PMR Report: Housing construction: big boom reversed by coronavirus
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The housing market in Poland has enjoyed an impressive boom in the last few years, with construction activity and sales of developer apartments both scaling new highs. In 2019, home starts, building permits, and the value of approved mortgages all reached all-time records. Apartment prices kept rising and the prospect of a correction seemed remote. But then the coronavirus-related restrictions came, and the market unexpectedly ground to a halt. What will the situation be like when the housing sector returns to normal?
Poland’s housing market has been exceptionally buoyant in the recent period. The developer apartments segment has seen a virtually uninterrupted boom since 2013. The last three years were particularly strong.
2019 was a record year in terms housing construction activity:
- 237,300 new build homes were started, a new all-time high that bettered the previous record set in 2018 (221,900 starts) by as much as 6.9%;
- 207,200 dwellings were completed, up by 12% on 2018 and the best result since 1980;
- building permits were issued, or notifications filed, for 268,500 new homes (+4.4% y/y), also a new record.
These positive trends continued in the first two months of 2020. In fact, February 2020 was the best month in a decade, both in terms of home completions and home starts.
It appears, however, that the coronavirus pandemic and its disastrous consequences will prove an inflection point, triggering a trend reversal on the housing market. The long-heralded correction will come, affecting supply, demand, and prices. The following facts point to this scenario:
– all developers and real estate agents closed their sales offices in March and are interacting with customers, and offering property tours, via the internet and video only. Such conditions are not conducive to the finalisation of transactions, and apartment sales have all but ground to a halt. Notary offices are closed, too. Developers listed on the Warsaw Stock Exchange have published statements on the possible negative impact of Covid-19 on sales;
– the process of completing the paperwork necessary to apply for a building permit has become very slow and complicated because many public administration institutions have suspended in-person services, asking employees to work remotely. Since not everything can be done via the ePUAP electronic system, developers are warning that new construction projects will be delayed as a result;
– potential home buyers are postponing decisions, expecting prices to fall as the crisis takes its toll on contractors and developers;
– the ban on short-term rental has forced investors in such properties to look for long-term tenants. If they cannot find them, they may want to sell their apartments in order to protect liquidity, thus contributing to the downward trend in prices;
– the positive impact on the mortgage market of the interest rate cut will be largely negated by banks tightening conditions and raising their margins to reflect heightened risk; demand for home loans is unlikely to increase in such uncertain circumstances, with the situation in many sectors getting very serious and a wave of bankruptcies appearing unavoidable.
There are factors, though, that should mitigate the impact of the trend reversal in housing on contractors:
– after several heady years during which they regularly generated impressive profits, developers seem to have enough of a financial cushion to avoid liquidity problems;
– developers are determined to complete ongoing projects on schedule to be able to access the remaining money deposited by buyers in escrow accounts, so demand for general contractors’ services should remain resilient in the first half of 2020, though new projects will no doubt be delayed;
– repayment holidays for mortgage borrowers should help avert a major sell-off of homes, at least for the time being;
– the government’s Mieszkanie+ programme, having got off to an unimpressive start, shows signs of accelerating. Mieszkanie+ projects do not seem under threat, and could partly offset the projected fall in demand from developers later this year.
Mieszkanie+’s progress so far:
- 907 flats under construction (as of 31 December 2019)
- 18,000 flats at the design stage with financing approved
- In 2019 construction began on Mieszkanie+ projects e.g. in Debica (201 units), Minsk Mazowiecki (138), Swidnik (108), Krakow (481), Zamosc (96), Radom (124) and Lowicz (96)
- In 2020 construction work is to begin in about 20 locations.
Calculation of the exact impact of the crisis on the level of output in housing construction will be possible when the pandemic-related restrictions are lifted. Then we will present the most probable scenario. For our baseline forecasts, see the report, Construction sector in Poland H1 2020.