Recent post-Covid months have shown some interesting positive trends on the Polish real estate market with a few surpassing expectations.
During the peak of the third wave, many expected a market slowdown and a drop in prices on the residential market. Indeed in 2020, many consumers put purchases on hold (although prices actually rose in the last quarter in Warsaw by 0.8 percent). However, right after the third wave, Poland’s residential market began to grow in value at an unprecedented rate. In fact, as of the second quarter of 2021, the primary markets of Gdansk, Gdynia, Krakow, Lodz, Poznan, and Wroclaw have increased by 11.3 percent, year on year. Warsaw’s increased by 13 percent.
Riding the Wave
Demand is also high. During the first half of 2021, a record 19,500 apartments were sold in Poland’s six largest cities (which is more than in 2019). There are many reasons for this high demand and these high prices. They include: (1) the protection of capital – as of August 2021, inflation stood at a record 5.5 percent and 34 percent of buyers on the secondary market maintained they were purchasing property as an investment; (2) speculation – a high number of flippers wanting to make a quick buck; and (3) the interest of investors in the private (institutional) rental sector.
The number of mortgages also remains high, with a monthly average of EUR 1.63 billion in mortgages in the second quarter of 2021, demonstrating that both consumers and banks see the labor situation as generally stable. Poland’s figure of 3.4 percent is one of the lowest unemployment rates in the EU. A solid labor market and no hint at a rise in interest rates from Poland’s National Bank in the next few months mean that the prices and demand on the residential market will maintain momentum. However, sooner or later, an increase in interest rates can be expected, which might slow things down somewhat. What is more, the market could be slowed down by Poland’s new tax reform in the guise of Polski Lad (Polish Deal), which is set to raise taxes for the middle class and introduce certain mechanisms that could temper the residential rental market.
Building the Future
On the other hand, this is countered by growing consumer demand, especially in Warsaw, where there is a shortfall in the supply of new apartments which will mean growing prices. This is further compounded by the oft complicated and lengthy process of obtaining building permits. In 2021, 31 percent fewer building permits were granted in Warsaw than from 2015 to 2020. One of the conditions for obtaining building permits is getting a so-called “zoning decision”, which demands both time and expertise in areas where there are no local master plans. To put this into context, only 40 percent of Warsaw is covered by local master plans – and 50 percent of Poznan. Happily, there are new legal instruments to avoid these obstacles and we are working furiously to confirm the effectiveness of this new initiative.
Other reasons for the rocketing prices are a deficit of new land in Warsaw, Gdansk, and Wroclaw as well as the rising costs of construction – by 8.9 percent in 2021 – which are predicted to continue increasing.
Changing the Cityscape
In this dynamically changing environment, another interesting trend is the transformation of dedicated retail or office areas into mixed-use projects. One of the largest Polish developers purchased 45,000 square meters of land in Warsaw from Tesco, with the intention of demolishing a hypermarket and developing a mixed-use residential/service/gastronomy complex. The same developer has just been given the green light for the development of around 1,500 apartments, converting them from current office buildings, with approximately 30,000 square meters of green areas and a school for 450 children. Another owner of three shopping centers in Warsaw plans to redevelop these centers for retail/office/residential/hotel mixed-use. The trend is also visible in other cities, with interesting plans for a change of use of a shopping mall in Poznan, a 70,000-square-meter project.
Nature abhors a vacuum, and this seems to be true for the business world, with new perspectives for developments emerging on Poland’s real estate market. The prospects remain exciting and the knock-on effect for the whole region could well be positive.
By Przemyslaw Kastyak, Partner, and Sebastian Janicki, Senior Associate, Penteris