Polish housing market remains robust, but outlook is clouded
Lalaine C. Delmendo | April 28, 2020
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).
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.
Slowing economyStandard 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.
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.
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 AndrzejDuda 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. 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.