Polish housing market remains robust, but outlook is clouded

Lalaine C. Delmendo | April 28, 2020

Poland’s housing market continues to grow, amidst strong demand coupled with supply shortages.

Poland house prices chart

Poland had one of Europe’s biggest housing booms pre-2008, because of rapid economic growth, and has suffered less than others since. The Polish economy has continued to grow, expanding by 4% in 2019, a slowdown from growth of 5.1% in 2018 and 4.9% in 2017.

Recently, Fitch Ratings predicted that the Polish economy would contract by 0.6% this year, a downward revision from its earlier forecast of a 1.8% growth, due to the coronavirus outbreak. Standard Chartered Bank is even more pessimistic, predicting a contraction of 1.7% this year.

The average price of existing flats in Poland’s 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) increased by 7.8% (4.9% inflation-adjusted) in 2019 to an average of PLN 7,664 (€ 1,690) per square metre (sq. m.). 

This followed y-o-y price rises of 10.3% in 2018, 7.9% in 2017, 2.6% in 2016, 1.1% in 2015, and 1.7% in 2014, according to the Polish central bank, Narodowy Bank Polski (NBP). On a quarterly basis, house prices were up by 3% (2.4% inflation-adjusted) in Q4 2019.

In Poland’s major cities:

  • In Warsaw the average price of existing houses rose by 6.15% (3.35% inflation-adjusted) during 2019.
  • Wrocław saw the highest house price rise among Poland’s seven major cities, with a 18.17% (15.05% inflation-adjusted) y-o-y price surge in 2019. It was followed by Gdańsk with a 10.12% y-o-y increase.
  • Other Polish major cities also enjoyed high price hikes, including Gdynia (9.5%), Łódź (9.07%), and Kraków (8.25%).
  • Among the 7 big cities, Poznań saw the lowest price hike of 4.42% (1.66% inflation-adjusted) during 2019.

Warsaw has Poland’s most expensive housing, with an average transaction price for existing homes of PLN 9,301 (€ 2,052) per sq. m. in 2019, according to NBP. Housing is also expensive in Gdańsk, with an average price of PLN 8,268 (€ 1,824) per sq. m., Kraków with PLN 7,414 (€ 1,635) per sq. m., Gdynia with PLN 7,384 (€ 1,629) per sq. m., and Wrocław with PLN 7,316 (€ 1,614) per sq. m.

Łódź has the cheapest houses among the 7 big cities, with an average price of PLN 4,870 (€ 1,074) per sq. m.

In 2019, the total number of new flats sold in the country’s six major cities increased slightly by 0.8% to 65,400 units, according to JLL’s Q4 2019 report. Last year’s sales level was the second highest in the market’s history, behind the record year 2017.

“Systematically rising prices – in some cities even faster than a year ago – contrary to expectations, did not inhibit demand on the new-build housing market in Poland,” said JLL.“This is undoubtedly due to the negative real interest rate on deposits in Polish banks.”

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 - but its bust was not so big

The average price of existing flats in Poland’s 7 big cities was 11.2% higher in 2019 than previous peak levels seen in 2008.

During 2019:

  • In Gdańsk, house prices are now up by 36.7% compared to 2008
  • In Wrocław, house prices are up 24.7% over the same period
  • In Łódź, house prices are up by 21.1%
  • In Gdynia, house prices are up 18.9%
  • In Poznań, house prices are up 17.6%
  • In Krakow, house prices are up 13.5%
  • In Warsaw, house prices are up 2.8%

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 mortgages - 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.

Demand remains robust

In 2019, new flat sales rose 0.8% in the country’s six major cities, according to JLL’s Q4 2019 report. Last year’s sales level was the second highest in the market’s history, behind the record year 2017.

‘This is an excellent result, achieved at much higher prices and without any booster, such as the subsidies from the Housing for the Young programme in 2017,” said JLL.

Among Poland’s major cities:

  • Poznań recorded the biggest sales increase of 30% y-o-y in 2019, to 6,400 units
  • In Łódź, sales rose by 13.2% y-o-y to 4,800 units in 2019
  • In Wrocław and Warsaw, sales transactions increased by modest 2.4% and 0.3%, respectively
  • Kraków saw the biggest sales decline of 12.2% in 2019 from a year earlier
  • In Tri-City, sales dropped 4.1% y-o-y in 2019

“As predicted, sales throughout the year exceeded new supply,” JLL added.  In 2019, the total number of units launched for sale dropped 2.9% y-o-y to 64,000 units.

Poland exchange rate

The Mieszkanie dla Mlodych (MdM) program (popularly known as the Housing for the Young scheme), which boosted demand for cheap flats, has now practically come to an end, as funds for government subsidies have run out.

Residential construction increasing

Residential construction is rising, according to the Central Statistical Office of Poland, despite the end of the Housing for the Young scheme.

During 2019:

  • Dwelling starts: 237,281 units, up 6.9% from a year earlier
  • Dwelling completions: 207,479 units, up 12.1% from a year ago

In 2019, 33.5% of newly-completed dwellings were built by private investors, while developers built 63%.

Poland’shousing 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.

Key rate still at record low

The average interest rate for PLN-denominated outstanding housing loans was 3.74% in February 2020, down from last year’s 3.82%, according to the NBP. Over the same period:

  • For outstanding housing loans with maturity between 1 year and 5 years the interest rate was 4.06% in February 2020, down from 4.19% a year ago.
  • For housing loans with maturity of over 5 years the interest rate was 3.74%, down from the previous year’s 3.82%.

For PLN-denominated new housing loans, the average interest rate stood at 4.33% in February 2020, slightly down from 4.35% a year earlier.

Poland interest rates outstanding housing loans

Likewise, the average interest rate for EUR-denominated new housing loans dropped to 3.34%, from 3.6% a year ago.

In March 2020, Narodowy Bank Polski (NBP), Poland’s central bank, cut its key rate by 50 basis points to a record low of 1%, to boost the economy amidst the COVID-19 outbreak. The rediscount rate was cut to 1.05% from 1.75%. On the other hand, the deposit rate was kept unchanged at 0.5%.

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%.

“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 20.4% of GDP in 2019.

In February 2020, Poland’s total outstanding housing loans rose by 8% to PLN 469.44 billion (EUR 103.45 billion) from the same period last year, according to the NBP.

In February 2020:

  • Zloty-denominated housing loans outstanding rose strongly by 12.4% y-o-y to PLN 345.91 billion (EUR 76.22 billion).
  • Foreign currency-denominated housing loans fell by 2.7% y-o-y to PLN 123.54 billion (EUR 27.22 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 26% in 2019, according to NBP.

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

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 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 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.

Slowing economy

Standard Chartered Bank has predicted a contraction of 1.7% in the Polish economy this year.

The Polish economy grew by 4% in 2019 from a year earlier, a slowdown from expansions of 5.1% in 2018 and 4.9% in 2017.  Overall, investment growth slowed to 3% in 2019, from 10.1%.

In March 2020, the government unveiled a stimulus package of PLN 212 billion (€ 47 billion), equivalent to 9.2% of the country’s GDP, to cushion the impact of COVID-19.

Poland’s budget deficit was estimated at about 1.7% of GDP in 2019, up from the previous year’s 0.4% shortfall. The fiscal deficit is expected to rise sharply to 5% of GDP this year, according to Fitch Ratings.

Poland unemployment

The government debt is also expected to increase to 54.3% of GDP this year, from 50.3% of GDP in 2019.

Annual inflation stood at 4.7% in February 2020, sharply up from the previous year’s 1.2% and the highest level since November 2011, according to Statistics Poland. Inflation averaged 0.8% from 2013 to 2019.

In February 2020, Poland’s unemployment rate stood at 5.5%, down from last year’s 5.7%, according to Statistics Poland. Over the same period, there were about 921,000 unemployed people in the country, a slight decline from a year earlier.

Tension with EU raises political uncertainty

There are growing strains between the country and the European Union (EU). 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 last year, the European court ruled in a landmark decision that Poland’s move to lower the retirement age of judges was unlawful.

A presidential election is expected to push through on May 10, 2020 by postal voting, despite the nationwide coronavirus lockdown. Duda is far ahead of rivals in opinion polls.


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