The last few years have been a boom period for the housing market in Poland, with construction activity and sales of apartments setting new records. In 2019, home starts, building permits, and the value of approved mortgages all reached all-time highs. Apartment prices kept rising and the prospect of a correction seemed remote. But then the coronavirus crisis came, and the market suddenly ground to a halt. What will the situation be like when life returns to normal?
The housing market in Poland has been buoyant in recent years. The developer apartments segment has seen a virtually uninterrupted boom since 2013. The last three years were particularly good.
2019 was an exceptional year in terms housing construction activity:
- 237,300 dwellings were started, a new record that bettered the previous one set in 2018 (221,900 dwellings) by as much as 6.9%;
- 207,200 dwellings were completed, up by 12.0% on 2018 and the best result since 1980;
- Building permits were issued or notifications filed for 268,500 new dwellings, up 4.4% on 2018 and also a new record.
These positive trends continued in the first two months of 2020. In fact, February 2020 was the best month in a decade, both in terms of home completions and home starts.
It appears, however, that the coronavirus pandemic and its disastrous consequences will prove an inflection point, triggering a trend reversal on the housing market. The long-heralded correction will come, affecting supply, demand, and prices. Here’s why this scenario looks very likely:
– All developers and real estate agents closed their sales offices in March and are interacting with customers, and offering property tours, via the internet and video only. Such conditions are not conducive to the finalisation of transactions, and apartment sales have all but ground to a halt. Notary offices are closed, too. Developers listed on the Warsaw Stock Exchange have published statements on how Covid-19 may hurt sales;
– The process of completing the paperwork necessary to apply for a building permit has become very slow and complicated because many public agencies have suspended in-person services, switching to remote work. Since not everything can be done via the ePUAP electronic system, developers are warning that new construction projects will be delayed as a result;
– Potential home buyers will be postponing decisions amid the gigantic uncertainty. They will expect prices to fall as the crisis takes its toll on contractors and developers;
– The ban on short-term rental has forced investors in such properties to look for long-term tenants. If they cannot find them, they may want to sell their apartments in order to maintain liquidity, thus contributing to the downward trend in prices;
– The positive impact of the interest rate cut will be largely negated by banks tightening lending conditions and raising their margins to reflect heightened risk; demand for home loans is unlikely to increase in such uncertain circumstances, with the situation in many sectors getting very serious and a wave of bankruptcies appearing unavoidable.
There are factors, though, that should mitigate the impact of the trend reversal in housing on contractors:
– After several heady years during which they regularly generated impressive profits, developers seem to have enough of a financial cushion to avoid liquidity problems;
– Developers are determined to complete ongoing projects on schedule to be able to access the remaining money deposited by buyers in escrow accounts, so demand for general contractors’ services should remain resilient in the first half of 2020, though new projects will no doubt be delayed;
– Repayment holidays for mortgage borrowers should help avert a major sell-off of homes, at least for the time being;
– The government’s Mieszkanie+ programme, after making an unimpressive start, shows signs of accelerating. Mieszkanie+ projects do not seem under threat, and could partly offset the projected fall in demand from developers later this year.
The progress of Mieszkanie+ so far:
- 907 apartments under construction (as of 31 December 2019)
- 18,000 apartments at design stage with approved financing
- in 2019 construction began on projects in Debica (201 apartments), Minsk Mazowiecki (138), Swidnik (108), Krakow (481), Zamosc (96), Radom (124) and Lowicz (96).
- In 2020, construction is to start in about 20 locations.
An exact estimate of the impact on the level of housing construction output will become possible when the pandemic-related restrictions are lifted. We will then present the most likely scenario. We encourage you to familiarize yourself with the baseline forecasts presented in the report “Construction sector in Poland H1 2020″.
Construction Business Unit Director
CONTACT WITH MEDIA