Despite a drop in residential sales, the market remains in a state of equilibrium
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Kazimierz Kirejczyk, FRICS
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Summary of 2018 on the primary residential market
31 December 2018
Kazimierz Kirejczyk, FRICS
In Q2 2018 developers on the six major markets in Poland sold 15,600 new units, which is 15.2% down on the result one quarter before and the first such distinct fall in sales for more than five years. The quarter was the third in a row in which there was a clear decrease in the number of new flats released on the market. This has led to a considerable hike in prices, says the latest report by residential advisory company REAS on the “Residential Market in Poland – Q2 2018”.
Following a period of almost three years of constant growth on the primary residential market, there is a distinct decline. At the turn of the year, developers stumbled, placing significantly less flats on the market than they were able to sell. There was recurrence in the first and in the second quarters of this year. On the six markets analysed by REAS, (Warsaw, Wrocław, Kraków, Tri-City, Poznan, and Łódź) 30,300 new flats were released in the first half of the year, which is more than 3,000 less than in the same period in 2017. Over the same period, 34,100 flats were sold, which is also a worse result year on year.
Q2 2018 was also the first quarter in over five years in which there was such a distinct fall in sales. The number of transactions recorded overall for the six markets was 15,600 – which is a drop of 15.2% on the previous quarter and 17.4% on the record-breaking last quarter of 2017. On the largest market in Poland, Warsaw, sales dropped by 24% quarter on quarter. REAS recorded a similar fall in Wrocław by 23.3% quarter on quarter, while in Kraków and the Tri-City the quarterly drop was in the region of 10% (9.6% for Kraków and 11.5% for the Tri-City). Interestingly, there was an increase on the smallest of the analysed markets. In Poznań, the number of transactions went up by 6.7% quarter on quarter. Łódź has now broken its record results for the second quarter running, with a result up by 16.2%.
- This does not indicate by any means that buyers have suddenly stopped buying flats. The rate of sales and low percentage of units ready but unsold is confirmation that demand continues to significantly exceed supply. This was one of the causes of the increase in prices in all of the cities. Some buyers did not accept the increases, and also, for almost two quarters now, people who are at the limit of their credit score have not been able to expect assistance in the form of government subsidy schemes (Home for the Young). – Katarzyna Kuniewicz, Director, Market Analysis & Research at REAS, says.
In Q2, the rise in prices was moderate. The greatest increases in the average price of flats on offer were recorded in Warsaw (4.9%) and Kraków (5.3). Year on year, on the other hand, the scale of the increase is impressive. Compared to Q2 2017, the greatest change was in the Tri-City (+16.4%). Growth reached double digits as well in Warsaw (13.3%), Poznań (10.4%) and Wrocław (10.2%). Kraków came close to the other cities with a rise of 8.2%. The result in Łódź is moderate given these figures (+6.9% year on year). The question on everyone’s lips is: will there be a drop in prices, and if so, when.
- According to theory, when the market cycle follows the usual trend, without the impact of a global crisis, during economic downturn there should be a distinct drop in prices of approximately 10-15%. However, this drop should be a result of an excess of flats on offer, i.e. when the number of flats awaiting buyers is approximately twice the number sold annually. Meanwhile, there is no indication of this. The number of flats on offer is just over half of the number sold annually and the demand-supply incongruity is not being resolved. The opposite is the case – supply is decreasing at a faster rate than demand. This means that there is no typical mechanism forcing prices to fall – Kazimierz Kirejczyk, REAS Managing Partner and Key Market Expert, says. – Developers can expect that the decreasing willingness to accept rising prices and less choice of units will mean less interest on the part of buyers. There is every indication however that the fall in the volume of transactions on the market will be slow and gradual, giving development companies a chance to adapt to the changing situation on the market.
Read more in our report: Residential Market in Poland - Q2 2018