The average price of apartments in Warsaw, decreased by 0.9% year-on-year (y-o-y) to end-May 2014, to PLN 7,785 (€1,880) per square metre (sq. m.), according to Ober Haus, lower than the declines in April 2014 (-1.3%) and in May 2013 (-3.5%). When adjusted for inflation, property prices in Warsaw fell by just 1.2% y-o-y.
In Gdańsk saw the biggest house price fall of 5.9%, to an average price of PLN5,472 (€1,303) per sq. m. In Poznań house prices fell by 2.5% y-o-y to PLN 5,250 (€1,268) per sq. m. In both Cracow and Łódź house prices fell just 1.1% y-o-y.
House prices in Poland have been falling since mid-2008. According to Ober Haus, compared to pre-crisis peaks:
- In Warsaw, house prices are down by 15.8%
- In Cracow, house prices are down by 21.1%
- In Poznań, house prices have fallen by 30.7%
- In Gdańsk, house prices plunged by 30.3%
- In Łódź, property prices plummeted by 36.9%
Price rises in the Polish property market have been driven over the past twenty years by the country´s strong economic growth. The boom period from 2004 to 2007 anchored the market’s turning point, fuelled by an increased inflow of investments (mainly due to the country’s accession to the EU), record low interest rates, and mortgage financing development.
Property prices suddenly surged in Warsaw by 23% in 2005, 28% in 2006, 45% in 2007, and 13% in 2008, according to REAS Some other cities such as Wroclaw saw even larger house price rises. But this market boom was immediately followed by a fall that continued for the next 6 years.
Analysis of Poland Residential Property Market »
Mokotow, located just below Srodmiescie, houses many foreign embassies and companies. It ranks second in terms of property prices, after Srodmiescie. Prices for apartments here range from €2,037 to €2,880 per sq. m,.
In Mokotow smaller apartments have rental yields averaging 7.64%. Really large apartments earn 8.06%. For a 200 sq. m. apartment you will pay EUR 350,000 and earn maybe EUR 2,300 per month. Nice!
Apartments in Srodmiescie, which includes the historic neighborhoods of the Old Town (Stare Miasto) and the New Town (Nowe Miasto), are the most expensive in Warsaw.
Yet they are really not expensive, compared to the prime districts of other European cities. Srodmiescie apartment prices range from €2,271 to €2,424 per square metre (sq.m.), with gross rental yields ranging from 5.04% to 6.17%.
Meanwhile, in the other popular Warsaw areas Ursynów, Wilanów, and Żoliborz, apartments are cheaper, ranging from €1,778 to €1,966. Property owners earn moderate rental returns, ranging from 5.41% to 5.99%.
In Krakow, average apartment prices range from €1,859 to €2,046 per sq. m. Apartment gross yields range from 5.53% to 5.56%.
The big downside is that round trip transaction costs are high in Poland. See our Poland transaction costs analysis and our Transaction costs in Poland compared to other countries.
Capital Gains: Capital gains incurred on properties sold within five years of acquisition are taxed at a 10% flat rate. Capital gains incurred on properties sold after a 5-year holding period are exempted from capital gains tax.
Inheritance: Gifts and inheritances of Polish property are taxed at progressive
Residents: Residents of Poland pay taxes on their worldwide income at progressive rates, up to 32%.
Tenant Security: However, the general situation over rental laws is worryingly unstable. Strict re-regulation of the rental sector was recently legislated by Parliament. Fortunately, it was declared unconstitutional shortly after coming into law. Populist pro-tenant feeling is strong.
It is the only European country which avoided recession during the global financial and economic meltdown. The Polish economy expanded by 5.1% in 2008, 1.6% in 2009 and 3.9% in 2010. GDP grew by 4.5% in 2011. However during the past two years growth slowed to 1.9% in 2012 and 1.6% in 2013.
However Poland cannot escape the slump in the Eurozone, which accounts for over 50% of Polish exports.
Poland’s economy expanded by 3.3% on an annualised basis in the second quarter of 2014, a jump from the 0.8% during the same period in 2013 but a slight decrease from the previous quarter. HSBC has downgraded its growth forecast for 2014 and 2015 to 3.1% and 3.4%, respectively. According to the bank, prospects of closing the output gap, bringing inflation back to target and normalizing interest rates are more distant now than a few months ago. And risks for the next year are increasing.
The government’s budget deficit is at worrisome levels and consumer spending, which fueled the Polish economy early in the crisis, has begun to slacken. Core inflation fell 0.3% in August, one of nine European states to see prices fall over the past year, according to the OECD.
It looks like a couple of difficult years ahead, but Poland's underlying economic momentum seems strong.