Pandemic fears affect housing market
Lalaine C. Delmendo | February 18, 2022
Poland's housing market growth is slowing, with market sentiment adversely affected by continued pandemic fears, coupled with the ongoing Russian invasion of Ukraine, and surging inflation.The average price of existing flats in Poland's 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) rose by 9.3% y-o-y in Q1 2022 to an average of PLN 9,634 (€2,011) per square metre (sq. m), according to the Polish central bank, Narodowy Bank Polski (NBP). However much of that is inflation. When adjusted for inflation, prices actually fell slightly by 0.4%.
In Poland's major cities:
- In Warsaw average house prices rose by 5.1% during the year to Q1 2022 (but declined by 4.2% when adjusted for inflation). This is down from the previous year's 8.9% price rises.
- Kraków saw the highest house price rise among Poland's seven major cities, with a 19.5% (9% inflation-adjusted) y-o-y price surge in Q1 2022.
- Other Polish major cities also enjoyed high price rises, including Gdynia, with house price growth of 15.3%, Łódź (14.4%), Wrocław (14.2%), and Gdańsk (9.9%).
- Among the 7 big cities, Poznań saw the second lowest price increase of 5.2% during the year to Q1 2022, with prices falling by 4% when adjusted for inflation.
Warsaw has Poland's most expensive housing, with an average transaction price for existing homes of PLN 11,451 (€ 2,391) per sq. m. in Q1 2022, according to NBP. Housing is also expensive in Gdańsk, with an average price of PLN 10,239 (€ 2,138) per sq. m., and in Kraków with PLN 10,001 (€ 2,088) per sq. m. Other major cities include Gdynia with PLN 9,245 (€ 1,930) per sq. m., and Wrocław with PLN 9,202 (€ 1,922) per sq. m.
Łódź has the cheapest houses among the 7 big cities, with an average price of PLN 6,214 (€ 1,298) per sq. m.
Demand is also slowing. In the first quarter of 2022, the total number of new flats sold in the country's six major cities was close to 10,400 units, down by 31% from the previous quarter and by 46% from an exceptionally high Q1 2021 result, according to JLL's Q1 2022 Residential Market report. This is in sharp contrast to 2021, when new flats sold surged by more than 30% to 69,000 units from a year earlier, following a 19% decline in 2020.
“In Q1, the sentiment of market participants was affected by strong negative factors: the pandemic fears prevailing in January, the shock of the outbreak of war in Ukraine in late February, and the rapidly rising inflation throughout the entire three months,” said JLL.
Despite the falling sales, Poland remains one of the countries that is now seeing the highest interest from the Global Property Guide's readers in Europe.
Foreigners who are citizens or entrepreneurs from EEA countries (EU + Norway, Lichtenstein, Iceland) and from Switzerland are free to buy any type of real estate. Foreigners from other countries may freely purchase condominium units throughout Poland, with the exception of areas located in the border zone.
Poland's economy grew by about 5.9% during 2021, a sharp turnaround from the previous year's 2.2% decline, according to the European Commission. The economy is expected to grow by another 5.2% this year.
Analysis
of Poland Residential Property Market »
Yields in Warsaw and Krakow are good, at around 6%
Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, in the centre of Warsaw, are 6.0% for a 90 square metre (sq. m.) apartment. Such an apartment might cost around EUR 1,200 per month to rent, but around EUR 235,000 to buy. There are similar yields on 120 sq. m. apartments, though prices and rents are obviously higher.
These are good yields. Such good yields are obtainable in all Warsaw's central areas such as Mokotów, Śródmieście, and in other areas too. 6% is the normal yield throughout the city, and very small apartments are likely to yield even more (though we don't have the research to substantiate this).
Surprisingly, the same is true of Krakow. Apartments here are broadly similar in price to the less central areas of Warsaw. They return rents of around EUR 11 - EUR 12 per sq.m. per month. A 90 sq. m. apartment in Krakow will cost you around EUR 200,000, and rent for around EUR 1,100, producing a yield of 6.5%.
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.
Income taxes are high in Poland
Rental Income: Net rental income is taxed at progressive rates, up to 32%.
Capital Gains: Capital gains incurred on properties sold within five years of acquisition are taxed at a flat rate of 19%. 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%.
Buying costs are low in Poland
Roundtrip transaction costs, i.e., the cost of buying and selling a property, are around 5.35% to 8.10%, with all costs falling on the buyer. For residential apartments, real estate agent’s fee is typically 3%.
Law neutral between landlord & tenant, but unstable
Rent: Rents can be freely negotiated between landlord and tenant. Rent indexation clauses are legal.
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.
Strong economic growth; increasing inflationary pressures
Poland’s economy expanded by a robust 5.9% during 2021, a sharp turnaround from the previous year’s 2.2% contraction, amidst the gradual easing of pandemic-related measures, according to the European Commission. In fact, it was the highest growth in fourteen years.The economy is projected to expand by another 5.2% this year.
“The outlook for the Polish economy over the medium term remains favorable, with minimal scarring expected from the pandemic,” said the International Monetary Fund (IMF). “Fiscal policy has supported employment during the pandemic and bolstered corporate balance sheets, which provide a strong foundation for further private investment.”
Poland’s government fiscal deficit fell from 7.1% of GDP in 2020 to 2.9% of GDP in 2021, driven mainly by the reduction in pandemic-related fiscal support, according to the IMF.
Government debt was estimated to have fallen to 56% of GDP in 2021, slightly down from 57.5% in 2020 but still far higher than the 45.6% in 2019 and 48.8% in 2018.
The labour market continues to improve. Unemployment stood at 4.9% in June 2022, down from 5.1% in the previous month and 6% a year earlier, based on figures from Statistics Poland. In fact, it was the lowest jobless rate registered since 1990. Likewise, the number of unemployed fell to 841,500 in June 2022, sharply down from 1.02 million unemployed people in the previous year.
However, inflationary pressures continue to rise. In June 2022, nationwide inflation skyrocketed to 15.5%, the highest since October 1996, according to Statistics Poland, amidst surging energy and grain prices due to the war in Ukraine. Overall inflation averaged 1.7% in 2010-20, before rising to 5.1% in 2021.
Is this the end of Poland’s row with the EU?
Last November 2021, the EU’s top court ruled against Poland on judicial appointments, stating that Polish rules allowing the justice minister to assign judges to higher courts or to remove them without declaring the reasons violated EU law. In addition, the EU’s top court ruled Poland must pay €1 million per day in fines for maintaining a disciplinary chamber for judges, deepening a row over judicial independence.
In response Polish President Andrzej Duda submitted legislation in February 2022 to dismantle the controversial disciplinary chamber for judges, hoping to end Poland’s dispute with Brussels and unblock EU funding.
Then in June 2022, President Duda finally signed the changes to the disciplinary regulations into law and replaced the controversial body that disciplined judges with a new accountability panel, in hopes that the EU will finally release pandemic recovery funds after it met the bloc’s demands in the rule-of-law dispute.
The conflict has been brewing since the populist Law and Justice Party (PiS) candidate Andrzej Duda won the presidential elections in May 2015 and the PiS party won the majority of seats in November 2015.
In 2017, the EU took the first steps toward stripping the country of its voting rights – a penalty never previously imposed on any member nation.
Despite this, Poland continued with its “reforms”, formally introducing a law in July 2018 that lowers the retirement age for judges from 70 to 65. This triggered widespread street protests after more than 20 judges (about a third of the total) were forced to retire. Despite this, the Polish government passed a law in January 2020 that makes it possible for judges to face disciplinary actions if they make rulings that the government does not agree with – a move that the EU strongly opposes.
In fact, Poland, together with Hungary, vetoed EU’s budget plan in 2020, delaying the release of the bloc’s landmark stimulus package, worth €1.8 trillion, because they oppose the tie between disbursing EU funds and compliance to European values, the so-called rule-of-law mechanism.