The end of the golden age of apartment owners? Expert announces changes [ANALIZA]

Did it all start with a pandemic?

Yes, in 2020 the real estate market was in a dynamic phase, demand was growing until the lockdown suddenly silenced customer interest and supply. In fact, it was not a lull, but a blow against the wall: the market was gaining momentum and suddenly we had two quarters of freezing. Demand only returned in 2021. The reason? The lowest interest rates in history, which resulted in sales the market had not seen for a long time. This continued throughout 2021, but not only did inflation start to rise, but also war suddenly broke out in Ukraine.

And the market hit the wall again?

The news about the war – as well as the lockdown – was a shock for buyers. The survey we conducted among a group of buyers using the Obido portal showed that people interested in buying an apartment had given up on their intention. The situation in the rental market also contributed, and it is worth remembering that these markets are interconnected. Many apartments for rent quickly disappeared. Yes, some of them were rented to Ukrainians, but some were made available to them for free. In large cities, the supply of apartments for rent fell by 70 percent! Small and cheaper apartments in particular were sucked out of the market. And when they returned to the market, they were offered at a higher price.

But that was not the end. In 2022, the Polish Financial Supervision Authority, concerned about borrowers and thinking about what will happen to people who, in the euphoria of buying an apartment, forget that the cost of servicing a loan may increase as inflation rises, ordered banks to increase the buffer when calculating credit quality by 2.5 to 5 percentage points. So we had high interest rates, high inflation and a high buffer.

Then came more turbulence: government subsidies, that is, subsidies for the purchase of the first apartment, freed up the apartment market and drove up prices.

In December 2022, Minister Waldemar Buda announced Crédito Seguro 2%. This announcement was initially believed by those who know the market – investors and swimmers. Already in January 2023, we saw very high reserves from a group that knew that the arrival of the stimulant to a dry market would result in greater demand and higher prices.

In addition, at the end of February, the Polish Financial Supervision Authority reduced the buffer to 2.5. Another group decided to buy an apartment: those who have not yet managed to get a mortgage loan. Banks began to calculate creditworthiness differently, which resulted in large sales in April and May 2023, and the program came into effect in July.

What awaits buyers today?

At the end of 2023, the government announced the continuation of subsidies for the purchase of an apartment, i.e. the #naStart loan. Developers introduced new conditions into the offer, believing that this promise would be fulfilled. Although the supply of apartments began to grow, demand turned into waiting for a new program. At the end of June, we saw a stabilization of prices in the primary and secondary markets. Today, buyers can choose from a much wider range. Credit Insurance 2% meant that in the third quarter of 2023 the supply in the seven largest markets remained below 34 thousand apartments, at the end of June there were already 51 thousand.

This means that, unlike the situation a year ago, we can buy without worrying that someone will soon steal the apartment from under our noses or that the price will suddenly rise.

Yes, the apartment stays with the developer longer. But there is one more important thing. In the development market in the 7 largest cities, the total price of an average apartment has been stagnant for at least 4-5 months, while the average prices per square meter are rising.

Why is this happening?

Because since the beginning of the year, the apartments introduced to the market by developers have been, on average, several metres smaller than those offered the previous year. This means that there is a simultaneous stabilisation of the total price and an increase in the price per square metre.

According to Expander and Rentier.io, there are noticeable reductions in the market: in June, prices fell in 10 out of 17 cities surveyed. Most of all in Toruń (-7.5%), Gdańsk (-3.1%), Rzeszów (-3.1%), Łódź (-2%).

In smaller markets, price fluctuations can come from a small number of homes. Furthermore, these markets are often operated mainly by local developers. Smaller ones can offer somewhat cheaper apartment prices. A smaller company means a smaller organisational structure, a smaller city means cheaper land. These are advantages, but there are also risks. Smaller development companies often mean less capital and therefore less freedom when it comes to completing the construction of an investment and at the same time securing land for subsequent projects. When people do not buy apartments at an early stage of the project, liquidity problems arise, which is why small investors are more willing to give discounts. This is where, among other things, the price reductions we observed in June came from.

Will the next few months be similar?

I don’t see any reason why demand would suddenly increase. We don’t see a sharp drop in inflation, but rather a sign that inflation will rise to 5% and daily costs will be higher again. In addition, there is uncertainty and the war in Ukraine. There may be corrections in smaller markets – both slight declines and increases in the most attractive projects – small, about 3%. It all depends on what kind of apartments will be put on the market by developers.

Today you may notice that developers tempt customers with discounts and send emails about discounts. It wasn’t like that last year…

It is difficult to ignore this information, but we cannot count on the fact that the reductions will be a mass phenomenon, that is, this mythical “bubble bursting”.

However, although supply favors buyers, loan interest rates do not favor them. Most fixed-rate loans, paradoxically, are not used because the rate is high – 7-8%. Today, buyers would be more willing to take out a loan with a variable interest rate, while the main offer of banks is fixed-rate loans.

What is the situation for those who want to sell their apartment today?

It is no coincidence that the supply of apartments on the secondary market has increased. This is the result of the longer time it takes to sell the properties. A year ago, the person who listed the apartment could sell it in a few days, or maybe even hours. Now he will have to wait weeks and still be ready to negotiate the price.

And who wants to buy an apartment as an investment? Isn’t an apartment purchased with the intention of making money from renting it out more profitable today?

I have no doubt that this is the case. The price of the purchased apartment rises, and the rent stabilizes or even falls – so the profitability is getting lower and lower. Is renting profitable? It all depends on what the person who bought the apartment as an investment expects. Because if he bought it outright 5 years ago, even if he has less profit today, it is still absolutely profitable, there are no loan costs.

The situation is completely different for those who took out a loan, say in mid-2020 or 2021, with interest rates of 0.1, and now the WIBOR is around 6%. To compensate for the higher costs of servicing the loan, there would have to be an appropriate increase in rent. Without a doubt, the rent calculated at this time is less profitable than it was a year ago.

Does the government’s postponement of the decision on the new program affect prices in the development market?

When I asked myself what would stabilize the market a year ago, I thought that if I didn’t want to – sitting in Świętokrzyska [ siedziba Ministerstwa Finansów – red.]overload the state budget with new expenses and at the same time calm the real estate market in the madness that was happening at that time, I would have announced this program and then negotiated for a long time.

This is what we are seeing now.

Yes, and that is why it is not certain whether the program will come into effect.

Will he come in?

I think so, but the number of restrictions will mean that only a small group of buyers will benefit from the program. In the format recently introduced, families with four children would mainly benefit. Because in their case, the requirement of not owning an apartment has been abolished, as well as the income limit.

Will this program cause prices to rise again and customers to have to dig deeper into their pockets?

We have a large supply on the market. If few people use the program, the impact of the program on prices and sales will be small.

In August, regulations on real estate development came into force. Some developers have threatened that the new regulations will increase prices because they will be able to build fewer apartments. Will this be the case?

Of course. If a developer bought a plot of land on which he planned to build 100 apartments, and now he has to build a playground of a certain size and at the same time move the building away from the edge of the plot, he will build 70 to 80 apartments. And this will really change the Excel of these projects. However, developers have obtained many permits, so we should not feel the effects of the regulation for the next six months or even longer.

What can those looking to buy an apartment expect this year?

It seems that they will be in a comfortable position when it comes to choosing an apartment. There are many indications that we will not experience any sudden changes in the market environment: new regulations, changes in offers or interest rates. We cannot predict how the “Start-up Loan” will impact the market because we do not know how it will be in the end. The lists circulating among the ministries indicate quite strong antagonisms between the politicians of the ruling coalition when it comes to housing policy.

In addition to the program, what price increases can we expect?

Prices in the real estate market usually rise slightly above inflation – and this figure is expected to be around 4-5 percent in the second half of the year. At the beginning of next year, we will probably see another jump in inflation – to 6-7 percent. Apartment prices will rise by 7-10 percent next year. This should not surprise us. In smaller cities, where developers are more exposed to the effects of reduced liquidity, we can expect promotions and a tendency towards price discounts. But not in all small markets – because they are completely different from each other. We have a different situation in dynamically developing Szczecin or Rzeszów, and a different situation in Bydgoszcz or Kielce.

Katarzyna Kuniewicz – Market Research Director at Otodom Analytics, specializing in issues related to the real estate market in Poland. Expert in the field of organizing research on demand and supply in the real estate market. Speaker at numerous conferences, participant in debates, commentator on housing phenomena and trends.