Revival on the Residential Market
September 28, 2012
Poland’s housing market has revived noticeably since the beginning of the year. But it is unclear if the upward trend will stay for long.
Analysts from real estate services company REAS, which provides advice to those planning and carrying out residential projects, say the record number of new homes put on the market in the second quarter of this year is the result of a new law on the protection of home buyers that came into force in late April. The law has significantly improved the position of home buyers vis-a-vis developers.
“On the one hand, as expected, the law has prompted many firms to offer homes in new projects—and go ahead with new phases of these projects—earlier than would have been the case otherwise. Consequently, there was a marked increase in the number of new homes offered for sale,” says Kazimierz Kirejczyk, CEO of REAS. “On the other hand, because of its many unclear provisions, the law has caused confusion among developers, buyers, notaries and bankers, who are now learning how to operate in the new legal environment. As a result, the figures illustrating the performance of the sector as of the end of June may significantly differ from medium-term trends; atypical developments in the market environment have to be taken into account while interpreting these figures. The impact of the law will probably be felt in the next quarters of 2012. It will also be reflected in changes taking place in the sector in the long run.”
Studies by REAS show that in the second quarter of this year investors in six Polish cities with the highest volume of home sales on the primary market—Warsaw, Cracow, Wroc³aw, the Tricity of Gdańsk, Sopot and Gdynia, Poznań and £ód¼—put on the market almost 12,900 new homes, 33 percent more than in the preceding quarter and 21 percent more than a year earlier. In the first half of 2012, a total of 22,600 new homes were put up for sale on these markets. Previously under 30,000 homes were sold there annually. At the beginning of the first quarter, the total number of homes offered for sale approached 49,000.
The REAS data on the number of homes put on the market are consistent with figures released by the Central Statistical Office (GUS), according to which in the first half of 2012 developers started building 34,800 homes across Poland, 21.9 percent more than a year earlier. The number of homes for which developers received building permits exceeded 40,000 and was 13.5 percent higher than a year earlier. Housing associations started building 1,600 homes, 76.7 percent more than a year earlier, but received permits for only 933 homes, 42 percent less than in the first half of 2011. The six cities studied by REAS—Warsaw, Cracow, Wroc³aw, the Tricity of Gdańsk, Sopot and Gdynia, Poznań and £ód¼—account for around 50 percent of all homes built in Poland for sale.
More homes to choose from
As a result of the large number of homes put on the market in the second quarter, the number of homes offered for sale in the six cities at the end of June was close to 56,700 and was over 23 percent higher than a year earlier, with more than 21,000 homes offered in Warsaw, 10,800 in Cracow, 9,500 in Wroc³aw, 7,900 in the Tricity, 4,600 in Poznań, and over 2,800 in £ód¼. In Poznań and £ód¼, the increase in the number of homes offered for sale was relatively small. But the combined increase for all the cities was record high.
The REAS research indicates that homes under construction still account for the largest proportion, at 66 percent, of all homes offered by developers. However, the number of homes completed but not sold in the second quarter increased by 8 percent compared with the previous quarter and by over 29 percent compared with the second quarter last year. At the end of June, there were around 4,600 such homes in Warsaw, much more than at the end of the previous quarter. The total figure for the six cities was 12,500. Considering that a large number of homes is scheduled for completion in the second half of 2012, the number of homes completed but not sold will likely go up significantly in the next two or three quarters.
In the second quarter of 2012, the volume of sales transactions on the six markets rose by around 2 percent quarter on quarter to over 7,600. The figure was comparable to that recorded in the second quarter of 2011. Given the commotion over the law on the protection of home buyers and more restricted access to mortgage loans, it was a good result, REAS says. The large number and wide range of homes offered, coupled with flexible prices, boosted the number of transactions.
Prices on the decrease
The average asking and selling prices of homes continued to decline, but the prices of homes put on the market in the second quarter bucked the trend. For the second straight quarter the average price of homes put on the market in the six cities studied by REAS remained almost unchanged from the previous quarter. There were several reasons behind this. One reason was that more expensive apartments were put on the market and the number of high-standard projects was higher than in previous quarters. Moreover, developers quoted relatively high prices for homes with distant completion dates so as not to create internal competition with regard to residential projects currently under way.
In the 12 months to the end of June, developers sold around 29,400 homes across Poland, 1.5 percent less than a year earlier. These relatively strong sales came at a price—the number of homes sold remained stable, while the number of homes offered for sale increased, which meant more effort was needed to attract and serve buyers and there was a considerable drop in the number of homes sold per project. For comparison, at the end of 2010, around 39,000 homes were offered for sale.
The time needed to sell off the existing stock of completed homes is now longer. Developers in Warsaw and the Tricity area are generally better off than in other cities. They would need just over 21 months to sell all the apartments they have in their portfolio if the homes continued to sell at the same rate as in the previous four quarters. Developers in Cracow are in the worst situation: they would need 26 months to sell off their stock.
Besides, the excess of supply over demand in Cracow is the highest among the six studied cities.
The general drop in housing prices does not apply to luxury apartments. This market segment continued to expand relatively fast. The market for luxury apartments started to develop in Poland in the late 1990s. Initially, developers carried out luxury residential projects only in Warsaw. Then they moved into other large cities and vacation resorts, yet most apartments of this kind are still built in the capital.
Experts say luxury apartments account for no more than 2-3 percent of all homes offered on the Polish market. It may seem that this is not much compared with Western European countries such as Britain, France and Germany, but it is necessary to remember that the Polish luxury real estate market is relatively young and still developing. The prices of luxury apartments in Warsaw range from zl.11,000 to over zl.40,000 per square meter.
Apartments for rent
Most people buy new homes in Poland to meet their own housing needs. But a growing number of buyers also purchase residential properties as an investment.
An apartment may be a good investment and additionally generate income from rental for the owner. Some developers offer what are called serviced apartments in popular tourist destinations and vacation resorts at the seaside, in the mountains, and the Mazuria Lake District. But this kind of real estate investment has only started to develop in Poland. In large cities, such opportunities are virtually unavailable for the time being.
The Dolcan company says it is the first developer to offer customers an opportunity to buy and rent serviced apartments in Warsaw. Dolcan targets investors who want a guarantee that the property will generate income. A customer buying an apartment from Dolcan becomes its full owner and may decide to use it as their own dwelling in the future. An additional advantage is that Dolcan promises to pay an 8-percent yield to the owner. At present, Dolcan offers such apartments in two projects in Warsaw.