Polish house prices continue to rise strongly
Lalaine C. Delmendo | May 17, 2019
The average price of existing flats in Poland's 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) increased by 7.11% (5.51% inflation-adjusted) during 2018 to an average of PLN 6,905 (€ 1,605) per square metre (sq. m.), from y-o-y rises of 7.87% in 2017, 2.64% in 2016, 1.1% in 2015, and 1.69% in 2014, according to the Polish central bank, Narodowy Bank Polski (NBP). On a quarterly basis, house prices were up by 2% (1.5% inflation-adjusted) in Q4 2018.
- In Warsaw the average price of existing houses rose by 11.52% (9.86% inflation-adjusted) during 2018.
- Gdańsk saw the highest house price rise among Poland's seven major cities, with a 20.56% (18.77% inflation-adjusted) y-o-y price surge in 2018. It was followed by Gdynia with a 15.43% y-o-y increase.
- Other Polish major cities also enjoyed high price hikes, including Łódź (11.52%), Kraków (11.49%), and Poznań (9.11%).
- Among the 7 big cities, Wrocław saw the lowest price hike of 3.23% (1.69% inflation-adjusted) during 2018.
Warsaw has Poland's most expensive housing, with an average selling price of PLN 10,300 (€ 2,394) per sq. m. in 2018, according to NBP. Housing is also expensive in Gdańsk, with an average price of PLN 8,855 (€ 2,058) per sq. m., Gdynia with PLN 8,523 (€ 1,981) per sq. m. and Kraków with PLN 8,466 (€ 1,968) per sq. m.
Łódź had the cheapest houses among the 7 big cities, with an average price of PLN 4,811 (€ 1,118) per sq. m.
The strong price rises are mainly due to robust demand, supply shortages and higher construction costs, as well as a declining share of low-cost "Housing the Young" (MdM) scheme units, after the programme closed in January 2018.
In 2018, the total number of new flats sold in the country's six major cities fell by 12.3% to 64,800 units from a year earlier, according to REAS JLL Residential Advisory. Despite this, last year's sales level remains the second highest in the market's history.
“Although 2018 was far from achieving the record-breaking results of 2017, it was a very good year in terms of the number of sold flats – slightly better than in 2016, making it the second-best year in the history of the residential development market in Poland,” said REAS.
Foreigners can freely buy condominium units in Poland. Land for commercial purposes can be freely bought by citizens of the European Economic Area (EU + Iceland, Liechtenstein, and Norway).
The Polish economy grew by a robust 5.1% in 2018, up from the previous year's 4.8% expansion and the highest growth since 2007. The International Monetary Fund (IMF) expects the economy to expand by 3.8% this year while the World Bank is more optimistic with a 4% growth projection – amidst a slowdown in the euro zone, Poland's biggest trade partner.
Yields in Warsaw and Krakow are good, at around 6%
Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, in the centre of Warsaw, are 6.0% for a 90 square metre (sq. m.) apartment. Such an apartment might cost around EUR 1,200 per month to rent, but around EUR 235,000 to buy. There are similar yields on 120 sq. m. apartments, though prices and rents are obviously higher.
These are good yields. Such good yields are obtainable in all Warsaw's central areas such as Mokotów, Śródmieście, and in other areas too. 6% is the normal yield throughout the city, and very small apartments are likely to yield even more (though we don't have the research to substantiate this).
Surprisingly, the same is true of Krakow. Apartments here are broadly similar in price to the less central areas of Warsaw. They return rents of around EUR 11 - EUR 12 per sq.m. per month. A 90 sq. m. apartment in Krakow will cost you around EUR 200,000, and rent for around EUR 1,100, producing a yield of 6.5%.
The big downside is that round trip transaction costs are high in Poland. See our Poland transaction costs analysis and our Transaction costs in Poland compared to other countries.
Income taxes are high in Poland
Rental Income: Net rental income is taxed at progressive rates, up to 32%.
Capital Gains: Capital gains incurred on properties sold within five years of acquisition are taxed at a flat rate of 19%. Capital gains incurred on properties sold after a 5-year holding period are exempted from capital gains tax.
Inheritance: Gifts and inheritances of Polish property are taxed at progressive
Residents: Residents of Poland pay taxes on their worldwide income at progressive rates, up to 32%.
Buying costs are low in Poland
Roundtrip transaction costs, i.e., the cost of buying and selling a property, are around 5.35% to 8.10%, with all costs falling on the buyer. For residential apartments, real estate agent’s fee is typically 3%.
Law neutral between landlord & tenant, but unstable
Rent: Rents can be freely negotiated between landlord and tenant. Rent indexation clauses are legal.
Tenant Security: However, the general situation over rental laws is worryingly unstable. Strict re-regulation of the rental sector was recently legislated by Parliament. Fortunately, it was declared unconstitutional shortly after coming into law. Populist pro-tenant feeling is strong.
Robust economic performance; record-low unemploymentThe Polish economy grew by a robust 5.1% in 2018 from a year earlier, up from the previous year’s 4.8% expansion and the highest growth since 2007. Growth was supported by robust domestic demand and recovering investments.
Economic growth is expected to slow to 4% this year, amidst a slowdown in the euro zone, Poland’s biggest trade partner, based on World Bank estimates. Yet it is still far higher compared to the euro zone’s projected growth for 2019 of 1.6%.
“The Polish economy is still growing at a rate significantly above the EU average,” said Carlos Piñerúa of World Bank. “The low unemployment rate and strong wage growth are still driving private consumption; investments, both public and private, are growing too.”
Poland, which does not use the euro, is the only European country that avoided recession during the global financial and economic meltdown. The Polish economy expanded by 4.3% in 2008, 2.8% in 2009, 3.6% in 2010 and 5% in 2011, according to the IMF. However growth slowed in 2012 and 2013, with GDP growth rates of just 1.6% and 1.4% respectively, due to the recession in the Eurozone, which accounts for over 50% of Polish exports.
The Polish economy bounced back in 2014 with 3.3% growth, fueled mainly by strong domestic demand. Economic expansion continued in 2015 and 2016, posting growth rates of 3.8% and 3%, respectively.
Poland’s budget deficit stood at 0.4% of GDP in 2018, down from the previous year’s 1.4% shortfall and the lowest level since the beginning of Poland’s data collection in 1995, according to Statistics Poland. The country’s budget deficit is projected to increase to 1.4% of GDP this year and to 1.6% of GDP in 2020.
The government debt was trimmed to 48.9% of GDP in 2018, from 50.6% of GDP in 2017, 54.2% in 2016 and 51.3% in 2015.
Annual inflation stood at 1.7% in March 2019, up from 1.2% in February and 0.9% in January. Inflation is expected to accelerate to 2.3% this year and to 2.7% in 2020, from an annual average of 0.5% from 2013 to 2018, according to the European Commission.
In March 2019, Poland’s unemployment rate hit a 29-year low at 5.6%, down from last year’s 6.3%, according to Statistics Poland. Over the same period, there were about 933,200 unemployed people in the country, down from 1,034,600 a year earlier.
In contrast to Poland’s booming economic performance, its political situation is clouded due to the growing strain between the country and the European Union (EU). In December 2017, the EU recommended launching an unprecedented disciplinary process against the Polish government due to the latter’s judicial reforms, which the EU calls a "clear risk of a serious breach of the rule of law". The said reforms effectively put the Supreme Court under the control of the governing party.
The conflict has been brewing since the populist Law and Justice Party (PiS) candidate Andrzej Duda won the presidential elections in May 2015 and the PiS party won the majority of seats in November 2015.
In 2017, the EU took the first steps toward stripping the country of its voting rights – a penalty that has never been used against any member nation.
Poland, the biggest beneficiary of the EU funds, may also see its funds cut in the new 2021-2027 EU budget.
Despite this, Poland continued with its "reforms", formally introducing a law in July 2018 that lowers the retirement age for judges from 70 to 65. This triggered widespread street protests after more than 20 judges (about a third of the total) were forced to retire.
This caused the EU to issue a ruling that obliges Poland to suspend the law immediately. Giving in to pressure, Duda finally reversed the law in December 2018, effectively reinstating the judges forced into early retirement – a surprising move after months Poland’s top officials saying they would resist any move to stop the judicial reforms.
“We are members of the European Union and we will abide by European Union law,” said PiS head Jaroslaw Kaczynski.
Poland’s concession of the Supreme Court is not a guarantee that the conflict between the PiS-led government and the EU has finally ended, but it represented a positive development.