Polish house prices are now falling, amidst weakening demand

Poland’s housing market is now struggling, as demand and supply decline due to high interest rates, and deteriorating purchasing power caused by soaring inflation, coupled with economic and geopolitical uncertainty.

The average price of existing flats in Poland’s 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) fell by 1.35% y-o-y in Q2 2023 to PLN 10,348 (€2,225) per square meter (sqm), according to the Polish central bank, Norodowy Bank Polski (NBP). When adjusted for inflation, prices actually plunged by 12.98% over the same period.

Quarter-on-quarter, prices of existing flats in the country’s 7 big cities increased slightly by 0.88% (1.8% inflation-adjusted) in Q2 2023.

In Poland’s major cities:

• In Warsaw average house prices fell by 4.05% during the year to Q2 2023 (declined by a huge 15.37% when adjusted for inflation). This is in sharp contrast to the previous year’s 13.34% price surge.
• Łódź also registered a house price decline of 4.3% (-15.59% inflation-adjusted) while Poznań’s house prices fell by 2.62% (-14.1% inflation-adjusted).
• In contrast, Wrocław saw the biggest house price increase of 5.66% (y-o-y in Q2 2023 (but still declined by 6.8% when adjusted for inflation).
• Other Polish major cities also registered minimal house price rises, including Kraków, with house price growth of 2.49% (-9.6% inflation-adjusted); Gdańsk, with house price growth of 1.18% (-10.75% inflation-adjusted); and Gdynia, with house price increase of 0.9% (-11% inflation-adjusted).

Poland’s house price annual change

Warsaw has Poland’s most expensive housing, with an average transaction price for existing homes of PLN 12,199 (€ 2,623) per sqm in Q2 2023, according to NBP. Housing is also expensive in Kraków, with an average price of PLN 11,018 (€ 2,369) per sqm, and in Gdańsk with PLN 10,899 (€ 2,343) per sqm. Other major cities include Gdynia with an average house price of PLN 9,889 (€ 2,126) per sqm, and Wrocław with PLN 10,234 (€ 2,200) per sq.m.

Łódź has the cheapest houses among the 7 big cities, with an average price of PLN 6,366 (€ 1,369) per sqm.

Demand is falling sharply. During 2022, investment volumes in the residential market in Poland reached roughly €440 million, down by a third from the previous year, according to JLL.

The weakness of the market continued this year, with the total volume of investment transactions recorded in the residential real estate market plunging by 33% y-o-y in Q2 2023, according to CBRE Research.

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 has been growing robustly in the past two years, registering real GDP growth rates of 6.8% in 2021 and another 5.1% in 2022, mainly driven by strong private consumption and industrial production.

However, a sharp economic slowdown is expected this year, amidst falling real private consumption. Poland’s real GDP is projected to grow by a miniscule 0.5% this year, before improving again to 2.7% in 2024, based on a forecast released by the European Commission. The International Monetary Fund’s projections are even more pessimistic, expecting the Polish economy to grow by just 0.3% for the full year of 2023.

“In the near term, high inflation has eroded real wage growth, while investment faces headwinds from energy prices, interest rates, and declining housing activity,” said the IMF. “As shocks fade and real wage growth recovers, the economy is projected to rebound in 2024 and 2025. Nevertheless, considerable near-term uncertainty will require deft policy management as policymakers seek to lower inflation without incurring an excessive cost to economic output.”

Poland’s big property booms

Poland had one of Europe’s biggest housing booms pre-2008 global crisis, because of rapid economic growth, and has suffered less than others since.

Property prices surged in Warsaw during the boom - rising by 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.

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 nearly 9% annually from 2017 to 2022.  

Despite the price decline in the first half of 2023, the average price of existing flats in Poland’s 7 big cities remains more than 50% higher in Q2 2023 than at the previous peak, seen in 2008.

By major city (from 2008 to Q2 2023):

• In Gdańsk, house prices remain up by a huge 80.2% in Q2 2023 from its 2008 peak
• In Wrocław, house prices are up 74.4% over the same period
• In Krakow, house prices are up by 68.7%
• In Gdynia, house prices are up by 59.3%
• In Łódź, house prices are up by 58.4%
• In Poznań, house prices are up by 53.7%
• In Warsaw, house prices are up by 34.9%

Demand remains weak

Demand continues to fall, amidst a slowing economy, high interest rates, and a decline in purchasing power due to soaring inflation. During 2022, investment volumes in the residential market in Poland reached roughly €440 million, down by a third from the previous year, according to JLL.

The weakness of the market continued this year, with the total volume of investment transactions recorded in the residential real estate market plunging by 33% y-o-y in Q2 2023, according to CBRE Research.

“There are strong factors limiting the number of transactions concluded by individual buyers in the market environment. The most important one is the low availability of housing loans (due to high interest rates),” said CBRE.

“The demand was also inhibited by high apartment prices and uncertainty in both economic and geopolitical environment. As a result, sales in Warsaw in Q3 2022 were lower than in Q2 2020 when the market had been unexpectedly hit with a physical lockdown due to the pandemic. At the end of 2022, a sales rebound was observed but it is hard to tell how long it will persist. In 2023, in particular, in the first six months, the factors limiting individual demand still apply,” added CBRE.

Homes sold in Poland’s six major cities – Warsaw, Tri-City, Kraków, Poznań, Wrocław, and Łódź – totaled 15,500 units in Q2 2023, according to JLL. This was far higher than the total number of houses offered for sale during the period of just 10,200 units. By end-Q2 2023, developers had 40,600 units on offer.

SALES & SUPPLY, Q2 2023
Major Cities	No. of Units Sold	No. of Units Launched for Sale	No. of Units Offered for Sale
Warsaw	4,800	2,600	10,400
Tri-City	2,400	1,400	7,200
Kraków	3,000	1,300	5,500
Poznań	1,500	1,200	5,400
Wrocław	2,300	1,800	6,500
Łódź	1,500	1,900	5,600
Total	15,500	10,200	40,600
Source: JLL

Residential construction activity is now falling

Residential construction activity in Poland is now slowing, amidst higher materials costs coupled with high interest rates. During 2022:

• Dwelling permits dropped 12.6% y-o-y to 298,372 units, in stark contrast to the strong growth of 23.6% in 2021, according to the Central Statistical Office of Poland. It was the first annual decline recorded since 2013.
• Dwelling starts plunged by 27.8% to 200,288 units in 2022 from a year earlier, in contrast to a 23.9% increase in the prior year.
• Dwelling completions increased slightly by 1.6% y-o-y to 238,490 units, the lowest growth seen since completions declined by 1.4% in 2014.

The downward trend in construction activity continues this year. In the first seven months of 2023, dwelling permits plummeted by 32.3% to just 131,082 units as compared to the same period last year. Over the same period, dwelling starts and completions also declined by 25.1% and 0.2%, respectively.

Housing stock

There were over 15.6 million dwellings in Poland in 2022, up by 1.4% from the previous year and by about 13% from a decade ago.

Poland has traditionally had the highest proportion of privately built dwellings.  Developers typically build more than 60% of newly-completed dwellings annually, and private investors, less than 40%. But Poland’s housing stock is of low quality compared to the Western European average, according to Ernst and Young. Of the 15.6 million residential units in Poland in 2022, around 65% were built before 1989, mostly during the communist era using prefabricated technology, which tends to be of very poor quality.

Modern units built from 2000 onwards comprise only about 16% 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 the 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; large rental market

Gross rental yields in Warsaw are good, at an average of 6.02% in Q2 2023, based on research conducted by the Global Property Guide in August 2023.

The Warsaw district of Mokotow, located just below Srodmiescie, houses many foreign embassies and companies. Two-bedroom apartments in Mokotow are rented for about €1,348 per month, earning an average rental yield of 6.54%.

In the other popular Warsaw neighborhoods, such as Białołęka, Praga Południe, Wola, Bemowo, Downtown, Ursynow, and Bielany, apartments offer good rental returns ranging from 4% to 7.6%.

In other major cities:

• In Wrocław, gross rental yields for apartments range from 5.05% to 8.64%, with a city average of 6.39%.
• In Kraków, rental yields range between 4.17% and 6.83%, with a city average of 5.14%.
• In Gdańsk, rental yields range between 5.11% and 7.74%, with a city average of 7.04%.
• In Łódź, rental yields for apartments range from 4.81% to 6.5%, with a city average of 6.26%.
• In Lublin, apartments offer yields from 6.25% to 7.52%, with an average of 6.74%.
• In Poznań, apartments offer rental yields from 5.36% to 6.05%, with an average of 5.7%.

Renting is an unavoidable choice for more and more Poles, as stricter requirements for mortgage financing, uncertainty in the labor market, and low growth prospects, all discourage households from incurring long-term debt. 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% in the State Treasury, and 0.5% in public building societies. The remaining dwelling stock is primarily owner-occupied.

Mortgage rates remain high, following key rate hikes

In July 2023, the average interest rate for PLN-denominated outstanding housing loans stood at 5.22%, down from 7.92% a year earlier but still far higher than the 2.3% seen two years ago, according to figures from the NBP. Over the same period:

• Maturity between 1 year and 5 years: the average interest rate was 7.46% in July 2023, slightly down from 8.05% a year ago but sharply up from just 2.73% in the past two years.
• Maturity of over 5 years: the interest rate was 5.22% in July 2023, from 7.92% in July 2022 and 2.3% in July 2021.

For PLN-denominated new housing loans, the average interest rate remains high at 8.43% in July 2023, slightly down from 8.77% in the previous year but sharply up from just 2.84% two years ago.

• Floating rate and up to 3 months initial rate fixation (IRF): the average interest rate was 9.18% in July 2023, up from 8.97% a year earlier and 2.88% two years ago.
• Over 1-year IRF: the average interest rate was 8.14% in July 2023, from 8.6% in July 2022 and 3.75% in July 2021.

Likewise, the average interest rate for EUR-denominated new housing loans rose to 8% in June 2023, from just 4.2% in the previous year.

In July 2023, Narodowy Bank Polski (NBP), Poland’s central bank, kept its benchmark reference rate constant at 6.75%, leaving it unchanged for 11 consecutive meetings in an effort to ease inflationary pressures. It was the highest level in two decades. The central raised the key rate by a cumulative 665 basis points from a record low of 0.1% in September 2021 to 6.75% in October 2022.

Also, the rediscount rate and the deposit rate were unchanged at 6.8% and 6.25%, respectively.

“The Council assesses that the strong monetary policy tightening undertaken by NBP is leading to a decline in inflation in Poland towards the NBP inflation target. At the same time, given the strength and persistence of the earlier shocks, which remain beyond the impact of domestic monetary policy, the return of inflation to the NBP inflation target will be gradual. The decrease in inflation would be faster if supported by an appreciation of the zloty exchange rate, which, in the Council’s assessment, would be consistent with the fundamentals of the Polish economy,” said the NBP in its July 2023 Monetary Policy press release.

“Further decisions of the Council will depend on incoming information regarding prospects for inflation and economic activity. NBP will continue to take all necessary actions in order to ensure macroeconomic and financial stability, including above all to bring inflation down to the NBP inflation target in the medium term,” the NBP added.

The mortgage market is gradually shrinking

The size of the Polish mortgage market has grown explosively - from only 1.3% of GDP in 2000, to more than 21% of GDP in 2021. But last year, the mortgage market has noticeably slowed, falling to just about 16.7% of GDP, amidst rising interest rates. 

In July 2023, Poland’s total outstanding housing loans fell by 6.2% to PLN 494.55 billion (€106.34 billion) from the same period last year, according to the NBP. Over the same period:

• Zloty-denominated housing loans outstanding dropped 2.4% y-o-y to PLN 406.46 billion (€87.39 billion).
• Foreign currency-denominated housing loans fell sharply 20.4% y-o-y to about PLN 88.1 billion (€18.94 billion).

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 less than 18% in July 2023, based on figures from the NBP.