The Q2 2018 Residential Market in Poland report by REAS has revealed a distinct slowdown in both supply and demand over the past three months. While new supply did increase slightly on the level of supply recorded at the beginning of the year in Q1, it is still below the average level of new supply seen over the past two years.

As nothing untoward has occurred in the macroeconomic climate that might dampen demand, the most obvious reason for the fall in the number of transactions is the rapid rise in prices, according to REAS.

The drop observed in the rate of units launched for sale in the first half of the year is due to a number of factors, however. On the one hand, developers face problems when purchasing land for new projects and obtaining the construction permits, while on the other, costs of construction and shrinking availability of labour in the construction sector mean that it is becoming difficult to contract construction work at a price that ensures healthy margins.

Supply

In Q2, 15,400 flats were released for sale in the six largest markets, which was 4% up on the preceding quarter. In total, over the last four quarters, 64,200 new units were put on sale on those markets, which is 6,000 less than the number of flats sold during the same period, which means that stock levels are falling.

The greatest decrease in supply of new flats was seen in the Tri-City area of Gdansk, Gdynia, Sopot, (-22.5% quarter on quarter). The number of units put on sale decreased to the Q3 2015 level and was almost 40% down on the record-breaking level of Q2 2017. Wroclaw showed a similar tendency, where the fall quarter on quarter was the same as in the Tri-City, and was almost down 37% in comparison to Q4 2017.

In Kraków, the number of units released on to the market rose by 2% quarter on quarter, but this was still one third down on the record reached in Q1 2017. However, new supply remained high in Lódz and the number of flats completed in the city in 2019 is expected to be even higher than this year, whereas most other Polish cities will see new supply peak in 2018.

There was practically no change in the total number of units available in the six largest cities at the end of June in relation to the end of March, which remained at 44,000. The number of flats on offer decreased however in all cities except Warsaw. The fall in individual cities was no more than 5%, and the increase seen in Warsaw was 3%.

Prices

The rate of sales and very low percentage of unsold flats confirms that demand continues to be significantly higher than supply, and this has caused prices to inflate in all cities.

The greatest increase in the average price for flats on offer at the end of Q2 was in Kraków   (5.3% quarter on quarter), to PLN 7,200sqm/£1,523sqm (all prices are including VAT), although REAS believes that this was probably an adjustment for a slower rate of growth in the previous quarters compared to the other cities surveyed.

Almost the same rise was recorded in Warsaw (4.9% quarter on quarter), where the average price of a flat on offer at the end of the quarter exceeded the highest price in the previous market boom for the first time in ten years at PLN 8,700sqm/£1,840sqm.

In the other cities, the quarterly increase in average prices ranged between 1.6% and 3.1%. The scale of the change can best be seen however from the perspective of the four quarters. Compared to Q2 2017, the greatest change was in the Tri-City (+16%).

A double-digit rise was also recorded in Warsaw (13%), Poznan (10%) and Wroclaw (10%). The rise in Kraków was moderate in relation to other cities at 8%. In this context, the result in Lódz was the lowest, with just a 7% rise.

Demand

In Q2 2018 the number of transactions recorded overall for the six largest markets was 15,600 – a drop of 15% on the previous quarter and 17% down on the record-breaking final quarter of 2017. The number of flats sold in the last four quarters was 70,300.

Sales in Warsaw, the largest market in Poland, were down 24% quarter on quarter. REAS noted a similar fall in Wroclaw of 23% quarter on quarter.

Developers operating in the Tri-City area recorded the greatest decreases in the number of transactions at the beginning of this year. The difference quarter on quarter was -10% but this was down as much as 30% compared to the Q4 2017 record. A similar trend was seen in Kraków: the quarterly decrease of -12% was a difference of as much as -23% compared to the best result to date at the beginning of 2017.

REAS concluded: “The factor hampering demand the most is the rising prices, due to causes such as a significant rise in the cost of land and construction work. This is hitting the largest market players particularly hard, as they usually adjust prices fastest due to the scale of their operations.”