Gradual improvement of Poland’s housing market continues
Last Updated: September 24, 2015
The average price of existing flats in Poland’s 7 big cities (Warsaw, Gdańsk, Gdynia, Kraków, Łódź, Poznań, and Wrocław) rose by 3% (4.3% inflation-adjusted) during the year to Q1 2015, according to the Polish central bank, Narodowy Bank Polski (NBP). During the latest quarter, house prices were up by 0.7% (1.2% inflation-adjusted).
- Gdańsk saw the highest average transaction price increase at 13.1% y-o-y to PLN 5,417 (€1,289) per sq. m. in Q1 2015. It was followed by Krakow with an 8.1% y-o-y increase to PLN 6,197 (€1,474) per square metre (sq. m.).
- In Warsaw, the country’s capital, the average transaction price of existing houses fell by 1.6% y-o-y in Q1 2015 to PLN 7,054 (€ 1,678) per sq. m.
- Łódź and Poznań had price declines of 3.5% and 2.1%, respectively. The average transaction price in Łódź was at PLN 3,342 (€ 795) per sq. m., while PLN 4,905 (€1,167) per sq. m. in Poznań.
Until very recently house prices in Poland had been falling since mid-2008.
Compared to pre-crisis peaks:
- In Gdańsk, house prices are down 13.6%
- In Krakow, house prices are down 15.2%
- In Łódź, house prices are down 19.7%
- In Warsaw, house prices are down 22.8%
- In Poznań, house prices are down 22.8%
These post-2008 declines came after a long boom period from 2004 to 2007, fuelled by an inflow of investment due to the country’s accession to the EU, record low interest rates, and mortgage financing development.
Property prices suddenly surged in Warsaw - up 23% in 2005, up 28% in 2006, an amazing 45% in 2007, and 13% in 2008, according to REAS. Other cities such as Wroclaw saw even larger house price rises. Behind this boom lay strong economic growth.
However during the 2008-09 crisis the Polish Zloty fell dramatically, and mortgages - mainly denominated in foreign currencies - became unrepayable. Home prices fell for 6 straight years.
Yields are good in Warsaw, Poland, at from 6% to 7.8%
After a long period of property price-declines in Poland, gross rental yields - i.e., what landlords earn from their properties - are now back at very attractive levels. House prices have also been rising gently since Q4 2013
The Warsaw distict of Mokotow, located just below Srodmiescie, houses many foreign embassies and companies. It ranks second in terms of property prices, after Srodmiescie. Prices for apartments here range from €2,000 to €2,400 per sq. m,.
In Mokotow smaller apartments have rental yields averaging 7.8%. Really large apartments earn 6.4%. For a 120 sq. m. apartment you will pay EUR 285,000 and earn maybe EUR 1,500 per month.
Apartments in Srodmiescie, which includes the historic neighborhoods of the Old Town (Stare Miasto) and the New Town (Nowe Miasto), are now similarly priced.
Yet they are really not expensive, compared to the prime districts of other European cities. Srodmiescie apartment prices range from €1,950 to €2,135 per square metre (sq.m.), with gross rental yields ranging from 6% to 7.5%.
In the other popular Warsaw areas Ursynów, Wilanów, and Żoliborz, apartments range from €1,950 to €2,966. Property owners also earn good rental returns here, ranging from 6 % to 7.5%.
In Krakow, average apartment prices range from €2,400 to €2,600 per sq. m. Apartment gross yields here are lower, ranging from 4.5% to 5.3%.
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 31.2%, 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.
Positive growth outlook in 2015, low deficit, and a new presidentPoland’s economy slowed in the second quarter of 2015, growing by 3.3% y-o-y, according to Central Statistical Office of Poland (GUS), slightly lower than the 3.6% y-o-y growth in the previous quarter. The deceleration was due to slow growth in private consumption (up by 3% y-o-y), government spending (2.4% y-o-y increase), and fixed investment (6.4% growth).
In 2015, the IMF expects 3.5% economic growth, mainly due to the decline of oil prices, and the European Commission expects 3.2% GDP growth - good numbers.
Earlier this year, Standard & Poor’s raised its outlook on Poland’s A- credit rating from stable to positive, implying a possible upgrade. "The outlook revision reflects our expectation that income levels ... will rise consistently on the back of broad-based and balanced economic growth, thereby improving the economy's resilience and capacity to bear debt," said S&P.
The government’s budget deficit is now at its lowest since 2007 at 3.2% of GDP in 2014, according to Central Statistical Office of Poland (GUS). The country’s low debt was attributed to “the effect of good market conditions”, according to ING Bank Śląski’s chief economist, Rafał Benecki.
In June 2015, unemployment fell to 10.3%, from 12% the previous year. Core inflation fell to 0.6% during the year to August 2015, according to the central bank.
Bronisław Komorowski’s reign as Poland’s president has ended. Law and Justice Party (PiS) candidate Andrzej Duda won the recent elections held in May 2015. Duda, a conservative, won 51.55% of the vote, as opposed to Komorowski's 48.45%. The new president, who assumed his office in August 2015, vowed to reverse the increase in the retirement age and draft laws that could increase the tax breaks of the impoverished.