Report on the situation in the housing and commercial real estate market in Poland in 2019
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Report on the situation in the
housing and commercial real
estate market in Poland in 2019
Financial Stability Department 1
Warsaw, 2020
The Report has been prepared in the Financial Stability Department for the purposes of
NBP authorities. Opinions expressed in this report are opinions of the authors and do not
present the point of view of the authorities of Narodowy Bank Polski.
2The Report was prepared under the guidance of:
Jacek Łaszek Financial Stability Department
with editorial assistance of:
Olga Szczepańska Financial Stability Department
Authors:
Hanna Augustyniak Financial Stability Department
Jacek Łaszek Financial Stability Department
Krzysztof Olszewski Financial Stability Department
Joanna Waszczuk Financial Stability Department
Marzena Zaczek Financial Stability Department
Grażyna Baldowska NBP Regional Branch in Warsaw
Ewa Białach NBP Regional Branch in Lublin
Krystyna Gałaszewska NBP Regional Branch in Gdańsk
Izabela Hulboj NBP Regional Branch in Zielona Góra
Andrzej Jakubowski NBP Regional Branch in Warsaw
Robert Leszczyński NBP Regional Branch in Białystok
Maciej Misztalski NBP Regional Branch in Wrocław
Renata Modzelewska NBP Regional Branch in Warsaw
Paweł Nakonieczny NBP Regional Branch in Lublin
Zbigniew Opioła NBP Regional Branch in Katowice
Justyna Rusnak NBP Regional Branch in Kraków
Anna Stołecka NBP Regional Branch in Rzeszów
34
Table of Contents
Summary ....................................................................................................................................................... 6
1. Introduction ........................................................................................................................................ 10
2. Real estate sector in Poland .............................................................................................................. 12
3. Cycles in the real estate market ........................................................................................................ 24
4. Developments in the residential real estate market in Poland in 2019 ....................................... 32
4.1 Housing prices .............................................................................................................................. 32
4.2 Housing demand .......................................................................................................................... 41
Ratio analysis of housing demand................................................................................................... 41
4.3 Supply of housing according to the GUS data and the results of developers’ surveys ..... 48
Assessment of the situation in the sector and developers' expectations .................................... 53
Assessment of the situation and expectations in the building cubature construction sector .. 57
Analysis of the real estate development process ........................................................................... 60
5. Developments in the income generating real estate market – commercial and residential real
estate for rental (buy to let) in Poland in 2019 ........................................................................................ 81
Transaction rents in commercial real estate.................................................................................... 81
Analysis of investment in housing real estate ................................................................................ 88
Glossary of terms and abbreviations ....................................................................................................... 90
Index of abbreviations ............................................................................................................................... 94Summary
Summary
In 2019, the Polish real estate sector continued a phase of strong recovery, which was associated
with the cumulated growth in demand from the general construction, residential and commercial
real estate sectors. This situation changed in March 2020 with the outbreak of the COVID-19
pandemic. The analyses presented in the report are predominantly based on data as at the end of
2019 but also partially include data for 2020 Q2.
Restrictions resulting from the pandemic have reduced activity in the residential and commercial
real estate market. Due to the inertia of real estate market processes, the noticeable effects of
COVID-19 will be deferred.
The main drivers of the high demand observed in the real estate sector in 2019 include:
➢ in the case of general construction - EU-financed infrastructural projects,
➢ in the commercial sector - low interest rates in the euro area,
➢ in the case of residential construction - structural factors, i.e. rising household income,
shortage of housing in large cities and low domestic interest rates.
In 2019, the residential and commercial markets were subject to double pressure since, on the one
hand, they were competing for limited resources and means of production and, on the other, they
were under the pressure of growing demand. Consequently, construction costs, real estate prices
as well as rental rates were on the rise. Among important observations related to the real estate
market in 2019, the following phenomena should be mentioned:
▪ Average asking and transaction prices per square meter of housing in primary and
secondary markets in Poland continued on an upward trend. In Warsaw and in the six and
ten largest cities under analysis, prices in nominal terms exceeded the maximum levels
recorded in the period of tensions during the previous cycle (2006-2008). The index of CPI
deflated prices increased slightly in year-on-year terms and continued below the 2006-2008
levels. The index of wage-deflated housing prices continued in the negative territory
indicating that the growth of households’ wages was faster than the prices, with an
exception of the group of 10 cities, where positive values were maintained on the primary
market. The highest nominal prices per square meter of housing in the primary and
secondary markets were recorded in Warsaw and in the six largest voivodeship cities (6M),
especially in Gdańsk, Wrocław, Kraków and Gdynia. Higher prices were noted in the case
of transactions involving small dwellings (with an area up to 40 square meters) and large
dwellings (with an area exceeding 80 square meters). On the other hand, in the market of
the remaining 10 cities the highest prices per square meter of housing were recorded in the
case of small dwellings;
▪ Average rents (asking and transaction) per square meter of housing increased in the
majority of the analysed markets (including offer rents by 6% y/y and transaction rates by
12.6% y/y). This encouraged wealthier households to purchase rental housing for
investment purposes. In 2020 Q1, there was a slight downward adjustment in rents in the
6 Narodowy Bank PolskiSummary
Warsaw housing market and in Poland’s six largest cities, which deepened in the
subsequent quarter;
▪ Estimated nominal rates of return on investment in rental housing were higher than yields
on bonds or bank deposits and were similar to rates of return on investments in commercial
real estate. Higher nominal rates of return continued also in early 2020, despite decreasing
rental rates. In the case of commercial real estate, the estimated return on equity was higher,
as the real estate is often financed with very low-interest loans in EUR. A detailed analysis
taking into account depreciation and taxation of profits shows that the rates of return on
equity, excluding loans, are practically the same in both cases. It should be noted, however,
that there are significant differences in liquidity, transaction costs and risk between bank
deposits or bonds compared to investment in rental housing or commercial real estate;
▪ In 2019, the primary residential market of the analysed cities saw a significant rise in
demand and a slightly smaller rise in supply. High demand for housing was driven by a
strong growth in household wages, the persistence of the historically low nominal interest
rates (on both deposits and loans) and the acceleration of purchases of developer dwellings
for own housing needs and for investment purposes;
▪ The overall home selling time in the primary market in the largest cities amid demand at
the 2019 level remained lower than one-year period (3.1 quarters). This time started to
increase from June 2020 (to 3.3 quarters) as a result of restrictions imposed during the
COVID-19 pandemic;
▪ At the end of 2019 and at the beginning of 2020, the home selling time in the secondary
markets, taking into consideration only transactions ended with a closed deal was around
4 months, i.e. it remained stable in Warsaw and in ten cities (10M) while in six cities (6M)
it decreased by approx. 1.5 month;
▪ In 2019 and early 2020, the activity in housing construction was at a record level. In 2019`,
the total of dwellings completed and made available for occupancy exceeded 207.2
thousand (increase of 12.1% y/y), the construction of approx. 237.3 thousand new housing
projects were commenced (increase of 6.9% y/y) and approx. 268.5 thousand building
permits were issued (increase of 4.4% y/y). Since 2020 Q2, the impact of the COVID-19
pandemic has been visible in the form of a declining number of home construction contracts
sold in the primary market and a low number of construction starts, which is one of the key
indicators for developers in terms of the outlook for future flows;
▪ The persistently strong demand in the housing market in 2019 had a positive impact on the
financial condition of real estate developers, especially large real estate developers. The
estimated share of developers’ profit in the price of new housing continued at a high level
of approx. 20%. This means that real estate developers managed, to a considerable extent,
to pass growing housing construction costs through to home buyers. Growing prices of
construction and assembly works and the shortage of resources had a negative impact on
real estate developers. The forecasts of sales profitability for 2020 before the pandemic
showed improving sentiment among developers, which could have resulted from
Report on the situation in the residential and commercial real estate market in Poland in 2019 7Summary
a decreasing number of low-profitability development projects on the market.
A satisfactory level of margins and good financial standing upon entering the period of
unexpected decline in demand in the first half of 2020 will allow some developers to
maintain liquidity during the downturn;
▪ The BaRN survey results show that the price of land for multi-family construction in the
largest cities increased in 2019, in terms of the annual average, by approx. 15% in Warsaw,
approx. 4% y/y in 6 cities and approx. 17% in 10 cities (compared to increases in 2018 by
9%, 18% and 17%, respectively). According to developers, net land prices increased on
average by 17% in mediocre locations and by 29% in very good locations;
▪ Real estate developers, especially large real estate developers, continued to rely mainly on
their own funds, clients’ down-payments, bonds and loans and delayed repayment of
liabilities. The share of own funds was high (approx. 40%), whereas the share of loans
insignificant (approx. 10%).
▪ In 2019, compared to 2018, housing availability in the primary and secondary markets in
most voivodship cities slightly deteriorated, i.e.: loan availability indicators and availability
of loan-financed housing showing the size of housing that can be bought using a bank
credit. The main drivers of changes in the availability indicators included a higher growth
rate of the prices of dwellings sold compared to the growth in wages, with a similar level
of interest on residential mortgage loans in PLN extended to households.
▪ The year 2019 turned out to be a record year over the last several years in terms of the
number of new housing projects. Over 90% of new development projects in voivodship
cities were launched by investors building for sale and for rent. As in previous years,
developers operating on local markets adjusted their offer in terms of the size of dwellings,
number of rooms and their functionality to the expectations of buyers. This was another
year when in the group of the largest cities smaller dwellings with a bigger number of
rooms were built;
▪ Voivodeship cities face problems related to satisfying housing needs of low-income
households. Commercialisation of municipal premises, restitution of real estate to their
former owners or their heirs, closure of flats due to poor technical condition of buildings
and at the same time marginal production of new municipal premises are the main factors
behind the decline (by 40.4%) of the municipal stock of voivodeship cities over the last
seventeen years. The lack of sufficient funds both for the implementation of new projects
and renovation works in the existing stock limits the availability of municipal housing for
households. The main problems of cities related to the implementation of housing
programmes include, above all, insufficient financial resources in relation to the needs for
the planned investments, the lack or low availability of developed land for housing with
regulated legal status, high costs of constructing the technical and social infrastructure
required for the location of new residential construction;
▪ The office real estate market saw an increase in demand amid steadily growing supply.
Amid low interest rates in the euro area, investors continued to be interested in launching
8 Narodowy Bank PolskiSummary
new development projects despite low and falling rates of return. Those projects are
financed with near-zero interest loans from investors’ home countries which allows them
to generate positive rates of return on equity. Growing supply of commercial real estate
may cause rents in older buildings in poorer locations to decline, which will affect owners’
income and may make it difficult for them to repay the debt. Foreign investors raising
funding outside Poland continued to play a major role on the market of large commercial
real estate for rental;
▪ The share of new retail space in the total retail real estate stock decreased for another
consecutive year. This may mean that the current stock of retail real estate is sufficient to
meet the demand for this type of space;
▪ In 2019, transaction rents for A class office space (quoted in EUR price/square metre/month)
continued on a slight upward trend in Warsaw and remained stable in other cities. On the
other hand, rents for B class office space (quoted in EUR/square meter/month) were stable
in Warsaw and followed a slight upward trend in other cities. Transaction rents in
shopping centres located in economically important parts of the city (measured in
EUR/square meter/month) in large cities remained stable while the hedonic index of newly
quoted rents in in those centres in Warsaw, Poznań and the Tricity showed declines.
Report on the situation in the residential and commercial real estate market in Poland in 2019 9Introduction
1. Introduction
The real estate market is of key importance for the stability of the financial system and, in general,
for macroeconomic stability. Excessive credit growth and related imbalances in real estate prices
are generally the major source of systemic risk. The past financial crises were largely the result of
booms in the loan-financed real estate market1.
The Report mainly focuses on the 2019 developments, but some analyses go beyond that period,
especially in view of the COVID-19 pandemic in Poland at the end of 2020 Q1. These data, due to
the strong inertia of processes in the real estate sector, often do not allow a full analysis of the
phenomena, but give some idea of the changes taking place. This is particularly true for the
development and construction sectors, where the short-term response to the pandemic was
particularly noticeable (a significant decline in the sale of dwellings in 2020 Q2). The report presents
the main directions of developments in the real estate markets and indicates their selected
determinants. The Report discusses the cycle stage of the real estate market, including the relation
between household income and housing prices, and analyses the rate of return in the commercial
market. The Report describes the phenomenon of increased housing demand and high level of
production of developer dwellings, exceeding the scale recorded in the period of tensions in the
years 2006-2008. The Report also discusses the trends in asking and transaction prices in the
primary and secondary markets of the analysed cities and growing rent rates in the rental market.
It also addresses the economic and financial situation of real estate developers, construction
companies and construction material wholesalers. Additionally, the Box B presents the findings of
the surveys concerning land for multifamily construction and changes in local area development
plans. The Report also presents the situation in the commercial real estate market which has seen
decreasing imbalances, especially in the office market witnessing growing demand. The Report
addresses potential challenges for owners of commercial real estate for rent resulting from e-
commerce and sharing of retail space and presents a simplified analysis of investment in office and
residential real estate.
Due to the local nature of housing and commercial markets, the Report provides an in-depth
analysis of sixteen voivodeship capital cities and Gdynia. In the majority of the analyses the data
concerning housing markets are broken down into: Warsaw, six cities (6M: Gdańsk, Gdynia,
Kraków, Łódź, Poznań, Wrocław) and ten cities (10M: Białystok, Bydgoszcz, Katowice, Kielce,
Lublin, Olsztyn, Opole, Rzeszów, Szczecin, Zielona Góra). Such a breakdown is justified by the
comparable size and degree of development of the real estate markets.
The analysis of asking (O), transaction (T) and hedonic (hed.) prices per square meter (sq.m) of
average housing in the primary market (PM) and secondary market (SM) and the analysis of the
commercial real estate (CRE) market are based on the data obtained by analysts from the Regional
Branches of Narodowy Bank Polski (OO NBP) in the survey of the housing market Real Estate
1
Crowe C. et al. [2011], Policies for macro financial stability: options to deal with real estate booms, IMF Staff Discussion
Note, IMF, 25 February 2011.
10 Narodowy Bank PolskiIntroduction Market Database (BaRN)2 and the commercial real estate market (Commercial Real Estate Database (BaNK). As the survey covered a variety of agents operating in the market (brokers, real estate developers, housing co-operatives, municipal offices, consulting companies), this allowed the authors to obtain thorough and extensive information. The study also relied on the database of PONT Info Nieruchomości (PONT) containing data on asking prices of housing in Poland, the SARFIN database (containing data on housing market financing in Poland) and AMRON database (containing data on housing appraisal and transaction prices of mortgage-financed housing) operated by the Polish Banks Association (ZBP), as well as the data of JLL company (formerly: REAS) on the primary residential market. Data on construction costs of selected buildings come from the Sekocenbud publishing house. The authors drew on the analyses and reports issued by the Polish Financial Supervision Authority (KNF) as well as aggregate credit data released by the Credit Information Bureau (BIK). The statistical data published by the Statistics Poland (GUS) and the analyses including sectorial data have been used in the structural analysis 3. The information about the commercial real estate market is also based on the data provided by commercial real estate brokers, as well as real estate management and consulting companies operating in this market. The analysis was supported with data and information of particular consulting agencies4. Specialized terms are marked with the symbol # and explained in the glossary of terms and list of abbreviations. In the absence of data or their insufficient quality, the authors relied on estimates that were verified using expert opinions. 2Cf. „Programme of statistical research of public statistics for 2019”. Regulation of the Council of Ministers of 14 September 2018 concerning the programme of statistical surveys of public statistics for 2019 (Journal of Laws 2018, item 2013 of 6 November 2018). The study of residential and commercial property prices, study reference number 1.26.09(073), is conducted by the President of Narodowy Bank Polski. See: Sytuacja na lokalnych rynkach nieruchomości mieszkaniowych w Polsce w 2019 r., NBP, 2020 r. (Situation in the local real estate markets in Poland in 2019, NBP, 2020). 3This concerns, in particular, the study of Sekocenbud on the structure and costs of construction, study of the Polish Agency for Construction Research (Polska Agencja Badawcza Budownictwa (PAB) concerning the construction sector and many other organisations and associations operating in this market, among others, the Polish Federation of Real Estate Market (Polska Federacja Rynku Nieruchomości) and the Association of Employers - Manufacturers of Building Materials (Związek Pracodawców-Producentów Materiałów dla Budownictwa), Spectis. 4The authors relied on the data and information of the following agencies: CBRE, Colliers International, Cushman & Wakefield, JLL, Knight Frank and associations: Retail Research of the Polish Council of Shopping Centres (Retail Research Forum Polskiej Rady Centrów Handlowych), Polish Office Research Forum. The data concerning transactions in the commercial real estate market are drawn from database of NBP and Comparables.pl. database. Report on the situation in the residential and commercial real estate market in Poland in 2019 11
Real estate sector in Poland
2. Real estate sector in Poland
Since the transition period the housing stock in Poland has been on a steady rise while its
particularly rapid growth was recorded in 2017-2019. Commercial real estate assets have been on
the rise since 2012, especially in the office and warehouse space market.
The estimated value of residential real estate assets5 in Poland at the end of 2019 exceeded PLN 4.3
trillion, compared to PLN 3.8 trillion in 2018 (see Figure 2.1). The increase by 14.7% y/y (13.4% in
2018) in terms of value resulted from an increase in both the area of housing stock (approx. 2.2%
y/y in large cities and approx. 1.6% in smaller cities) and transaction prices (approx. 8-9% y/y in
large cities and approx. 14% in smaller cities). The value of commercial real estate is approximately
PLN 280 billion. This value increased slightly compared to 2018 (see Figure 2.3), which was driven
by a growth in the area of office space, in particular warehouse space, at practically stable appraisal
of such space all over Poland (see Chapter 3).
Figure 2.1 Estimated value of the housing stock in Figure 2.2 Area of the housing stock in Poland in
Poland, in PLN billion millions of square metres
4 500 1 100
1 000
4 000
900
3 500 800
3 000 700
2 500 600
2 000 500
1 500 400
300
1 000
200
500 100
0 0
2005
2007
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2019
2006
2014
2005
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2006
2007
2008
2009
Warszawa 6M 10M PP Warszawa 6M 10M PP
Note: 6M# - Gdańsk, Gdynia, Kraków, Łódź, Poznań, Wrocław; 10M# - Białystok, Bydgoszcz, Katowice, Kielce,
Lublin, Olsztyn, Opole, Rzeszów, Szczecin, Zielona Góra; PP# - the rest of Poland. The estimate is based on GUS
data on the usable area of the housing stock in specified cities. The housing stock was multiplied by
transaction prices of housing (average prices in the primary (2%) and secondary market (98%)) in the 16 cities (NBP
database) and in other Polish cities by replacement prices. The graph shows aggregate values.
Source: NBP estimates based on NBP, GUS, PONT Info Source: NBP estimates based on GUS
5 The value of residential assets calculated as 98% of the stock of residential space from the secondary market
multiplied by average transaction prices from the secondary market in 16 cities in Poland or replacement prices
in the remaining parts of Poland and 2% of the residential space stock from the primary market in 16 cities in
Poland multiplied by average transaction prices from the primary market.
12 Narodowy Bank PolskiReal estate sector in Poland
Figure 2.3 Estimated value of the commercial real Figure 2.4 Estimated area of the commercial real
estate stock in Poland in PLN billion (left-hand estate stock in Poland in millions of square meter
scale) and PLN/EUR exchange rate (right-hand scale)
300 5,0 45
4,8 40
250
4,6 35
4,4
200 30
4,2
25
150 4,0
20
3,8
100 15
3,6
3,4 10
50
3,2 5
0 3,0 -
2006
2008
2009
2010
2011
2013
2015
2016
2017
2018
2005
2007
2012
2014
2019
2005
2006
2008
2010
2012
2014
2016
2018
2007
2009
2011
2013
2015
2017
2019
Retail, Poland Warehouse Poland
Offices, Warsaw Offices, rest of Poland
Retail, Poland Warehouse Poland
PLN/EUR FX rate Offices, Warsaw Offices, rest of Poland
Note to Figure 2.3 and 2.4: The estimate is based on publicly available data on the commercial real estate stock. Offices
are modern office buildings, retail premises are shopping centres, and warehouses are modern, large-format
warehouses. The stock was multiplied by the hedonic transaction price of commercial real estate. Prices given in EUR
are translated into PLN. The graph shows aggregate values.
Source: NBP estimates based on NBP BaNK database and data of other consulting companies, transaction prices from
Comparables.pl, appraisals from AMRON.
The estimated residential and commercial real estate assets in Poland at the end of 2019 increased
as compared to the previous year, and in terms of value represented approx. 202% of GDP and
approx. 59% of the fixed assets in the economy (compared to 191% and 57% in 2018, respectively).
Residential real estate accounts for approx. 190% and commercial real estate for approx. 12% of
GDP (see Figures 2.5 and 2.6 ). The area of the housing stock increased by approx. 1.6% y/y (see
Figure 2.2 ), and the ratio of its estimated value to GDP in 2019 increased by approx. 13 pp in year-
on-year terms, which is mainly due to the increase in the value of the housing stock (increase in
both the housing area and prices of housing). The value of the commercial real estate stock to GDP
ratio was stable compared to the previous year, since the value of the housing stock posted a merely
slight increase.
Report on the situation in the residential and commercial real estate market in Poland in 2019 13Real estate sector in Poland
Figure 2.5 Ratio of the estimated current value of Figure 2.6 Ratio of the estimated current value of
residential property assets (RPA) to GDP and fixed commercial property asset (CPA) to GDP and
assets (FA) in Poland fixed assets (FA) in Poland
220% 70% 14% 5,0%
200% 12%
65% 4,0%
180% 10%
60% 3,0%
8%
160%
55% 6%
140% 2,0%
4%
120% 50%
1,0%
2%
100% 45%
2005
2006
2007
2010
2011
2012
2013
2014
2015
2016
2018
0% 0,0%
2008
2009
2017
2005
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
2018
2006
2012
2019
RPA / GDP (left hand scale) RPA / FA (right hand scale) CRE/GDP CRE/FIXED ASSETS
Source: NBP estimates based on NBP, GUS, PONT Info Note: See note to the Figure 2.3 and 2.4
Source: NBP estimates based on NBP BaNK database
and data of other consulting companies, transaction
prices from Comparables.pl, appraisals from AMRON
Housing demand is only part of the demand from the construction sector which includes civil
engineering, non-residential and residential construction (see Figure 2.7). In Poland, in 2019, for
another consecutive year, all these markets continued to see a very strong construction demand.
High demand for infrastructure construction was driven by record low interest rates in the euro
area. In the case of commercial construction, the demand for residential construction resulted from
the structural shortage of housing in large cities and the historically low level of interest rates on
both deposits and loans.
Gross housing investment increased in 2019, but in relation to GDP it stood, as in the previous two
years, at around 1.6%. Real estate development projects accounted for approx. 60% of this value.
The share of residential projects in the investment outlays (approx. 40%) is high on an international
scale, however, it is a result of the expansion of residential development projects and the relatively
low level of investment in Poland. The share of construction and assembly production (including
development and renovation works) in GDP in 2019 remained at the 2018 level, i.e. around 5.6%
(see Figure 2.7 and 2.8)6. In 2019, the share of persons employed in the real estate sector in total
employment in the national economy reached approx. 6.1%, i.e. it increased slightly compared to
that observed in the previous years. Net housing investments is estimated to account for approx.
1.5% of GDP, and real estate development projects for 0.6% of GDP7. Yet, the total demand created
6According to the results of the analysis of The Economist Intelligence Unit Limited 2017, all Europe has seen a recovery in
construction activity, which is in line with the growth phase of the cycle following the recession in the aftermath of the
global financial crisis. In 2017, the countries of the Central and Eastern Europe also recorded rising investment in
construction. EU-funded projects support public development in the region, and private construction activities are
supported by rising household income and low cost of credit.
7
Registered depletions of housing stock in Poland account for a mere 0.02% of the entire housing stock (the 2005-2018
average), while its actual long-term depreciation rate can be estimated at approx. 0.3-0.5% in year-on-year terms.
14 Narodowy Bank PolskiReal estate sector in Poland
by housing construction is definitely higher, as the dwellings constructed have to be additionally
finished, equipped and then maintained, whether they are occupied or not.
Figure 2.7 Structure of construction and assembly Figure 2.8 Relation of investment in housing
production by type of construction (% of GDP; construction in Poland (%)
aggregate data)
8% 50% 8,0%
7% 7,5%
45%
6% 7,0%
5% 6,5%
40%
4% 6,0%
3% 35% 5,5%
2% 5,0%
30%
1% 4,5%
0%
25% 4,0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2002
2004
2005
2006
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2019
2003
2007
2014
Civil engineering buildings
Non-residential construction to investment outlays
Residential construction to gross fixed capital formation
to GDP (RH)
Source: GUS Source: GUS
After 2000 Poland has seen a gradual improvement in the housing situation, which is due to the
construction of new dwellings, renovation of the existing housing stock and demographic
processes limiting the demand for new housing (see Figure 2.12). This improvement was due to a
large number of newly built dwellings8, small scale of demolition of old housing and migration-
driven depopulation in some cities. According to NBP estimates9 , in 2019 the housing stock in
Poland totalled approx. 14.8 million (a 1.4% increase y/y, i.e. by 207.5 thousand). The discussed
period saw an increase in the number of dwellings in the housing stock per 1000 inhabitants (it
amounted to approx. 386 compared to 381 in 2018) and in the average usable floor space per person
(approx. 28.7 compared to 28.2 in 2018). The average number of persons in a dwelling decreased
(2.59 in 2019 compared to 2.63 in 2018; see Figures 2.9 - 2.11). In 2019, the average area of a single-
family house under construction in Poland (usually built by private investors) decreased to 143.6
sq.m from 144.3 sq.m in 2018. On the other hand, in 2019, the average size of housing for sale or
rent increased to 61.6 sq.m from 60.8 sq.m in 2018, with Kraków recording the smallest usable floor
area in the analysed cities (52.1 sq.m).
8 In 2018, the Statistics Poland (GUS) changed the existing definitions of dwellings under construction, dwellings for which
planning permits were issued or which were registered and completed dwellings made ready for occupancy. For
detailed information see the Statistics Poland (GUS) website in the Local Data Bank:
https://bdl.stat.gov.pl/BDL/metadane/metryka/3747?back=True# .
9 As the Statistics Poland (GUS) usually releases housing stock data in October, NBP estimated the 2019 average figures.
Report on the situation in the residential and commercial real estate market in Poland in 2019 15Real estate sector in Poland
Figure 2.9 Number of dwellings in the housing Figure 2.10 Average number of persons in a
stock per 1000 inhabitants in Poland dwelling in Poland
600 3,1
550 2,9
2,7
500
2,5
450
2,3
400
2,1
350 1,9
300 1,7
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2006
2007
2008
2009
2011
2012
2013
2014
2016
2017
2018
2019
2005
2010
2015
Polska Warszawa 6M 10M Polska Warszawa 6M 10M
Source: NBP estimates based on GUS Source: NBP estimates based on GUS
Figure 2.11 Average usable area of housing in the Figure 2.12 Growth rate of the number of dwellings
housing stock per person (in sq.m) in Poland in the housing stock and the number of inhabitants
in 2019 as compared to 2006 in Poland’s selected
cities
34,0 70%
60%
32,0
50%
30,0
40%
28,0 30%
20%
26,0
10%
24,0 0%
22,0 -10%
20,0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Polska Warszawa 6M 10M Changes in the housing stock Changes in the number of population
Source: NBP estimates based on GUS Note to Figure 2.12: in the past few years the
administrative boundaries were expanded in the
following cities: Rzeszów (7 changes since 2005), Zielona
Góra (in 2015) and Opole (in 2017).
Source: NBP estimates based on GUS
At the end of 2019, the value of the stream of housing services in Poland (see Figure 2.13), estimated
on the basis of market transaction rents, stood at approx. 12.5% of GDP i.e. slightly increased on
the level observed in the last four years10. The value of those services increased in year-on-year
terms by approx. 23% in the six cities (6M), by approx. 10% in the ten cities (10M) whereas in
Warsaw by approx. 9% (against the growth of 11%, 6% and 7% in 2018, respectively).
The value of services generated by the commercial real estate (see Figure 2.14) from rent income
for commercial real estate owners did not change significantly as compared to 2018 and may be
10 In 2019, growth in rent rates (value of housing services) was higher than that of GDP.
16 Narodowy Bank PolskiReal estate sector in Poland
estimated at over 0.7% of GDP. This value is lower than in the EU developed countries where the
stock of the commercial real estate for rental is considerably larger.
Figure 2.13 Estimated value of housing services Figure 2.14 Estimated value of commercial services
(imputed rent) in Poland in relation to GDP (%) in Poland in relation to GDP (left-hand scale, %)
and the exchange rate of PLN/EUR (right-hand
scale)
14,0% 0,9% 5,0
0,8% 4,8
12,0%
0,7% 4,6
10,0% 4,4
0,6%
4,2
8,0% 0,5%
4,0
0,4%
6,0% 3,8
0,3%
3,6
4,0% 0,2% 3,4
2,0% 0,1% 3,2
0,0% 3,0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2019
2018
0,0%
2008
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2007
2009
Warehouse Poland Offices, Warsaw
Offices, rest of Poland Retail, Poland
Warszawa 6M 10M PP PLN/EUR FX rate
Note: The usable area of the housing real estate was Note: The value of the commercial real estate was
multiplied by average asking and transaction rents at multiplied by capitalization rates provided by consulting
the end of the year in 16 markets according to the NBP companies.
database. For the remaining parts of Poland the rent
Source: NBP estimates based on NBP BaNK database and
rate was estimated at 50% of the average rent rate
data of other consulting companies, transaction prices from
calculated for 10M.
Comparables.pl, appraisals from AMRON
Source: NBP estimates based on GUS
The share of real estate in the creation of GDP (services) is relatively high but this is a result of the
large capital stock that real estate creates. The profitability of real estate is relatively low compared
to other types of capital, which particularly refers to residential real estate. The profitability of
commercial real estate is usually supported by the tax shield and financial leverage, while
residential real estate is usually supported by social policy. In Poland, rates of return for
commercial real estate in 2019 reached a level of approx. 6%, while for residential real estate -
approx. 7%.
In Poland, income from housing rental is taxed with a flat tax on registered revenue or under the
tax bracket system11. According to the Ministry of Finance data, both the number of taxpayers who
pay a flat tax on registered revenue as well as the amount of this revenue are on the rise. At the
end of 2018.12 , the number of taxpayers declaring only flat tax exceeded 620 thousand persons,
11Taxes on real estate are set by the District Council through a resolution. Detailed information on property taxes may be
found at: http://www.finanse.mf.gov.pl/podatki-i-oplaty-lokalne/podatki-od-nieruchomosci .
12 Due to the ongoing COVID-19 pandemic, the deadlines for the provision of statistical data by the MF have been
postponed - complete statistical data from the 2019 annual accounts will be available in 2020 Q4.
Report on the situation in the residential and commercial real estate market in Poland in 2019 17Real estate sector in Poland posting a rise by approx. 57 thousand persons in year-on-year terms, which means a 10.1% increase. The amount of flat tax receivables amounted to PLN 1.1 billion (see Figure 2.15 and 2.16). The amount of the average annual tax on home rental exceeded PLN 1.8 thousand (posting an increase of approx.10.6% y/y). In 2018, approx. 20.3 thousand taxpayers reported having concluded a private lease contract (i.e. by approx. 6 thousand more than in 2017). Observing the steadily increasing number of dwellings purchased for rent, the above figures are estimated to have risen in 2019. Also the revenue of local government units from property tax has been following a steady upward trend, rising from approx. PLN 12.1 billion recorded in 2006 to approx. PLN 22.6 billion in 2017, i.e. 3.6% more than in 2017. The estimated share of property tax in 2018, measured both in relation to GDP and to the value of the real estate assets (tax on housing capital), amounted to approx. 1.1% of GDP and approx. 0.6% of real estate assets. These figures slightly decreased as compared to the 2017 levels which is due to the cyclical change in the price of real estate (assets) and a rapid increase in GDP. Property taxes in Poland are estimated to represent approx. 11% of gross value of services generated by the aggregate housing stock (see Figure 2.17), which shows that real estate in Poland is not treated in any privileged way. The estimated tax value is close to such services being taxed at approx. 12% tax rate on their net value (proceeds plus costs), i.e. after deducting the costs, including depreciation and thus close to the CIT rate (19%)13. Comparing the market value of residential real estate with the value of services rendered, we obtain a macroeconomic gross capitalization rate in this sector. In 2019, it amounted to around 6.4% (compared to 6.5% in 2018) and does not differ significantly from the rate of return on commercial real estate. On the other hand, the return on equity, assuming that we have to pay a flat tax on registered income of 8.5% and deduct building depreciation of 2.5%, amounts to approx. 4%14, which is slightly more than yield on Treasury bonds. The above estimates show that, as in other countries, rates of return in this sector are low. However, liquidity and market risks are relatively high. Thus, the development of the residential real estate requires risk reduction through a stable housing and fiscal policy. Fiscal stimulus, such as accelerated depreciation, is also often desirable. 13 The analysis compared taxes paid by households in 2018 (real estate tax - in part concerning the residential real estate, the lump-sum tax, the estimated value of progressive tax under the tax bracket system and, additionally, the estimated grey zone - 50% of the lump-sum and progressive tax under the tax bracket system) with the estimated gross value of housing services (see Figure 2.13) and the net value of housing services (costs of property maintenance - approx. PLN 10/sq.m and 3% of depreciation were deducted from the estimated gross value of housing services). 14 Since the majority of dwellings owned are not burdened with a loan, the cost of capital is the result. 18 Narodowy Bank Polski
Real estate sector in Poland
Figure 2.15 Lump sum tax on the proceeds from Figure 2.16 Number of taxpayers declaring income
rental, subrental, lease and sub-lease contracts earned from rental (thousands of persons)
(thousands of persons, left-hand scale) and proceeds
of local government units# from property tax (PLN
thousand, right-hand scale)
1200 25 000
700
1000 20 000 600
800 500
15 000
600 400
10 000 300
400
5 000 200
200
100
0 0
0
2008
2009
2010
2012
2013
2014
2016
2017
2018
2011
2015
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Flat-tax due (LH)
Number of taxpayers declaring due flat-tax amout (LH) Number of taxpayers declaring due flat-tax amout (LH)
Av.due flat-tax amount*10000 (RH) Number of taxpayers declaring rental income taxed under the
Income of local government units from property tax (RH) progressive tax system
Source: MF Source: MF
Figure 2.17 Relations of tax revenue from real estate
(%)
1,3% 12,0%
11,5%
Note to Figure 2.17: the tax income includes taxes on
1,2%
1,1% 11,0% income of local government entities from property tax
1,0% 10,5%
0,9%
10,0% and lump-sum tax receivables; RPA=value of housing
9,5%
0,8% assets; HS =value of housing services;
9,0%
0,7% 8,5%
0,6% 8,0%
0,5% 7,5%
0,4% 7,0%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
tax revenue to GDP (LH)
tax revenue to RPA (LH)
tax revenue to HS (RH)
Source: MF
The financial sector is of key importance to the real estate sector as it ensures liquidity of this market
and appraisal of the real estate. The real estate sector is also an important client of the financial
sector which offers external capital financing and a number of other services, including services
increasing real estate liquidity. At the end of 2019, assets of the banking sector in the form of loans
to households for residential real estate accounted for 35.0% of total loans15 (unchanged as
compared to 2018) and approx. 22.2% of total bank assets (a slight increase of 0.2 p.p. compared to
2018).
The commercial real estate sector, especially the largest commercial premises, based its
development on foreign capital (see Chapter 3). On the other hand, the value of loans granted to
enterprises for real estate, including residential, office and other real estate by the Polish banking
sector at the end of 2019 amounted to PLN 63.1 billion. Loans granted for commercial real estate
15Loans and other bank receivables from other domestic sectors (Non-monetary institutions except for central government
institutions) consisting of loans to households, enterprises and institutions operating for households stood at approx. PLN
1251.1 billion at the end of 2019:https://www.nbp.pl/home.aspx?f=/statystyka/pieniezna_i_bankowa/nal_zobow.html .
Report on the situation in the residential and commercial real estate market in Poland in 2019 19Real estate sector in Poland by banks from abroad should be added to this value. There is no official data on such loans, but experts estimate their value at PLN 84 billion16. Loans granted to enterprises by domestic banks for real estate at the end of 2019 did not differ significantly from the figure as at the end of 2018, although an overall slight upward trend is observed. The apparent decrease in the value of the portfolio results from the appreciation of the Polish zloty at the end of 2019, which resulted in a slight decrease in the value of loans denominated in foreign currencies (approx. 53% of the portfolio value) converted into PLN. The share of real estate loans granted to enterprises accounted for approx. 4.8% of the banking sector portfolio and approx. 3.5% of bank assets. The value of corporate debt resulting from residential real estate at the end of 2019 Q4 amounted to PLN 5.1 billion, and from office real estate amounted to PLN 16 billion. The balance of loans for retail real estate amounted to PLN 17.2 billion, for warehouse and industrial real estate - to PLN 8.8 billion and for other real estate17 - to PLN 16 billion. If Polish investors enter the commercial real estate market on a mass scale, the Polish investors’ bank debt resulting from commercial real estate may be expected to increase. The share of non-performing loans accounted for 6.8% of the total of loans for office real estate at the end of 2019 Q4 and for 11.3% of the total of loans granted for retail real estate. The share of non- performing loans for warehouse and industrial space amounted to 7.7% and for other real estate to 8.8%. The share of non-performing loans in the total loans granted to developers for residential real estate amounted to 21%, which is mainly due to banks having in their portfolio loans from the previous years18. It should be emphasised that banks not only grant loans for the purchase or construction of commercial real estate (including home construction by real estate developers), but use real estate as a collateral for those loans, including investment and working capital loans. The value of loans granted to enterprises collateralised by real estate amounted to PLN 131 billion at the end of 2019 (compared to PLN 135 billion in 2018), and accounted for approx. 10% of the loan portfolio and approx. 6.5% of the assets of the Polish banking sector. Some loans granted for commercial real estate are included in the above mentioned loans. 16 Based on international experience, it can be assumed that the LTV indicator on the entire real estate stock is 50%. Based on the estimate of the value of the office, retail and warehouse real estate stock, which amounted to PLN 277 billion at the end of 2019, it can be concluded that the total value of loans for such real estate at the end of 2019 stood at PLN 142 billion. By deducting loans for real estate granted by banks operating in Poland, the above-mentioned real estate (PLN 58 billion, excluding developer loans), we obtain an estimate of loans granted directly and indirectly by banks operating abroad, i.e. the amount of PLN 84 billion. In the case of Poland, since June 2013 the maximum LTV for commercial real estate, in line with Recommendation S of the Office of the Polish Financial Supervision Authority (UKNF), has been 75% or 80% if part of the exposure exceeding 75% LTV is properly insured, or if the borrower has provided an additional collateral in the form of blocked funds on the bank account or a pledge on PLN-denominated debt securities of the Treasury or NBP. 17 See the definition of the financial reporting guidelines FINREP of 2018: “ Loans for other real estate – loans for real estate other than residential, office, retail, industrial or warehouse real estate (subcategory of loans for other real estate)”. 18 See Financial Stability Report, NBP, December 2018. 20 Narodowy Bank Polski
Real estate sector in Poland Despite the fact that portfolios of real estate loans for enterprises are still significantly lower than the average value observed in the EU (in 2013 an average of 17% of GDP19), they are already a significant factor affecting the security of the financial sector. It should be remembered that the value or valuation of the entire stock may depend on few commercial real estate transactions, which are much more susceptible than residential real estate, to a rapid withdrawal of capital (including foreign) and thus a fall in prices. According to the NBP data, in 2019 the growth rate of newly granted housing loans in PLN, without renegotiated agreements amounted to 7.0% y/y compared to 10.5% in 2018, while according to BIK data, in 2019 the growth rate of newly granted housing loans in PLN amounted to 10.5% compared to. 20.4% in 2018. The quality of residential real estate loans for households, measured by the share of non- performing loans, was good and had remained stable for a longer period of time. The share of non- performing loans in the total loans is 2.3%, of which PLN loans account for 2.1% and foreign currency loans for 3.1%. The improvement in loan quality results, to a great extent, from the regular repayment of residential mortgage loans by households and the growing number of new residential mortgage loans. On the other hand, the share of non-performing loans in the total of corporate loans slightly increased to 9.8% from 10.1% recorded in the previous year. In Poland, the long-term household debt resulting from residential mortgage loans was on the rise, along with the development of the housing market and of the financial sector. At the end of 2019, it reached PLN 443.2 billion and was by PLN 27.2 billion higher than a year ago, which was driven by the growing value of PLN denominated loans (a rise of PLN 35.4 billion) and the declining value of foreign currency denominated loans (a decline of PLN 7.9 billion)20. As at the end of 2019, receivables from households resulting from residential mortgage loans stood at approx. 22.1% of the financial sector's assets and approx. 10.3% of the estimated value of the housing stock. Although the indebtedness of the housing stock in Poland continues to grow, its level is still relatively low compared to household consumption (approx. 35%) or compared to the level of this debt in other EU countries. The relatively low debt of the stock and the related simple structure of the financial system is an advantage. The excessively developed financial sector related to real estate is usually the source of problems and often - of financial crises. 19See ESRB (2015) Report on commercial real estate and financial stability in the EU. Figure 14. Total direct exposure of the financial system to CRE relative to GDP (2013). 20Since 2012, the share of FX denominated loans has been on a steady decline in the structure of residential mortgage loans in banks, which supports financial and macroeconomic stability. The decreasing share of FX loans is due to the fact that banks ceased to grant such loans to persons not being in receipt of a regular income in a given currency, to the (average annual) exchange rate lower against the preceding years, regular depreciation, earlier repayments, and refinancing of those loans with PLN denominated loans. According to the Polish Financial Supervision Authority (KNF), the number and value of loans in CHF is systematically decreasing. In December 2019, housing loans in CHF, in terms of number, accounted for 438 (457 in 2018) and, in terms of value, totalled PLN 98 billion against PLN 105 billion in 2018. In 2019, the value of the real estate lower than the loan to value ratio (LTV> 100%) concerned 92% of the portfolio of PLN denominated housing loans and 76% of FX housing loans. The quality of the housing loan portfolio has improved - the value of non- performing loans/impaired loans at the end of 2019 amounted to PLN 10.1 billion and accounted for 2.3% (as at the end of 2018, it amounted to PLN 10.3 billion and 2.5%, respectively). Report on the situation in the residential and commercial real estate market in Poland in 2019 21
Real estate sector in Poland
Figure 2.18 Residential mortgage loans in Poland, Figure 2.19 Currency structure of the residential
quarter-on-quarter changes in PLN billion LH) and mortgage loan portfolio in Poland
value in PLN billion (RH)
14 500 100%
12 90%
400
10 80%
quarterly change (bln PLN)
stock (bln PLN)
8 300 70%
6
FX housing loan 60%
200 50%
4
40%
2 100
30%
0
0 PLN housing loan 20%
-2
10%
-4 -100 0%
I 2004
I 2005
I 2006
I 2007
I 2008
I 2009
I 2010
I 2011
I 2012
I 2013
I 2014
I 2015
I 2016
I 2017
I 2018
I 2019
I 2020
I 2003
I 2004
I 2005
I 2006
I 2007
I 2008
I 2009
I 2010
I 2011
I 2012
I 2013
I 2014
I 2015
I 2016
I 2017
I 2018
I 2019
I 2020
PLN housing loan quarterly change (LH)
FX housing loan quarterly change (LH)
PLN housing loan stock (RH)
in which FX housing loan stock (RH)
Source: NBP Source: NBP
Figure 2.20 Quality of the portfolio of residential Figure 2.21 Loans to corporations for real estate
mortgage loans to households in Poland purchases (in PLN billion, left-hand scale) and the
share of loans classified as doubtful loans (in %,
RH)
450 10% 70 35%
400 9%
60 30%
350 8%
7% 50 25%
300
6%
250 40 20%
5%
200 30 15%
4%
150
3% 20 10%
100 2%
10 5%
50 1%
0 0% 0 0%
I 2009
I 2010
I 2011
I 2012
I 2013
I 2014
I 2015
I 2016
I 2017
I 2018
I 2019
I 2020
I 2009
I 2010
I 2011
I 2012
I 2013
I 2014
I 2015
I 2016
I 2017
I 2018
I 2019
I 2020
Other real estate loans (until 2017) Remaining real estate loans (since 2018)
Housing loans Impaired housing loan ratio Retail real estate loans Industrial real estate loans
Housing loans Office real estate loans
Impaired housing loan ratio, PLN loans Impaired housing loan ratio, FX loans
Impaired housing loan ratio Impaired office space loan ratio
Impaired other real estate loan ratio
Source: NBP Note: exclusive of BGK. Since the beginning of 2018, new
accounting standards have been in force.
Source: NBP
22 Narodowy Bank PolskiReal estate sector in Poland
Figure 2.22 Relation of residential mortgage loans Figure 2.23 Repayments of residential mortgage
(RML) in Poland to GDP, housing assets, banks’ loans (LH) and their relation to consumption
assets (LH) and banks’ equity (RH) (RH)
30% 300% 25 000
25% 250% 2,0%
20 000
20% 200%
1,5%
15% 150% 15 000
10% 100% 1,0%
10 000
5% 50%
5 000 0,5%
0% 0%
I 2005
I 2006
I 2007
I 2009
I 2010
I 2011
I 2012
I 2013
I 2014
I 2016
I 2017
I 2018
I 2019
I 2020
I 2008
I 2015
0 0,0%
2004
2005
2006
2007
2008
2009
2010
2012
2013
2014
2015
2016
2018
2019
2011
2017
Residential mortgage loans to GDP
Residential mortgage loans to housing stock value Households servicing residential mortgage loan
Residential mortgage loans to banks assets
Households servicing residential mortgage loan to consumption (RH)
Residential mortgage loans to banks equity (RH)
Source: NBP, GUS Note: loans granted for the period of 25 years.
Source: NBP, GUS
The relation of the estimated housing debt servicing costs (principal and interest instalments) to
consumption in the national economy as of the end of 2019 had remained for three years at a level
of approx. 1.5% (see Figure 2.23)21.
The year 2019 saw a further improvement in the quality of loan portfolio as compared to the end
of 2018, reflected in a lower value of loans with high LTV# which resulted from growing prices in
the real estate market. Loans with LTV lower than 100% represent 92% of the housing loan
portfolio, whereas the average value of LTV for housing loans in the banking sector, weighted by
the gross carrying amount of the portfolio of these loans in each bank at the end of 2019 amounted
to 67%. The median of the DSTI distribution at the end of 2019 was in the range between 20% and
30%22.
Figure 2.24 Distribution of the value of
residential mortgage loans by LTV (stock)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2013 2014 2015 2016 2017 2018 2019
LtV up to 50% LtV above 50% up to 80% LtV above 80% up to 90%
LtV above 90% up to 100% LtV above 100% up to 110% LtV above 110% up to 120%
LtV above 120% up to 130% LtV above 130%
Source: estimates based on the survey findings of the Office
of the Polish Financial Supervision Authority (UKNF)
21
However, the lack of detailed data on borrowers makes it impossible to conduct an in-depth analysis. As a result, we
use approximate data, including the reference to consumption in the national economy.
22 See Information on the situation of the banking sector, Housing loans to households, June 2020, KNF.
Report on the situation in the residential and commercial real estate market in Poland in 2019 23Cycles in the real estate market 3. Cycles in the real estate market Cycles are a structural feature of the real estate market. The key to assessing the real estate market situation and choosing the right economic policy tools is the correctly identified phase of the cycles, with the number of homes sold being one of the basic measures of the cycle phase in the residential real estate sector. In the case of commercial real estate, the measures used include sales volume and price growth, i.e. growth in transaction values. There are also other indicators that are used to monitor cycles, identify speculative behaviour and tensions in the credit market, including those based on home prices, rents and lending. In the residential real estate market, the relationship between household income and housing prices is the most common indicator to measure tensions in the market. In the commercial real estate sector, the market return on equity or the volume of transactions may be such a measure. In 2019, the housing market continued the expansion phase. It lasted until March 2020 and ended with the outbreak of the COVID-19 epidemic. In large cities, home sales were high, slightly above the 2018 level, however, lower than in the record-breaking 2017. It was mainly the result of increasing supply barriers. The NBP surveys showed that the demand for housing was the result of both investment demand, where housing purchases were largely financed from buyers’ own funds and consumption demand with loans being the major source of funding. Despite the increase in housing prices, the scale of purchases was not found to increase on account of purely speculative behaviour (see Figures 3.1 and 3.2). As regards the supply side, cost barriers took their toll translating into deteriorating financial condition of construction enterprises and housing price increases. The value of investments in the commercial real estate market in 2019 amounted to over EUR 7 billion. This is a historically high value. At the same time, a significant part of the investment value concerned the change of ownership of the existing buildings. Sales of entire real estate portfolios were also recorded, which is rare, but generates a large transaction volume at a time. Similarly to the previous years, foreign investors dominated in this category of investments. Investment demand for housing is related to the estimated relatively high rates of return on home rental as compared to the rates of return on other assets in which the household may invest. In Poland, so far, such assets have mainly comprised bank deposits and, to a considerably lesser extent, Treasury bonds. The low interest rate on deposits means that investment in housing is perceived as an attractive alternative. As a consequence, households allocate a significant portion of their funds in the purchase of rental housing. A factor behind the persistently high profitability of rental is also growing demand for rental housing which is a natural consequence of good economic conditions and economic migration to large cities. Consumer demand for housing observed in 2019 was a consequence of the favourable situation in the household sector and the stable, low cost of residential mortgage loans. Housing demand in the long term is determined by the persistent shortage of housing in Poland’s major cities. Demographic factors (i.e. change in the number of the population, the number of households and migrations) were more important in the previous cycle. At present, their impact on the demand for housing is relatively smaller. However, the significance of demand created by labour migrants 24 Narodowy Bank Polski
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