Q3 2022 saw up to a 30% q/q drop in the number of flats sold on the primary markets of Warsaw, Kraków, Wrocław, the Tri-City, Poznań and Łódź. The total number of flats sold in these markets was only 6,600. JLL experts emphasise that the last time such low demand for real estate occurred in Q2 2020 when sales offices were closed due to the COVID-19 pandemic wave.
“A series of interest rate increases have negatively affected the housing situation and consequently an increase in the interest rate on loans. Therefore, the cash buyer is mainly present on the market. On the other hand, we are seeing a much larger number of new investments that came in the offer just before July 1, 2022, when the new Developer Law came into force together with developer fees for the Guarantee Fund. The record high number of flats withdrawn from sale (nearly 4,000 units) proved insufficient to maintain market equilibrium”, says Aleksandra Gawrońska, Director, Head of Residential Research, JLL.
The current decline in the sale of apartments has consequences in terms of reducing the scale of the investments started. The most striking statistics were those of August this year. In several large cities, this month, construction of 150-250 units was started, i.e. in practice one or two investments. If the situation does not improve quickly, the development market will be on track to reduce the number of housing started from a level of more than 160,000 in 2021 to around 60,000 or even less in 2023 across Poland.
Despite the record number of flats in developments where sales were put on hold, returns – usually cancellations of paid reservations – were also significant in Q3 2022. Consequently, the size of the offer at the end of September amounted to 51,400 flats in these markets, with the demand-supply relationship markedly deteriorating. It is worth noting that such an offer volume is comparable to that which was sustained from 2015 to 2019. However, it is worth remembering that the average quarterly sales during this period were almost 16,000 flats, while today it stands at just over half that number.
On the other hand, although the number of finished unsold flats has increased, its share of the offer is still very low. In absolute numbers, there were 3,900 such flats available in the six main cities at the end of September, and their share on most markets was not more than 10%. Therefore, there is no basis to claim that the maintenance of empty finished apartments is a significant financial burden for companies. It is worth recalling that during the recent crisis in 2009, the proportion of finished unsold flats was close to 30%.
Kraków and Wrocław are among the most expensive
In the last three months, the offer prices of flats have increased the most in Kraków (5%) and Wrocław (4%). It was in these two markets that very expensive investments appeared on the market, which influenced the price level of available units. Prices in the Tri-City, Poznań and Łódź markets changed slightly in Q3 (between 1% and 1.8%), while in Warsaw they remained at a similar level from three months ago. On an annual basis, the characteristics of the changes were fairly similar. The largest increases were recorded in Wrocław – by 19.8%, and in Kraków – by 17.3%. The most interesting figures were the quarterly increases in the offer prices of flats sold. In most markets, the changes amounted to between 3% and 6.8%, while in Poznań it was as much as 10.9% q/q. Such results are partly the effect of cash purchases made in investments offering a better standard but being more expensive.
Next year – more of the same
Despite the statistical increase in the price of flats sold in the third quarter of this year, the market is seeing more promotional offers and discounts, meaning an increasingly lower purchase cost from the initial offer. This may be reflected in the pricing policy in future quarters.
“2023 will be a very difficult year for the development sector. As sales fall, developers should proportionally reduce the number of apartments placed on the market. However, this will have many negative consequences not only for the development companies themselves but also for the construction sector, producers of construction materials and products, as well as the furniture sector and white goods manufacturers. In this situation, the natural action of the government, as was the response to the financial crisis in 2009, is to launch a transitional programme to support potential buyers of housing", adds Kazimierz Kirejczyk, Executive Director, Residential Advisory, JLL.
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