Real Estate: What can calm the housing market?

10.9 thousand in Warsaw and less than 10 thousand per square meter in Gdańsk or Kraków – these are the average apartment prices that we actually paid in the third quarter of 2021 – according to the latest NBP data. Even in provincial cities such as Bydgoszcz, Katowice, Kielce, Opole or Zielona Góra, the average transaction price of a flat has already exceeded PLN 5,000. PLN per meter of used premises.

This year, the pace at which apartments are becoming more expensive is clearly gaining momentum. The latest NBP data show that the average square meter of a new flat in the 7 largest markets has increased by a little over 10% during the year. In the case of second-hand flats, the usual average from notarial deeds has gone up by 7.3%.

On the second-hand housing market, central bank analysts are able to determine not only how the average average has changed, but also to assess the dynamics of price changes, taking into account the quality of the premises sold.

The point is that it is possible to clear the data from the fact that, for example, only more people buy flats of lower or, on the contrary, higher quality. An index that studies price changes in this more reliable way is called a hedonic index. It shows that the average “M” sold in the 7 largest markets increased by a little over 10 percent during the year.

The fact that the hedonic index shows a faster rise in prices than the usual average suggests that today – when flats are clearly more expensive – more compatriots choose flats from the lower price range – e.g. in a lower standard or further away from the center. In this way, we try to reduce the total cost of the purchase.

Over the past few quarters, the rise in home prices has been driven by many factors. Acted here, among others the fact that real estate is seen as a safe haven for capital and a weapon against inflation. In addition, the price increase was influenced by: the dynamic increase in wages, a very efficient reconstruction of the economy and the growing optimism of my compatriots. The lowest interest rates in history were of key importance for the development of the situation.

It was because of them that the deposits were almost interest-free, and the loans were the cheapest in history. The demand stimulated in this way entered a market where there was a shortage of offers – partly due to the fact that some developers stopped starting new investments at the beginning of the epidemic. It took several months for developers to catch up with the two months of suspending new projects. More important, however, is that a lot of flats are attracted from the market by investment funds (mostly foreign), which buy not only individual flats, but also entire blocks, housing estates or even development companies, thus limiting the market offer.

There are many indications that some of these factors will lose at least some of their momentum. For example, loans are no longer the cheapest in history. It can already be estimated today that as a consequence of two interest rate increases, as a result of which the base rate went up from 0.1 percent. to 1.25%, housing loan installments should go up by about 16-18%.

Creditworthiness also fell by this level more or less. This obviously has to translate into lower demand for flats. At the same time, this change will soon be partially amortized by the act on loans without own contribution signed by the President.

As a consequence of the interest rate increases, banks also started to increase interest rates on deposits. As a result, soon the interest on deposits will no longer be several dozen times less attractive than the potential profits from renting apartments. However, a revolution is not to be expected. Even if the interest rate on deposits actually increases, the profitability of renting flats will probably still be several times higher than the profits from bank deposits. Nevertheless, this expected normalization may have an impact on the decline in investment demand for flats.

What has happened in the housing loan market in recent quarters is also very important. Let us recall that in 2020 banks clearly closed the taps with loans. Only at the beginning of this year, the two largest banks re-provided loans with 10 percent. own contribution. This triggered a deferred demand. Poles simply wanted to make their dreams of buying a flat, which they had delayed for many months, come true.

So far, e.g. BIK data suggest that this additional demand peaked in May. Then, each working day, banks received about 2.5 thousand. loan applications. In the following months, this wave subsided. As a result, in October we can already speak of about 1.86 thousand. daily loan applications. This suggests a normalization of the situation and the fact that deferred demand has largely been exhausted.

We can also look for phenomena that may lead to balancing of demand and supply on the other side of the market – on the supply side. Developers have many new investments in preparation. For example, the latest data from the Central Statistical Office of Poland shows that in the 10 months of 2021, developers received building permits for over 174,000 apartments and started the construction of almost 141,000 units. In both cases, this means an increase of over 30%. compared to the same period last year. These data show that developers spare no effort and resources to meet the demand needs. There are many indications that with time they will be able to do so to an increasing extent.

Ultimately, when talking about the supply of apartments, it is impossible not to mention a completely new phenomenon on the domestic market, i.e. large (often foreign) investment funds that buy apartments in Poland. The scale of this phenomenon is huge. These companies are responsible for the demand, which can be estimated at about 20 percent. purchases made by Kowalski on the 7 largest markets. This translates into the dynamics of housing price growth. The government has promised to fight this phenomenon. This problem and possible solutions are discussed in depth in the latest HRE Think Tank report – Impact of institutional investments on the housing market.

Bartosz Turek, chief analyst at HRE Investments


About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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