The residential market’s third quarter performance was markedly weaker than the first six months of 2021, both in terms of sales and new supply. Developers operating in the country's six largest markets (Warsaw, Krakow, Wrocław, the Tri-City, Poznań and Łódź) put 13,800 units on offer, 13% less than the previous quarter. Although sales of 15,000 units were 23% lower q-o-q, they still exceeded new launches for another consecutive quarter. The offer available in these cities on the primary market dropped to 36,600, a level 26% lower than a year ago, according to the latest JLL report, Residential Market in Poland - Q3 2021.

Poland’s inflation rate, which continues to rise on a monthly basis, is driving new buyers to sales offices. While it is clear that the limited offer and rising prices are having an increasingly significant impact on the decline in the number of units sold, developers still sold 54,000 units to individual buyers in the first three quarters of the year, 1,000 more than in all of 2020.

"The pandemic is still affecting - although in a slightly different way than last year - the residential market. On the one hand, it is significantly stimulating demand. Buyers are seeking security for their savings through property purchases, but also improved housing conditions for fear of further pandemic restrictions. On the other hand, disruptions in supply chains have increased the cost of building materials, and inefficiencies in public administrations’ limited supply. In this situation, it is extremely difficult for developers to plan sales and rationalise financial assumptions, and the attempt to mitigate the risks involved manifests itself primarily in launching projects at ever higher prices", comments Aleksandra Gawrońska, Head of Residential Research at JLL.

Although prices cross new thresholds, buyers are still not in short supply

The market which saw the greatest increase in unit prices in investments launched for sale was in Wrocław, rising 23% on the last quarter. As a result, the average price for all units on offer at the end of September in the city exceeded the PLN 10,000/m2 mark for the first time. At the end of September, the price per sqm in Wrocław was 16% higher than the year before. The biggest annual increase in prices was registered in Łódź (18%) with the smallest rise in TriCity (9%).

However, it seems that more than the increase in prices, buyers are affected by the limited choice of units. Compared to Q3 2020 data, the number of new properties has decreased across all six largest markets. The offer shrank the most in Wrocław, where only 5,400 units were available for purchase at the end of September 2021, 42% less y-o-y. A large 34% drop was also visible in Warsaw. Given the pace of sales over the last 12 months, the current offering may well have sold out in around five months if new developments had not entered the market.

The key questions are if and where a rapid increase in supply is possible. As emphasised by JLL experts, in terms of the "stock" of units on issued permits, significant differences can be seen between the six largest markets.

"Warsaw is in an extremely unfavourable situation, where reserves have to all intents and purposes been exhausted. Wrocław and Kraków are in a slightly better situation, where their respective reserves do not exceed 30% of their current annual production. In Tri-City, permit reserves are estimated at approx. 40-50% of annual supply, while in Łódź developers have permits to match annual production. On the other hand, a very unusual situation is observed in Poznań, where the surplus of units on permits issued in the last three years over the number of units commenced stands at the near equivalent of two-years' output, a record for this city", comments Aleksandra Gawrońska, an expert at JLL.

Investors come under fire

The problems with new supply are so serious that they have become an important issue in the national discourse. The blame for the massive buyouts and price rises has been put on investors who want to make money by renting flats to Poles. The authors of the report emphasize, however, that funds have been wrongly blamed as their influence on the market is marginal compared to purchases made by individual investors.

For a sustainable housing market, it is essential to meet the needs of all groups: both buyers and tenants. The latter group can still choose mostly a less than transparent private rental market based on contracts between individuals. Indeed, supply in this market continues to grow. It is estimated that, in the last few years, the share of investment purchases by individual buyers has ranged, dependent on the city, from 20% to 40%. In the six largest markets (Warsaw, Kraków, Wrocław, the Tri-City, Poznań and Łódź), this is reflected by approx. 90,000-95,000 units completed between 2016 and 2020 that are or will be rented out by individual owners. In the same period, just over 6,000 flats in buildings wholly owned by investment funds came onto the rental market across Poland. One third of these flats are in the hands of the Polish Housing for Rent Fund. Even if we take into account the projects that are yet to be added to their portfolios, their share of the national market would not exceed a few percentage points.

"The numbers we are talking about are 25,000 to 30,000 units in institutional rental, which may, on an annual basis, mean about 4,000 such units in all of the largest markets combined. If we put this annual total against the100,000 to 140,000 units per year built by developers in recent years, this is definitely a small percentage. It is worth noting that foreign funds do not decide on purchasing at prices higher than the current market offer, while a significant proportion of developments that are in the portfolios of institutional investors are on land where residential units, by Polish law, cannot be built (these are usually retail premises sold with 23% VAT)", explains Aleksandra Gawrońska, Head of Residential Research at JLL.

The situation in the housing market in the near future will depend on the scale of supply, i.e. the possibility of obtaining new building permits and launching new investments for sale. In the next few months, however, the key factor will be the level of interest rates.