The Only Way Is Up: Flats and The Polish Population

The Polish housing market boomed between 2004 and 2007 but subsequently slumped for the following 6 years with much weaker volume of sales leading to falling prices. 2013 saw the green shoots of an improvement with volume of residential sales in Q4 2013 the highest since Q1 2007. Over this extended property cycle, prices have receded to the levels seen back in 2005 but now appear to have bottomed out and the prognosis is for prices to begin rising again slowly in 2014. 

The number of apartments sold throughout Poland in 2013 grew by almost 20% (over 35,000 apartments sold) when compared to 2012 (less than 30,000 apartments sold) and was on a par with the historic high levels of sales reached during the boom year of 2007. This volume of sales, twinned with diminished new supply, meant that the total number of units available for sale on the market by the end of 2013 decreased notably. Price levels remained stable across the principal cities in Poland including Krakow. Warsaw even saw the start of a new upwards trend in 2013 noting an increase throughout the year of 4%. 

The market fundamentals are unlikely to change over the next months whilst the macro-economic outlook for the region is positive with almost all national economies in CEE forecast to grow in 2014. A variety of socio-economic changes, such as steadily increasing personal wealth, heightened personal mobility and higher divorce rates are leading to a growing number of households in general in Poland whilst migration to particular major cities, most significantly Warsaw but also secondary cities including Krakow, for work and for studies is also perpetuating a demand for residential stock.

Real estate as an investment has also returned to the fore. At the end of the boom years it made little sense to buy property in Krakow – prices were high and destined to fall whilst rental yields had compressed so much (in some cases below 3%) that it was a wiser decision to keep cash in the bank on a saving account. Fast-forward 6 or 7 years and Polish interest rates are at an all-time low making it hard to achieve 3% in the bank whilst lower capital values of real estate and slightly increased rents meaning that residential rental yields of over 5% are once again more than feasible. Factor in the potential for slow but steady capital growth of 3% – 4% per year and total returns may even be closer to 10%.

Several further external factors may also affect the Polish residential market in 2014. A government sponsored programme ‘Apartments for the Youth’ that started in January 2014 (replacing the ‘Families on their Own’ programme) will aid families to get on the ladder through subsidising their purchases and will therefore help sales at the cheaper end of the market. The start of the year also spelled the end for 100% LTV mortgages (following the almost total disappearance of the maligned foreign currency mortgages – particularly Swiss Franc loans) although 95% mortgages are still available. The stimulus of the government scheme on the one hand will possibly be snuffed out by these slightly harsher mortgage restrictions on the other hand.

The elephant in the Polish residential room is the formation of the BGK fund (also Polish government related) which has set aside 5bln PLN and plans to buy up even 20,000 apartments over the coming years in all major cities. It is yet to be divulged where the fund will focus but it is likely that Warsaw will be a main target although there will be a geographical spread across all major cities. It is also probable that the fund will focus on cheaper apartments and may even start buying property before the end of 2014. The fund will hold the apartments and therefore de facto become one of Poland’s largest landlords, renting them out to individuals at (or just below) market rates. A potential effect of the fund’s activities may be to upset the residential property apple-cart by exaggerating an unnatural demand at the same time as depressing rents at the bottom of the market.

After the trials and tribulations of the last 7 years on the Polish residential market, it can only be hoped that the fund will deploy their funds sensibly and not prevent the market from following its natural cycle.