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Surgical precision of developers

18 October 2017

Sales of new flats in the six largest Polish cities reached 17,500 for the second quarter in a row. This is the exact number of units that were launched for sale by developers. For the last two quarters, demand and supply remain in an almost perfect balance, and the only thing that is rising are prices, reads the latest report by the consulting firm REAS "Residential Market in Poland – Q3 2017".

Looking at the sales results achieved by developers in Warsaw, Kraków, Wrocław, Tri-City and Łódź, it is hard to resist the impression that we are dealing with a housing boom. 17,500 units sold for a second quarter in a row, and the best results in the history of the market for a period of 12 months (nearly 72,000) suggests that 2017 will not be worse than the previous year, and the record of 70,000 units sold will be broken.

We are not, however, dealing with a leap in housing prices, which we saw at the peak of the previous cycle. This is mainly due to the reasonable policy of developers, who, with nearly pharmaceutical precision, deliver as many units in newly launched projects as there are sold on the market. According to REAS experts, it will become increasingly more difficult for them to keep this balance. Soon, this will only be possible to achieve by those companies that have stocks in the land banks, or are able to compete financially for the increasingly scarcer, well-located land.

For the time being, price increases do not deter buyers, because the market environment does not give cause for concern. Stable economic growth, record low unemployment and rising wages, as well as exceptionally low public finance sector deficit, have made buyers more optimistic. Poles are relatively richer today than they were a decade ago, and even with rising housing prices they are still able to afford to buy without much risk. Therefore, there are no signs of the "on-demand bubble" in the observed trend.


According to Katarzyna Kuniewicz, Head of Market Research and Analysis at REAS, there is another reason for the observed increase in the price of housing units introduced to the offer. In response to the first signs of changing demand patterns, developers responded with a flexible supply adjustment, Katarzyna Kuniewicz says. Realizing that the MdM program will soon no longer be relevant, they have begun to sell properties in the upper-middle segment. These properties have better locations and are aimed mainly at buyers who wish to upgrade their housing status or buy properties for rent, making them consequently more expensive. At the same time in the popular segment, restrictions in the form of an MdM price cap are beginning to disappear, which may signal a rise in the prices of the thus far lowest-priced housing units.

The Tri-City is an example of such a significant increase, where the prices of new units were 23% higher than a quarter ago and 26% higher than in the previous year. As a result, the average price of units on offer (considered the most stable price index) increased by 12% qoq in this city and reached 7,900 PLN per 1 m2.

Of course there are exceptions to this rule. Wrocław developers decided to reach those customers hoping to take advantage of the last government subsidy program (to be launched in January 2018), and in the third quarter introduced mainly those properties that are of interest to this group of buyers. Only 150 units of the nearly 2,500 total properties on offer in this city could be classified as upper-middle segment units, according to the REAS classification. As a result, Wrocław was the only city among the analysed six with a nearly 4% drop in prices of units launched for sale (qoq).

Purchases, or rather MdM reservations, apart from the increase in sales in the coming months, will bring yet another result, which will be mostly visible at the beginning of next year, says Katarzyna Kuniewicz, Partner at REAS, responsible for Market Research and Analysis. There will certainly not be enough funds for all those interested. Some of them will not be able to go through with the purchase and the reserved units will return to the market at the end of Q1 2018, which will increase the offer, regardless of the new supply.


More details in the report: "Residential Market in Poland - Q3 2017".