Housing market – rising prices, reduced number of new investment projects

Statistics Poland announced an 8.1% increase in house prices in the second quarter of 2019 versus the same period last year. According to SP, prices for flats coming on the market secondhand grew by 9.4%. On the primary market, prices jumped by 6.6%. At the same time, the number of investment project is decreasing as result of phenomena such as no availability, or horrendously high prices, of land.

Our Analysis & Opinion Division at Lege Advisors took a closer look at price growth experienced on the housing market in recent years. There are many factors that influence construction costs of a residential building. Major factors including continuously growing prices for building materials, increased minimum monthly wage levels that raise labour costs, and cost of land. Let us starting from the bottom line, that is presentation of historical construction cost per 1 m2 of usable floor area of a five-storey multi-family residential building with an underground garage, in shell and core condition. In early 2010, the cost per 1 m2 was PLN 2701. Five years later, it was already 2806. This year, the price surged to PLN 3313 (source: Sekocenbud).

And what was the trend shaping current prices per 1 m2 on the primary market in Warsaw? In the first quarter of 2010, the price was PLN 8173. In early 2015, the price was approx. PLN 7400. At present, the price is nearly PLN 9000 (source: National Bank of Poland).

As it has already been mentioned, higher costs borne by real estate developers, such as higher prices for land, translate into a reduced number of investment projects. This is then reflected in the increasingly smaller number of issued construction permits. The graph below shows the number of construction permits issued for buildings consisting of three or more flats in Warsaw (source: Statistics Poland). The first half-year of 2010 saw 51 issued permits. A record high was hit in the first half-year of 2017 with 120 issued permits. In the first half-year 2019, as few as 86 permits were issued.

Tomasz Chmielik, Valuation Specialist, Analysis & Opinion Division, Lege Advisors

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