Polish house prices continue to rise, albeit at a much slower pace

Lalaine C. Delmendo | March 31, 2021

Poland’s house price growth is slowing, amidst weak demand.

Poland house prices chart

The average price of existing flats in Poland’s 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) rose by 5.6% in 2020 to an average of PLN 8,325 (€1,819) per square metre (sq. m.), according to the Polish central bank, Narodowy Bank Polski (NBP) – only about half the y-o-y growth of 10.84% in 2019 and 10.3% in 2018. When adjusted for inflation, prices increased by a modest 2.78%.

In fact on a quarterly basis, house prices in the 7 big cities fell slightly by 0.8% in Q4 2020 (-1.1% inflation-adjusted).

In Poland’s major cities:

  • In Warsaw the average price of existing houses rose by a modest 2.7% during 2020 (and actually declined slightly by 0.1% when adjusted for inflation), a sharp slowdown from the prior year’s 6.2% rise.
  • Łódź saw the highest house price rise among Poland’s seven major cities, with a 13.4% (10.3% inflation-adjusted) y-o-y price surge in 2020. It was followed by Kraków and Wrocław, with price rises of 9.5% and 9%, respectively.
  • Other Polish major cities also enjoyed high price hikes, including Gdańsk (7.1%) and Gdynia (6.1%).
  • Among the 7 big cities, Poznań saw the lowest price rise of 2.2% during 2020, with prices falling by 0.5% when adjusted for inflation.

Warsaw has Poland’s most expensive housing, with an average transaction price for existing homes of PLN 10,072 (€ 2,198) per sq. m. in 2020, according to NBP. Housing is also expensive in Gdańsk, with an average price of PLN 8,874 (€1,936) per sq. m., and in Kraków with PLN 8,118 (€ 1,771) per sq. m. Other cities major cities include Wrocław with PLN 7,973 (€ 1,740) per sq. m., and Gdynia with PLN 7,906 (€1,725) per sq. m.

Łódź has the cheapest houses among the 7 big cities, with an average price of PLN 5,522 (€ 1,205) per sq. m.

Both demand and supply have fallen last year due to the pandemic. In 2020, the total number of new flats sold in the country’s six major cities plunged 19% to 53,000 units from a year earlier, in contrast to a slight growth of 0.8% in 2019, according to JLL’s Q4 2020 report.  New supply also fell by 24% last year.

Foreigners can freely buy condominium units in Poland. Land for commercial purposes can be freely bought by citizens of the European Economic Area (EU + Iceland, Liechtenstein, and Norway).

Poland had one of Europe’s biggest booms

Poland had one of Europe’s biggest housing booms pre-2008, because of rapid economic growth, and has suffered less than others since. The average price of existing flats in Poland’s 7 big cities was 21% higher in 2020 than previous peak levels seen in 2008.

During 2020:

  • In Gdańsk, house prices are now up by 46.7% compared to 2008
  • In Wrocław, house prices are up 35.9% over the same period
  • In Łódź, house prices are up by 37.4%
  • In Gdynia, house prices are up 27.3%
  • In Poznań, house prices are up 24.8%
  • In Krakow, house prices are up 24.3%
  • In Warsaw, house prices are up 11.3%

Property prices surged in Warsaw during the boom - rising 23% in 2005, 28% in 2006, an amazing 45% in 2007, and 13% in 2008, according to REAS. Other cities such as Wroclaw saw even larger house price rises.

Behind the boom lay strong economic growth.

Poland Residential prices 7 major cities

However during the 2008-09 crisis the Polish zloty fell dramatically, and many mortgages – which were mainly denominated in foreign currencies - became unrepayable.

Home prices then fell for 6 straight years. House prices in Poland’s 7 major cities dropped 13.8% (-25.3% inflation-adjusted) from 2008 to 2013. Prices started to rise again in 2014, and have been rising since then. House prices surged by almost 10% annually from 2017 to 2019.

Demand shows signs of improvement

In Q4 2020 about 14,000 new flats were sold in the country’s six major cities, up 5% from the previous quarter, according to JLL’s Q4 2020 report.  However during the whole year of 2020, all of the country’s major cities, except Tri-City (-9%) and Łódź (-14%), saw a y-o-y sales fall of around 20%.

Quarterly sales increased in five of Poland’s six major cities:

  • In Tri-City, sales surged 16% q-o-q in Q4 2020, the biggest quarterly increase among the six major markets. Tri-City also saw the smallest drop in sales last year of 9%.
  • In Łódź, sales transactions also increased strongly by 13% q-o-q in Q4 2020.
  • In Wrocław and Warsaw, sales rose by 6% q-o-q in Q4 2020.
  • Kraków saw the modest quarterly sales growth of 2% during the latest quarter.
  • Only Poznań recorded sales drop of 15% q-o-q in Q4 2020.

Poland exchange rate

 “Despite a 20% drop, the sales numbers recorded in 2020 are still the second best in this market’s history,” said JLL.

Residential construction activity mixed

Residential construction activity is mixed last year, amidst the COVID-19 pandemic.

During 2020:

  • Dwelling permits: 275,938 units, were up by a modest 2.8% from a year ago, according to the Central Statistical Office of Poland
  • Dwelling starts: 223,842 units, were down 5.7% from a year earlier
  • Dwelling completions: 221,978 units, were up 7% from a year ago

In 2020, 33.4% of newly-completed dwellings were built by private investors, while developers built 64.8%.

Poland’s housing stock is of low quality compared to the Western European average, according to Ernst and Young. Of the 13.85 million residential units in Poland, around 72% were built before 1989, mostly during the communist era using prefabricated technology, which tends to be of very poor quality.

Poland residential constructions

Modern units built from 2000 onwards comprise only about 12% of the total and are concentrated primarily in six areas: Warsaw, Krakow, Poznan, Wroclaw, Tricity, and Lodz.

Poland’s housing supply constraint is “mainly administration-driven and consists of the limited number of zoning plans, covering below 30% of country’s area”, according to Ernst and Young. The lack of zoning plans causes administrative procedures to take from a few months to a year to resolve.

Good rental yields in Warsaw and Krakow; renters plentiful

Gross rental yields in Warsaw range from 5.50% to 6.75%. In Krakow, rental yields range from 5.66% to 6.47%, based on Global Property Guide research.

The Warsaw district of Mokotow, located just below Srodmiescie, houses many foreign embassies and companies. A 120 sq. m. apartment in Mokotow offers rental yields averaging 6.61%.

Apartments in Srodmiescie, which includes the historic neighborhoods of the Old Town (Stare Miasto) and the New Town (Nowe Miasto), offer gross rental yields ranging from 5.50% to 6.75%.

In the other popular Warsaw areas, Wilanów and Żoliborz, apartments offer good rental returns ranging from 5.82% to 6.38%.

Despite attractive rental yields, the big downside is that round trip transaction costs are high in Poland.

Renting is an unavoidable choice for more and more Poles, as stricter requirements for mortgage financing, uncertainty in the labour market, and low growth prospects, all discourage households from incurring long-term debts. The movement of people from other cities to the capital, especially students or young people looking for work, also drives people to rent.

About 21% of households in Warsaw rent apartments, with half of these in social and communal housing. Most residential properties in Poland are owned by private individuals.

About 10.7% of the dwelling stock is rented at lower rates, with 5.7% in communal or social housing, 2.1% in cooperative tenancy, 1.2% in state-owned companies, 1.2% the State Treasury, and 0.5% in public building societies, according to the 2011 National Census. The remaining dwelling stock is primarily owner-occupied.

Mortgage rates falling sharply; Key rate still at record low

The average interest rate for PLN-denominated outstanding housing loans was 2.27% in January 2021, sharply down from 3.68% a year earlier, according to the NBP. Over the same period:

  • For outstanding housing loans with maturity between 1 year and 5 years the interest rate was 2.49% in January 2021, down from 4.02% a year ago.
  • For housing loans with maturity of over 5 years the interest rate was 2.27%, down from the previous year’s 3.67%.

For PLN-denominated new housing loans, the average interest rate stood at 2.83% in January 2021, sharply down from 4.35% in January 2020.

Poland interest rates outstanding housing loans

Likewise, the average interest rate for EUR-denominated new housing loans dropped to 3.58%, from 3.75% a year ago.

In March 2021, Narodowy Bank Polski (NBP), Poland’s central bank, kept its key rate unchanged at a record low of 0.1%, following a string of rate cuts last year in an effort to cushion the adverse impact of the COVID-19 pandemic on the domestic economy. Also, the rediscount rate and the deposit rate were left unchanged at 0.11% and 0%, respectively.

The central bank provided liquidity to the banking sector using repo transactions, and purchased government bonds on the secondary market. The reserve ratio requirement was slashed from 3.5% to 0.5% last year.

“In the Council’s assessment, all the above-mentioned measures will mitigate the negative economic impact of coronavirus spread,” said NBP.

The Polish mortgage market has boomed

The Polish mortgage market has grown explosively - from only 1.3% of GDP in 2000, to 21.7% of GDP in 2020.

In January 2021, Poland’s total outstanding housing loans rose by 6.1% to PLN 494.4 billion (EUR 107.8 billion) from the same period last year, according to the NBP. Over the same period:

  • Zloty-denominated housing loans outstanding rose strongly by 9.4% y-o-y to PLN 375.4 billion (EUR 81.8 billion).
  • Foreign currency-denominated housing loans fell by 3.2% y-o-y to about PLN 119 billion (EUR 25.9 billion).

Poland housing loans

Foreign currency-denominated housing loans (including Swiss franc loans) peaked at more than 69% of all loans in 2008. This caused a crisis when the currency collapsed. However the proportion has since declined to 24.5% in 2020, according to NBP.

MdM (“Housing the Young”) program is out; National Housing Program is in

The new program intends to redirect public funds toward social groups with significantly lower incomes, and away from middle-income groups that were previously supported by other housing programs.

The Mieszkanie dla Mlodych (MdM) program was a housing subsidy program introduced by the government in early 2014, aimed at helping young people aged up to 35 (either single or married) buy their first new flat.

The Law and Justice Party (PiS)-led government has replaced the MdM scheme by the “National Housing Program” which began at the end of 2016. This includes the construction of affordable housing units for rent and giving renters a purchase option.

The construction of new apartment buildings under the program began in 2018, with rents ranging from around PLN 10 (€2.2) to PLN 20 (€4.4) per sq. m.

Based on government estimates, about 40% of people in Poland, a nation of 38 million people, cannot afford to rent an apartment.

First economic contraction in 24 years

Poland’s economy shrunk by 2.8% last year, in contrast to a healthy 4.5% growth in 2019 and the first contraction since 1996, amidst the pandemic. The economy grew by an average of 4.2% from 2014 to 2019.

The economy is expected to grow by a modest 2.7% in 2021, according to IMF estimates. The country’s central bank is more optimistic, projecting a GDP growth of 4.1% this year, an upgrade from its previous forecast of a 3.1% growth.

Poland unemployment

In March 2020, the government unveiled a stimulus package worth PLN 212 billion (€ 46.2 billion), equivalent to 9.2% of the country’s GDP, to cushion the impact of COVID-19. Then in November 2020, Polish Prime Minister Mateusz Morawiecki announced aid for businesses that suffered during the second wave of the pandemic in transport, retail, and tourism. The new stimulus, called Financial Shield 2.0, was valued between PLN 35 billion (€ 7.6 billion) to PLN 40 billion (€ 8.7 billion).

Poland’s government fiscal deficit surged to about 8.4% of GDP in 2020, sharply up from just 0.7% of GDP in 2019 and the highest ever recorded, according to the IMF.

Government debt increased to about 60% of GDP last year, from 46% in 2019 and 48.8% in 2018.

Annual inflation stood at 2.7% in January 2021, down from 4.3% a year earlier, according to Statistics Poland. Inflation averaged 1.1% from 2013 to 2020.

Unemployment rose to 6.5% in January 2021, up from 6.2% the previous month and the highest jobless rate since March 2018. Likewise, the number of unemployed increased to a near three-year high of 1,046,000 people in January 2021.

Tension with EU raises political uncertainty

In January 2020, the Polish government passed a law 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.

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.

poland gdp inflation

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. This caused the EU to issue a ruling that obliged Poland to suspend the law immediately. And in 2019, the European court ruled in a landmark decision that Poland’s move to lower the retirement age of judges was unlawful.

After Duda narrowly won last year’s presidential elections, it is expected that he will continue his controversial reforms to the judiciary and his opposition to abortion and gay rights.

Poland and Hungary vetoed EU’s budget plan last year, 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 vales, the so-called rule-of-law mechanism.


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