU accession had some impact on the growth of the market in the years 2005-2008, the key factors creating demand for new housing were:
- Low level of satisfaction regarding local housing needs, especially in comparison with most of the other EU members, but also with the aspirations of the young members of the society. The discrepancy was visible both in statistical terms (number of residential units per 1,000 inhabitants, usable floor area per one inhabitant, average residential unit), and in terms of quality (age and standard of the stock).
- Increased demand, resulting from favourable economic situation as well as gradual market entry of 7 million people from the second baby boom (born between 1977 and 1986).
- Visible concentration of new investments (particularly when it comes to new workplaces), and the resulting economic development domination of five main agglomerations in Poland (Warsaw, Kraków, Poznań, Tri-City and Wrocław), which still results in migration to these cities.
The year 2010 for the entities operating in the primary residential market was a period of return to normality after the crisis of 2009. This return was visible in all key market phenomena: mechanisms of granting mortgages, the scale of supply, as well as the demand demonstrating itself both in the behavior of purchasers and the transactions made.
The mortgage loan granting policy taken by banks was of great importance for buyers in 2010. On the one hand, it was characterized by a relatively high number of newly granted loans, which could be compared to the new loans of 2008, and on the other hand, by the return to the credit granting principles from before the real estate boom, i.e. the requirement of a significant own contribution, a realistic credit score, as well as a conservative approach towards the evaluation of the collateral value.
A number of factors favored the increase of new loans: steady, low interest rates, decreasing margins, and, above all, improving information on the economic growth and labor market stabilization. These factors also influenced the buyers’ behavior. On the one hand, a visible growth of interest in purchase and a belief that the price will no longer drop were observed, and on the other, an adjustment of preferences and expectations to the buying power, which has decreased due to a drop in creditworthiness.
Sales intensity aggregated for the six analyzed markets, i.e. the ratio of a number of units sold within a quarter and the volume of the offer at the beginning of that quarter, reached 19.3% in Q4 2010. Considering the volume of the offer, the sales rate was rather good, although it needs to be stressed that 25% is the level of theoretical balance. In all of the largest markets, except for Łódź, the indices ranged from 19 to 22%, and in Łódź the index was 17%.
In most cities, the total sales level during the four previous quarters was slightly higher than the long-term average sales for these markets, while in Wroclaw it was significantly higher. In this respect Warsaw is the exception, since only 10,600 units found buyers in the period, ca. 2,500 less than the long-term average transaction level for this market. Therefore it seems that, when compared to the other cities, the capital city still has the highest growth potential.
On the supply side, Central Statistical Office (GUS) data also confirm that in 2010 Polish developers regained their optimism. After last year’s breakdown, in the January-December 2010 period, this group of investors commenced the construction of 63,000 residential units, i.e. almost 42% more than in the analogous period of the previous year.
The number of units for which developers were granted a building permit increased by 8%reaching 68,000 units.
In Q4 2010, in the six major agglomerations, namely Warsaw, Krakow, Wroclaw, Poznan, Tri-city and Lodz, over 8,500 residential units were introduced to the market, bringing the year number of dwellings launched for sale to nearly 31,000, i.e. over 45% of the number of residential units started in that period by developers and housing cooperatives.
Despite rather good and regular sales, the accumulated volume of the offer for the six agglomerations reached a level of nearly 39,000 by the end of the year. Completed and unsold dwellings still constitute a significant part of the current offering. At the end of December there were nearly 4,200 such units in Warsaw, slightly less than in the previous quarter. In total, residential markets in the six agglomerations offered slightly over 9,400 completed and unsold units, and their number increased by 13% in 2010.
The offering growth was also caused by the resumption of the implementation and sales in projects which have been temporarily suspended, and by purchasers’ withdrawals from previously concluded sales contracts. Undoubtedly, the restrictions in mortgage loan granting procedures placed by banks in 2010 in accordance with the recommendations of the banking supervision have influenced this phenomenon.
At the same time, the signals coming from the companies indicate that in 2011 developers are planning to launch more new projects to the market than in the previous year. In the face of the current surplus of supply over demand, it seems unreasonable to predict a price increase for the coming quarters. However, especially in the long run, the residential market in largest Polish cities with the best economic and demographic situation offers attractive opportunities.