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Residential market in Poland – Q1 2018

27 April 2018

The initial three months of 2018 have confirmed that the demand for flats on the primary market has not weakened. However, this does not mean that there are no reasons for the developers to worry. This has been the second quarter in a row in which they failed to release enough units onto the market to satisfy the growing demand for new flats. This has caused the offer to contract and elevated the prices significantly.

Although between January and March 2018 the sale of flats on the 6 largest markets reached 18,400 units, which was similar to the record-breaking end of the previous year, it occurred at significantly lower supply. 14,900 units were launched for sale, down by 10% quarter on quarter. The markets that felt this drop the most were Warsaw and Kraków, where the offer shrank quarter on quarter by 15% and 11%, respectively. The past quarter has also shown that the factors that made life of the developers harder are starting to affect the market even stronger.

Units continue to sell but margins are contracting

The prevailing optimism of homebuyers, associated, among all, with the very good performance of the Polish economy and excellent situation on the labour market, namely the lowest unemployment rate in 28 years and increasing salaries, make it easier to buy a flat. Awareness is also increasing among the buyers, for whom real estate is a way of investing capital or securing future after retirement. Given the current interest rates, even purchases financed with a loan seem an attractive option. Closure of the Home for the Young government scheme, contrary to what was expected, did not cause a radical drop in the number of transactions on the markets where its impact was the greatest. The conclusion is that the buyers of flats as investments and people changing their dwellings to bigger/better/more conveniently located units have had the greatest impact on the market.

Meanwhile, dark clouds loom over the horizon. Supply is decelerating, for a number of reasons. Among them are difficulties in sourcing general contractors. In certain cases the costs of construction are 30% higher, which is associated with the rising prices of building materials, insufficient number of employees in the construction industry (which inflates payrolls) and competition from major infrastructural projects, which keep many contractors occupied. Rising prices of land also affect the development industry. Legislative changes introduced in the previous year have significantly limited their availability. Many developers and competing for the ones that permit to execute residential projects. If one also considers the changes in the structure of demand (the main groups are individual investors and homeowners improving their standard of living), purchase of land allowing to quickly build and commercialize the project maintaining the right margin is a real challenge.

 

 

Who will pay for it?

In this situation, the developers are forced to make a choice between lowering the standard and increasing the prices. The former option may make the potential customers lose trust in the developer. The latter may curb demand. The results of REAS monitoring show that the developers have chosen the second option, at least for now. Compared to Q1 2017, the prices increased in all of the monitored markets: in the Tri-City by 16%, in Warsaw by 11%, in Wrocław by 9%, in Łódź by 8%, in Poznań by 6% and in Kraków by 5%.

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The residential market is currently in the crucial phase of the cycle. There are many factors that may cause a slowdown in the sector but the forecasts for the coming quarters of 2018 cannot be called pessimistic. If there are no changes in the law that would have a major impact on the developers’ activity (e.g. the planned amendment of the developer act), and the interest rates remain unchanged, as announced, the situation on the residential market should not change significantly in the coming months.