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Kazimierz Kirejczyk, FRICS
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31 December 2018
Kazimierz Kirejczyk, FRICS
There seems to be a prevailing conviction on the market that investing in real estate is a good idea for your savings. Those who bought their flats in 2004–2006 will definitely confirm that. Thanks to the increasing prices, they can now sell their flats at a profit. Given the current relatively stable prices, is buying flats as investments still a good idea?
In the 6 largest cities of Poland, individual investors are a major demand-generating group. In accordance with the most recent REAS research, their purchases made in 2016 represented around 22% of all transactions. It is important to stress that the share of this group is increasing. Compared to the research compiled a year ago, a drop was only recorded in the Tri-City – by 2%. However, the share alone is not all there is to it. In addition to the increasing volume of transactions in these cities, in every case we also recorded a major increase in the number of units purchased as investments. There were nearly 14,000 such properties.
What is interesting, the transactions were usually financed with the buyers’ own funds. In accordance with the data compiled by REAS, the share of transactions not involving loans in the analysed cities was 54%, and even around 70% in Wrocław and Warsaw.
What makes investing in real estate so attractive? Relatively low interest rates are surely an important factor as they discourage from keeping savings in banks. Investing in real estate is more risky than making a term deposit but may generate higher profit. Stable profit sources on the rental market attract investors much more than the potential increases of the prices of real estate in the short term. High demand for flats for rental and the fact that the current offer is unattractive predicts stable long-term rentals and no problems with finding tenants. Increasing rents are also an important incentive. Prevailing optimism thus seems justified.
The city which is the most attractive from the point of view of individual investors is undoubtedly Warsaw. The total number of transactions in the capital city involving properties bought as investments reached over 4,000, up by around 1,600 units year-on-year
Does this mean that soon tenants will be able to pick and choose between rentals just as the buyers do nowadays? Not quite. REAS research conducted among developers in the 6 largest cities in Poland shows that 1-bedroom flats of 35 to 45 sqm are the most popular type of property bought as an investment. Individual investors were not interested in 2 or 3-bedroom flats at all. This is no surprise. The largest group of tenants in Poland are singles and childless couples. From their point of view, convenient access to public transport, their place of work and entertainment are the priorities.
It seems that in the largest cities such as Warsaw, Kraków or Wrocław, which attract young people with job offers and career development potential, the decision to invest in real estate for rental is not an excessively risky move. It is enough to choose the right size, flat layout and location. However, this seems to be an oversimplification. The activity of individual investors on the market depends on two main factors – changes in interest rates and the availability of flats for rental. Increasing attractiveness of bank deposits and growing competition on the rental market, not only as a result of higher demand from individual investors but also in connection with greater involvement of large institutional client in this segment, is likely to cool the enthusiasm of those who would like to buy properties for rental in the coming years.