Sales rollercoaster: Polish housing market year in review

Overall developers can’t complain about the Polish residential market in 2020. Among all real estate, housing construction did hardly suffer from COVID-19.

January 02, 2021

Developers operating on the six largest housing markets in Poland cannot say that this year was bad for them. Out of all the industries, including both those who benefited from the pandemic, such as the warehouse, logistics and modern data centres markets, as well as the sectors that experienced a significant collapse -  in particular hotels – the residential market didn’t suffer much at all.

And yet, 2020 was a real rollercoaster ride for housing sales.

Q1: record high opening

In the first quarter, the market climbed to a level unprecedented since 2017, matching the sales records achieved at that time. Almost 19,000 units (in total on the 6 largest markets in Poland) sold at an average price 35% higher than three years ago, most likely made it the best quarter in history in terms of the value of contracts concluded by developers in our country. The offer at the end of March clearly decreased, because the new supply - as usual in the first quarter of the year - was not too high. The growing uncertainty and the restrictions introduced in the second half of March related to the announcement of the epidemiological threat in Poland practically did not affect the industry’s results in this quarter.

Q2: lockdown and returns

Following the introduction of the lockdown, consumer moods plunged, and with them the sales of housing units. In the first two months of the second quarter, the biggest problem that developers had to face was the wave of returns (i.e. withdrawals from previously concluded reservation or development contracts). It mainly affected those markets, which in the previous period saw a high level of investment purchases, even resulting in negative sales numbers in some districts of major cities (more units returned to the offer than were sold at the same time).

Developers reacted to the restrictions caused by the pandemic very quickly – moving customer communication online. New technologies were used in sales on an unprecedented scale to make it easier for buyers to make a purchase decision without visiting the sales office. Companies also responded quite flexibly to the needs of customers in terms of payment schedules and contract signing dates.

Ultimately, the number of transactions decreased by 64% compared to the previous quarter on the six markets. The number of commenced projects also decreased significantly. According to data from the Polish Central Statistical Office (GUS), the number of units where construction began by May was 21% lower than in the previous year. Although the number of units introduced to the offer in the second quarter exceeded the number of transactions, the prices of units launched on the market - contrary to popular expectations - did not drop.

Q3: house buyers' optimism

The third quarter brought a rapid, even euphoric improvement in consumer moods. Poles believed that the pandemic had been defeated and that real estate is still a good investment. Despite high prices, sales in this quarter nearly doubled from the second quarter. New supply also returned to the pre-Covid level. 13,000 units were launched for sale, only 300 fewer than were sold at the same time. A widely discussed phenomenon was also a significant acceleration in the commencement of construction projects by developer companies. In September, according to data from the Central Statistical Office (GUS), a record was even broken in the number of units whose construction was started within one month. After three quarters, in the 6 cities with the largest turnover on the primary market, the number of transactions reached 39,100, outnumbering launches by 2,600. All of this happened at basically the same price levels from the start of 2020.

Q4: safe capital investment

In the fourth quarter, consumer moods deteriorated again, but on the housing market both developers and buyers reacted much more calmly than during the first wave of the pandemic and restrictions. Although the number of buyers purchasing units for rent decreased, new customers appeared looking for a safe alternative to bank deposits. The mortgage market also rebounded, although this was mainly related to good sales in the third quarter. The last quarter of the year will most likely bring similar results to the previous one, and the whole year will end much better than it was assumed at the beginning of April.

Positive summary of 2020

Looking at the residential market statistics for mid-December 2020 makes us ask ourselves a provocative question: could they really have been significantly better if it wasn’t for the pandemic? Comparisons with recent boom years are inevitable. It should be remembered, however, that in 2017-2019 there was a combination of factors that were exceptionally beneficial for the housing market, which on one hand very much supported demand, and on the other allowed a flexible response from supply. In 2020, even without the pandemic, a slight downturn in this sector could have been expected - more or less as shown by current statistics.

It was also important for the stability of the market that institutional buyers looking for entire buildings for lease maintained their interest, or even slightly increased it in recent months, and met with a much more favourable response from developers than before. The growing interest of global funds in assets from the so-called Living segment translated into an increase in the volume of investments, and this was also clearly visible in Poland. In addition to the fact that profitability of housing assets is already much higher here than in Western and Southern Europe or Scandinavia, large players investing in Poland also see the potential in an increase in rents and property value in the long term. This interest may result in further transactions in assets related to housing in the first months of 2021

2021 with a chance to repeat the results on the primary market

What will happen next year will be mainly influenced by very low interest rates, which on one hand will support lending, and on the other will encourage buyers to spend their savings on real estate, not necessarily counting on very high profits from rentals, but rather treating the housing market as a safe place to store their capital in difficult to predict times. Demand is also strongly supported by Poles who are striving to improve their living conditions in the event of further pandemic recurrences.

Property developers are entering 2021 in a good financial condition, and the market - although it differs by city - is not in danger of a surplus of supply over demand.

What may jeopardize this relative balance of supply and demand is the flooding of the secondary market with units bought in the last few years with the intention of renting them. This offer, which would include virtually new units, could compete with the supply offered by developers. The second factor may be the inflow of speculative capital to Poland, counting on a further increase in real estate prices. As always in crises, there are also risks associated with legislation.

If 2021 ends with similar results to 2020, it seems that both developers and investors who support them financially will be satisfied with this result. It is a difficult but achievable challenge.