Poland: Price History

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Warsaw pauses while the provinces boom

In the last two years Warsaw’s residential market has changed entirely.

Two years ago it was easy to make profits in Warsaw. There were low prices, strong excess demand, and high rental yields. Prices rose by around 33% in 2006, after a 27% rise in 2005, according to RICS figures derived from REAS (there are no official statistics).

Now, following a large increase of supply, many foreign investors have exited.

The market is in a state of slowdown. Price rise figures for 2007 have not yet been released by REAS, but the realtors Mamdom estimate that in 2007 Warsaw saw per square metre apartment prices rise 32%, before falling back 5% in the third quarter.

Yields are no longer particularly attractive, at around 4.8% to 6% in central Warsaw. Rents have moved little in the last 3 years. Average rents still vary from PLN 20/m2 (€5.60) in WesoΠa and Rembertów, to over PLN 45/m2(€12.60) in the city centre (Mamdom’s figures – our own rent numbers are somewhat higher). There is even a slight oversupply of apartments for rent, especially in the high-end segment. Price decreases are expected in Warsaw in 2008, primarily because of the large number of new developments due for completion during the year.

“A time has come in the residential market, when investing requires some caution,” says Kazimierz Kirejcyk, of Warsaw’s highly-respected REAS Konsulting, Warsaw’s premier housing consulting firm.

Warsaw is now a large building site. Several dozens of thousands of apartments are currently under construction in the city, especially in such districts as Wilanow, Ursynow, Bemowo, and Praga Poludnie. More than 200 developers operate in Warsaw’s residential market, including major domestic developers (such as J.W. Construction, Dom Development, BRE locum, Budimex Nieruchomosci, Echo Investment, GTC). There are also international giants (Acciona Nieruchomosci, Dor Group, Orco Property Group, Bouygues Immobilier, Pirelli Real Estate and Fadesa). New development prices range from PLN13,000 – PLN15,000 per sq. m. (€3,640 - €4,200) in the most upmarket districts (such as Srodmiescie) or PLN8,800 – PLN 11,500 per sq. m. (€2,460-€3,230) in the very popular Mokotow, to PLN5,900- PLN 6,700 (€1,652 - €1,872) in a less favoured district like Bialoleka.

In the country as a whole, 133.8 thousand dwellings were completed in 3007, considerably more than in any of the previous fifteen years (except 2003).

Most of the building boom has gone into apartments. In Q3 of 2006, houses made up 42% of the available residential market stock. As of Q4 2007 this figure had dropped to 24%, and in Poznan and Warsaw it was just 10%.

While average apartment prices rose across Poland by 31% between Q3 2006 and Q4 2007, the price of houses rose by a much higher amount, 56%.

“For those pursuing capital gain…it may well be time to consider houses, rather than apartments,” note the realtors Mamdom.

Per square metre price increases over 2007 were as follows (estimates from Mamdom):
Poland as a whole: 51.6%
Poznan: 68.5%
Lublin: 48.2%
Gdansk: 35.5%
Warsaw: 35.4%
Krakow: 10.2%

The pattern, in other words, is that Warsaw’s housing market, having led the price-boom, is now pausing while other cities catch up. This capital-led pattern is typical of many countries’ housing markets.

Polish property prices have even more risen sharply in Euro or US$ terms, due to the zloty’s rise. But the Polish residential market is not reliant on foreign investors - increased wealth inside the country is what is driving prices up.

Financing property purchases is easy. Financial institutions grant home buyers mortgages in excess of 80%. Indeed many banks offer 110% mortgages. The typical buyer today is young (31 years old), has no children (80% of buyers) and is buying a 46 to 60 sq. m. apartment.

In November the Central Bank’s Monetary Policy Council (MPC) raised interest rates by 25 bp. This was the fourth interest rate hike this year, bringing the reference rate up to 5% from 3.75% in early 2007, when the tightening cycle began. Other market interest rates have more than kept pace with Central Bank reference rates, pushing up banks’ funding costs sharply during the year.

The prices of consumer goods and services rose 4% in the year to December 2007, exceeding the Monetary Policy Council’s 2.5% target. Unemployment has been falling rapidly. Since 2002-2003, the unemployment rate has halved from 20% to 11.4%. In 2007 alone, the unemployment rate dropped 24.4% within twelve months.

“Tightening labour market conditions are a challenge for both the central bank and enterprises,” notes the December 2007 Bank Zachodni MACROscope report.

Signs of supply constraints are emerging. The current account has been deteriorating. Labour market constraints are emerging. Nevertheless on balance the outlook is strongly positive, after the previous xenophobic administration.

Poland’s political atmosphere has much improved following the recent change in government. The new government is technocratic and pro-European – a relief to all concerned.

The new finance minister has declared 6 main priorities:

• A reduction in public debt by 2011 of 4% to 7%
• Simplification of the tax system
• Higher spending on education
• Faster construction of roads with greater use of EU funds
• Faster privatisation
• Preparation for Euro zone entry

The need to prepare for the Euro 2012 football championships has also led to increased infrastructure spending - over 600 kilometres of new motorway are expected this year, as well as progress on several new airports, including Lublin. These large investments will have a positive impact on the economy and property prices.

In sum - Poland’s economic situation remains very healthy. In property, those willing to venture further afield than Warsaw still have opportunities. But for those who want to buy into the capital, now is the time to pause.

Poland - more data and information

• Poland house prices, rents, and letting income - real data!
• How expensive are houses in Poland, compared to the rest of Europe?
• How much rent can be earned from Poland's property, compared to the rest of Europe?

Your Comments

posted by gerard o farrell | 2007-08-01

ireland

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