Information on home prices and the situation in the housing and commercial real estate market in Poland in 2016 Q3.

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1 December 216 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Jacek Łaszek Hanna Augustyniak Krzysztof Olszewski Joanna Waszczuk Marta Widłak Financial Stability Department

2 The information was prepared in the Financial Stability Department for the needs of the NBP governing bodies. The opinions expressed in this publication are authors opinions and they do not present the position of the governing bodies of Narodowy Bank Polski.

3 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Analysis of the situation in the real estate market in Poland in 216 Q3 1 leads to the following conclusions: The housing market continues to post increased activity, demonstrated by the high level of demand for new housing and the corresponding high supply in the major markets. This activity has not generated excessive tensions in the real estate sector nor in the financial sector yet; no distressing price increases were observed and transactions were largely financed by buyers own funds. Offer and transaction prices per square meter of housing in certain primary markets of the largest cities slightly increased. The primary market in Gdynia and Warsaw posted a slight increase in average prices driven by higher demand 2, in Wrocław, on the other hand, slight price drops were noted. The average transaction prices per square meter of housing in the secondary market in 7M were stable. Slight increases in the hedonic price index 3 amidst stable level of average prices indicate that the market was dominated by cheaper housing (these dwellings, however, as compared to the previous periods, got slightly more expensive). In all the analysed groups of cities (Warsaw, 6M, 1M), prices in the primary market exceeded those in the secondary market. Average rent rates per square meter of housing (offer and transaction rents) in 7M weighted by the share of the stock, stabilized in the analysed quarter following a slight increase. The indicator of the estimated availability of housing in large cities remained stable and stood at.86 per square meter of housing per average monthly wage in the corporate sector, posting a rise of.37 square meter as compared to 27 Q3 minimum. The indicator of the estimated availability of residential mortgage loans for an average household 4 in 7M also remained stable. 1 The analysis performed in this issue of the Information is based on data available up to 216 Q3. Data series with average levels of prices per square meter of housing, commercial rent levels or transaction prices per square meter of commercial space reflect information resources available at a given moment and may be subject to revision, in order to factor in the incoming new data. Those series are supplemented on a permanent basis in order to reflect the full set of information available at a given moment. Data revisions cleaning data from errors also bring changes in historical data. Such an approach is used by other central banks and statistical offices. 2 Buyers accepted higher home prices in new and continued housing projects. 3 The hedonic housing price index contains an adjustment, factoring in the differences in attributes of housing (e.g. location, usable area, finishing standard) sold in particular periods. The hedonic index is calculated with the imputed method. The hedonic price is an average transaction price from the base period multiplied by the hedonic index. More information in the article by M. Widłak (21), Metody wyznaczania hedonicznych indeksów cen jako sposób kontroli zmian jakości dóbr [Methods of determining hedonic price indices as a method to control quality changes of goods], Wiadomości Statystyczne no A maximum available residential mortgage loan in a particular market is a measure expressed in PLN thousand, taking into account bank lending requirements and loan parameters (i.e. NBP interest rate, depreciation period (25 years), minimum income after the repayment of loan instalments). This estimate does not take into account changes in banks lending policy, including the criteria of credit granting and terms and conditions of a loan. 1 Narodowy Bank Polski

4 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Housing investment (excluding transaction costs) continues to be profitable in the short-term. Considering the average achievable rent level, return on housing investment stands higher than returns on bank deposits, yields on 1-year Treasury bonds and is close to the profit earned on investment in the commercial real estate market. The residential loan servicing costs to rent ratio continues to make it possible for finance the cost of credit with income from rent. The value of new residential mortgage loans 5 in PLN (exclusive of renegotiated contracts) continued at a high level (standing at PLN 9.6 in the discussed quarter 6 ), although it posted a 17.4% decline on the previous quarter's figure and a 6.9% decline on 215 Q3. A significantly smaller number of loans under the "Mieszkanie dla Młodych" (Housing for the Young") government-subsidized housing scheme 7 were disbursed as the funds intended for housing subsidies ran out (funds of 216 and half of the funds of 217). The surveyed banks in 216 Q3 significantly tightened their residential mortgage loan granting criteria and announced the tightening of requirements for borrowers' collaterals. In 216 Q3 senior loan officer do not expect any major changes in lending policy in the residential mortgage loan segment, which means expectations of a decline in demand for this loan segment 8. The quality of residential mortgage loans denominated in PLN is high, with the share of nonperforming loans at the end of 216 Q3 standing at approx. 2.6%. Since 212 the share of loans denominated in foreign currency in the currency structure of bank housing loans has been on a gradual decline, which supports the financial and macro-economic stability. Declining share of residential mortgage loans in foreign currency results both from the fact that banks have ceased to grant such loans to persons who are not in the receipt of a regular income in a particular currency, as well as from regular amortization, early repayments and refinancing. The quality of foreign currency housing loans is still high, the share of non-performing loans at the end of 216 Q3 continues at a level of approx. 3.3%. The estimated high profitability of housing projects continues at a high level, which is associated with the ratio of home prices to costs of building materials and construction works, which for a several years has been favourable for real estate developers, the aggregate land stock for the construction of new housing projects and high demand. Financial data of real estate developers usually show low profitability of their business, which is, however, not confirmed by the analysis conducted for an average investment project, indicating a sound level of estimated profitability of home construction projects undertaken by developers. The results of the estimates are confirmed by a large number 5 In the housing market in cities part of financing comes from the sale of another real estate, whereas in other markets houses are owner- built, often on owner's own land. Thus, residential mortgage loans are used as supplementary funding. 6 Based on: zakładka 4 OPN2PLN. 7 According to BGK data, under the MDM housing scheme in 216 Q3 PLN 72 million worth of loans were disbursed whereas in 216 Q2 loan disbursements totalled PLN 25 million, and in 216 Q1 their approximate amount was PLN 325 million. 8 In accordance with the conclusions of the questionnaire addressed to senior loan officers Situation in the credit market - results of the questionnaire addressed to senior loan officers, 216 Q4, banks tightened housing loan granting criteria, mainly on account of regulatory changes, i.e. the entry into force of the Act of 14 April 216 on the suspension of sale of real estate from the Agricultural Real Estate Stock of the State Treasury and amendment to certain acts. The main driving force behind the decline in demand was, in banks' opinion, the exhaustion of funds available under the "Housing for the Young" government-subsidized scheme. Moreover, in banks' opinion, demand declined on account of tightened criteria of granting residential mortgage loans. Narodowy Bank Polski 2

5 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. of successive new investment projects launched and placed on the market. The number of bankruptcies in the real estate development sector has also decreased (court bankruptcy decisions or initiated restructuring proceedings 9 ). This trend does not concern construction companies whose situation deteriorated on account of the declining number of construction orders. The stock of unsold housing in Poland s six largest cities increased in the analysed period by approx..2 thousand dwellings, amounting to 51.2 thousand. This increase was the result of production decisions made several quarters before 1. Growth in supply exceeded high demand. In the analysed period, home selling time in the primary market 11 in 6 largest cities was stable. This means that real estate developers when taking investment decisions have, so far, factored in the actual market demand and have reasonably responded to increasing oversupply of unsold dwellings. Real estate developers also manage to appropriately match the structure of home size with housing demand, in contrast to the secondary housing market where the supply results from the housing stock structure. As in the segment of the most popular real estate, price is the main home choice criterion, compact housing i.e. two-room, smaller size apartments, enjoys the greatest popularity. 216 Q3 saw a rise in the number of building permits for new housing, especially in the case of the already commenced projects. The estimated high profit margins of real estate developers and high rate of return on residential construction projects as well as high demand boosted the number of issued building permits 12 as well as the number of completed and ready for occupancy dwellings 13. Under the "Housing for the Young" (MDM) government-subsidized scheme until 3 September 216 out of the total of applications submitted since 214, the total of applications were approved, which means that subsidies in the total amount of PLN 1.37 billion were paid. In 216 BKG will no longer accept applications for subsidies. The Bank will relaunch the subsidy application 9 In 216 a new Restructuring Act came into force. It provides that the main goal of the restructuring proceedings, in addition to satisfying creditors, is to avoid debtor s bankruptcy by allowing debtor s restructuring through entering into an arrangement with creditors, and in the event of the recovery proceedings - also by undertaking recovery measures, while safeguarding the legitimate rights of creditors. Under the current Act, the restructuring proceedings concern both insolvent companies and those threatened with insolvency. New statistics show not only the number of bankrupts, but also companies at risk of bankruptcy. Previously, the applicable law allowed to declare bankruptcy under composition or arrangement scheme only if the company was actually insolvent. In the first half of 216, a small number of bankruptcies in the construction sector were declared which, however, does not indicate a good standing of the industry. Companies engaged in residential or commercial construction take advantage of strong demand for their services. However, growth in construction and assembly output points to a considerable deterioration in the sector, observed for almost a year. The recently observed declines in construction and assembly output exceed by 2% those recorded last year. Lower number of infrastructure projects generating large investment or lower absorption of funds from the current EU budget are reflected in the difficulties faced by many companies operating in the sector. Investments co-financed with the EU budget will be launched gradually, and before investment projects become construction sites, the sector's standing will continue to be difficult not only in terms of macroeconomic data; also the number of bankruptcies and restructuring proceedings in the construction sector will rise over the subsequent months. According to Coface experts, we should not expect to see the reversal of this emerging trend before mid According to GUS data, in 216 Q3 the construction of 46.8 thousand dwellings was launched, i.e. approx. 1. thousand less than in 216 Q3 and by approx. 5.2 thousand less than in the previous quarter. 11 Home selling time in the primary market, calculated by REAS, is the ratio of the number of dwellings being on offer at the end of the quarter to the average sales recorded in the preceding year. 12 According to GUS data, in 216 Q3 the total of 56.2 thousand home building permits were issued, i.e. approx. 4.5 thousand more than in 215 Q3 and approx..3 thousand more than in the previous quarter. 13 According to GUS data, in 216 Q thousand dwellings were completed and made available for occupancy, i.e. approx..9 thousand more than in 215 Q3 and approx. 2.3 thousand more than in the previous quarter. 3 Narodowy Bank Polski

6 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. procedure starting from January Considerable disbursements in 216 should also be attributed to both the last year's amendment of the Act extending the scheme to include secondary market housing 15 as well as the announcement of the decision to discontinue the scheme after The maximum price limits per one square meter of housing eligible for the MDM housing scheme in the cities under discussion increased in Gdańsk only; on the other hand, in 216 Q4 numerous minor increases and decreases in price limits were observed. As the funds intended for subsidies in 216 were exhausted, this should not affect the housing market. Gradual cessation of subsidies to interest on mortgage loans granted under the Family on their Own ( RNS ) housing scheme does not pose any major problem to servicing those loans thanks to historically low interest levels, sound situation in the labour market and wage increases 17. On 27 March 216, the Council of Ministers adopted a resolution on the National Housing Scheme whose measures will be financed with funds raised by the National Housing Scheme, state budget funds and other public funds (the National Fund for Environment Protection and Water Management, European funds), as well as private funds, e.g. gathered in investment funds financing construction of new housing. The fundamental objective of the government-subsidized scheme Housing Plus ( Mieszkanie Plus ) is to increase housing availability for persons whose income is insufficient to purchase or rent housing at market prices 18 (more detailed information in Box 1) Until the end of 216 Q3, under the Rental Housing Fund (Fundusz Sektora Mieszkań na Wynajem ( FSMnW )) over 32 dwellings were contracted 19, including over 5 were already leased, almost 23 are under construction and over 4 with the investment decision being finalized. Currently, the Rental Housing Fund offers housing in Warszawa, Poznań, Piaseczno, Gdańsk and Kraków 2. Under the programme of supporting the creation of municipal housing, protected housing, night shelters and shelters for the homeless, operating since 27, in 216 the GBK had at its disposal funds amounting to PLN As announced by the BGK, under the existing scheme supporting 14 The subsidy funds supplementing buyer's own contribution in connection with the purchase of their first home (MDM housing scheme) will relaunch the subsidy application procedure for 217 in January 217 (distribution of further PLN 381 million). For the last year of the operation of the programme (218), the limit is PLN 762 million and the percentage of the funds used at the end of August 216 was insignificant (8.9%). 15 On 1 September 215 the Act of 25 June 215 entered into force on the amendment of the Act on government s support to firsttime home buyers (Journal of Laws of 17 August 215, item 1194). The amendment covered secondary market dwellings. It also increased the amount of subsidies for families or single parent families (2% for families with two children and up to 3% for families with three or more children). Moreover, the age limit was abandoned for parents and single-parent families bringing up three or more children willing to participate in the programme (the previously prescribed age limit 35 years). The loan granting terms were also eased - any person, instead of close family only, may act as an additional borrower, which is important to gain creditworthiness. 16 In January 216, Kazimierz Smoliński, former Deputy Minister at the Ministry of Infrastructure and Construction announced that the government did not plan to continue the MDM Housing Scheme and the Scheme would be discontinued in accordance with the provisions of the Act, namely on 3 September As communicated by the BGK, under the RNS housing scheme in the years the total of dwellings were purchased with the use of PLN billion worth of loans, with budget subsidies amounting to PLN 3.55 billion. 18 On 12 October 216, under the Housing Plus scheme, 17 letters of intent and agreements were concluded between the company implementing the pilot programme and local government units. Real estate in the following towns and cities were preliminary selected for investment projects: Biała Podlaska, Chorzów, Dębica, Gliwice, Katowice, Kobyłka, Nowa Dęba, Pelplin, Poznań, Radom, Skawina, Stalowa Wola, Starogard Gdański, Trzebinia, Tychy, Wałbrzych and Września. 19 Some of them under the condition of being granted an investment decision. 2 In 217 subsequent investment projects are supposed to be launched in Warszawa and Katowice, and in in Poznań and Łódź. By the end of 22, the FMW should have offered approx. 2 thousand dwellings for rent. Narodowy Bank Polski 4

7 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. the construction of social housing for rent 21 in 217 approx. 3 thousand dwellings are expected to be constructed, with their highest number in the West Pomeranian Voivodship (Województwo Zachodniopomorskie), Silesian Voivodship (Województwo Śląskie) and Mazovian Voivodship (Województwo Mazowieckie). Since February 216, the Borrowers Support Fund has been operating 22, offering refundable assistance on preferential terms to borrowers facing temporary problems with loan repayment. The value of real estate investment transactions in the commercial real estate market in Poland in the first three quarters of 216 reached approx. EUR 2.8 billion, including EUR 1.1 billion invested in commercial real estate, approx. EUR 1.4 million - in office space and EUR 29 million - in warehouses. The rates of return in the Warsaw office market remain at a very low level of approx. 5.5% 23. Investors agree to pay high prices amid falling rents as they compare the return on investment in office real estate with the historically low yields on alternative forms of investment posing similar risk in Poland and abroad and take into account very low levels of financing abroad. In the Warsaw office space rental market, which is the dominant market, the vacancy rate fell from 14.6% to 15.4% recorded in the previous quarter 24. The completion of further office buildings and making them ready for occupancy may increase the vacancy rate in the near future. Transaction rents for A class office space in Warsaw posted a slight decline to EUR 21/sq.m./month, and for B class office space to EUR 15 /sq.m./month while remaining stable in other markets. Rents for B class office space, expressed in PLN, in Warsaw and 6 large cities posted a decline; on the other hand, rents for B class office space in 1 cities slightly increased. On the other hand, rents in shopping centres in the majority of voivodship cities remained stable; the only markets to see a downward trend were Warsaw, Łódź, Katowice and Poznań. As regards the sale of individual retail and commercial real estate, the 21 The provisions of the Act (Journal of Laws of 1 September 215, item 1582) enable the BGK to grant loans to social housing societies TBS, municipal companies and housing cooperatives, which, under current conditions, would bear interest at the rate of approx. 1.7%, increased by a 1.3 percentage point margin to be financed by the state budget. The scheme is spread over 1 years during which the BGK should lend the total of PLN 4.5 billion for the construction of social housing for rent (the construction of approximately 3 thousand dwellings is assumed). The BGK is supposed to allocate the total of PLN 45 million for loans (the first loan agreements will be concluded in the second half of June 216). In accordance with the provisions of the Act, it will not be possible to repurchase dwellings built with the use of BGK's preferential loans. There are restrictions in access to home rental depending on tenants income. The Act provides for income verification every two years. The rent rate may not exceed 5% of the replacement value of the dwelling. In 216 under the two first editions of the scheme, the BGK received 99 applications for the total amount of PLN 563 million for the construction of dwellings. Currently, the applications are being examined, and the first dwellings financed under the scheme are supposed to be completed and made available for occupancy at the turn of 217/ In accordance with the Act (Journal of Laws of 9 October 215 item 1925) on 19 February 216 the Borrowers Support Fund (FWK) started granting refundable assistance, on preferential terms, to borrowers facing difficult situation. Those borrowers are eligible for assistance who, on the day of submitting a subsidy application, have an unemployed status or when their monthly mortgage instalment exceeds 6 per cent of monthly income earned by the borrower s household. The interest-free, but refundable assistance in the amount of up to PLN 1.5 thousand will be extended for a maximum period of 18 months. It is possible to apply for the support in bank branches which granted housing loans. Reimbursement starts two years after the assistance was granted and may take 8 years. Decisions concerning granting assistance to borrowers are taken by the BGK. Persons being owners of another house or dwelling are not eligible for this form of assistance. Money from the Fund is not transferred directly to the borrower; the instalments are settled by the Fund directly to the credit account of the lending bank. The Fund has at its disposal funds in the amount of PLN million, originating from contributions of lending banks, on a pro rata basis, in relation to the size of the portfolio of housing loans of households, whose delay in repayment of the capital or the interest exceeds 9 days. If necessary, the Rental Housing Fund (FWM) will be supplied with further funds, e.g. if its amount falls below PLN 1 million, the funds replenishment will amount to PLN 3 million. According to the information provided by the BGK, approx. 447 agreements for the total amount of approx. PLN 9.96 million were concluded under this scheme until the end of November See CBRE report Poland Investment, H See: Cushman & Wakefield report: Poland, Office Market Snapshot, Third Quarter Narodowy Bank Polski

8 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. median of the offer price all over Poland showed a downward trend, with Warsaw and Gdańsk being the only markets to see it rise. Box 1 National Housing Scheme The Council of Ministers on 27 September 216 passed a resolution on the adoption of the National Housing Scheme (NPM). In accordance with the resolution, the National Housing Scheme (NPM) has 3 objectives: 1. Make housing more accessible to people in receipt of income which is insufficient to purchase or rent housing at market price, through: * increasing the supply of low-rent housing and activating providers of this type of housing, * reducing the cost of housing construction - use of public land for residential construction*, spreading optimal technology and architectural projects especially in social housing, * encouraging regular saving for housing purposes, * making it easier for institutions to invest in rental housing, * increasing financial capacity of families (including the "Family 5+ scheme); the measure of achieving the objective shall be the increase from 363 to 435 dwellings per 1 inhabitants. 2. Increase the capacity to meet housing needs of people at risk of social exclusion due to low income or particularly difficult life situation, through: * boosting the capacity of municipalities to provide housing to the poorest, * development of subsidized housing (e.g. protected housing) * provision of adequate number of places at night shelters and shelters for the homeless, * development of a housing policy strategy to meet the needs of groups with special housing needs, in particular, the elderly and the disabled, * provision of assistance to those who are temporarily in a difficult financial situation, making it impossible for them to pay housing service charges or effect monthly mortgage repayments; the measure is to reduce to zero the number of persons waiting for municipal rental housing (as of 214, the number of waiting households was 165.2). 3. Improve housing conditions of the society, the technical condition of the housing stock and increase energy efficiency, through: * more effective management of the public housing stock * promoting thermo-modernization and refurbishment investments, including investment projects launched as part of revitalization of degraded areas, * ensuring technical infrastructure accompanying housing construction; the measure of meeting the objective will be a reduction in the number of people living in substandard conditions (poor technical condition of the building, lack of technical facilities, high density of inhabitants) - from approx. 5.3 to approx. 3.3 million persons by 23. It is assumed that the National Housing Scheme (NPM) will be based on four pillars 1. Available housing: 1.1 Housing available for rent with an option of acquisition of ownership in the future, built, among others, on the land owned by the State Treasury. Cheaper rental dwellings will be built with an option of acquisition of home ownership in the future. The average rent (excluding service costs and utilities) for rental housing is expected to range from PLN 1 to PLN 2 per square meter. Under the lease contract with home ownership option, the rent rate is expected to be approx. PLN per square meter of housing. Preference will be given to large families and low-income families, but all the citizens shall have the right to apply for rental housing. The investment will be operated and the completed housing stock will be managed by, among other, the National Housing Operator. Currently, this function is performed by Bank Gospodarstwa Krajowego, with the use of BGK structures (company BGK Nieruchomości, Closed- End Investment Fund). Narodowy Bank Polski 6

9 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q Increased support for social rental housing. The program is another solutions in supporting social tenant housing. Local governments will be able to apply for subsidy ranging from 35 to 55% of the cost of construction of social and protected housing and night shelters and shelters for the homeless. Support will also be lent to encourage the construction of social rental housing built by housing associations, social building societies or other entities (e.g. real estate developers). A new instrument of support will be subsidies to municipalities (2% of investment costs), which together with investors will be engaged in the construction of low-rent housing intended for a specific group of people (selected on the basis of income criteria). The rent for such housing will not exceed 4% of the replacement value. It is estimated that these dwellings will be intended for less wealthy families or young people who want to start a family or persons leaving social housing. 1.3 Regular saving for housing purposes: support for savings for housing purposes on Individual Housing Accounts (IKM). The program makes it possible to save money for the purchase, construction and renovation of an apartment or a detached house, on the so-called housing subaccounts. Funds are to be collected on Individual Housing Accounts, opened at banks and cooperative saving and credit institutions. Savings will be exempted from income tax on capital gains. Certain housing purposes will be supported with a bonus paid from the state budget, whose amount will depend, among others, on the size of the family. Moreover, municipal companies and housing co-operatives and social housing associations will be able to apply for preferential loans at Bank Gospodarstwa Krajowego (with a subsidy from the budget) for the construction of social rental housing or cooperative housing. The rent for such housing will not exceed 5% of the replacement value. 2. Stable and efficient financing: The National Housing Fund (NFM) will use the land belonging to the State Treasury for the construction of rental housing, which will increase its availability. It will serve as a bank of land used for housing construction. The land owned by the National Housing Fund (NFM) will be made available for the construction of rental housing, with the option of acquisition of home ownership in the future, to the National Housing Operator and other entities acting as housing operators (e.g. by providing the land to an investment fund in exchange for the acquisition of investment certificates by the National Housing Fund). 3 Housing conditions: modern, economical and safe housing: Instruments aimed to help to improve the technical condition of the existing housing stock and improve housing conditions have been launched. National funds and European funds will be used to support the overhaul and repair as well as encourage thermal modernization projects. Also revitalization of degraded areas will continue to benefit from assistance. The scheme is assumed to assist the creation of technical infrastructure during housing construction. 4 Good law: The scheme is supposed to regulate, among others, the operation of the home rental market and the organization of the investment and construction process, as well as the operation of housing cooperatives, municipalities and social housing associations to facilitate the construction of housing and management of the completed housing stock. The main activity will be to draft the new Urban Planning and Construction Rules. The regulations defining the operation of the home rental market will be revised. The scheme s objective is also to ensure that the public housing stock is managed more effectivity. The scheme assumes that housing co-operatives will become more engaged in the segment of affordable housing. The amendment of the Act on Housing Cooperatives will be prepared. 7 Narodowy Bank Polski

10 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. The figures below describe the most important developments in the housing market in Poland s major cities in 216 Q3. Charts and figures present: 1) home prices (Figures 1 14), 2) housing availability, loan availability, availability of loan-financed housing, profitability of housing investment (Figures 15 2), 3) mortgage loan disbursements and interest rates (Figures 21 28), 4) operating profitability of housing and real estate development projects, costs of construction and assembly output and economic situation of real estate developers in Poland (Figures 29 45), 5) housing construction and the residential market in Poland (Figures 46 59), 6) housing policy (Figures 6-71). 7) commercial real estate (Figures 72-75). The analysis of housing prices, offer prices, transaction prices and hedonic prices in the primary and secondary markets as well as housing rents relies on the data acquired from the housing market survey of the Real Estate Market Database (BaRN) 25. On the other hand, as part of the survey of the commercial real estate market, the Commercial Real Estate Market Database (BaNK) data on rent, offer prices and transaction prices of commercial real estate are collected and analysed. In addition, data from PONT Info Nieruchomości, AMRON and SARFIN Polish Banks Association and Comparables.pl were used in the analyses. The analyses and reports of REAS, the Polish Financial Supervision Authority and the aggregate credit data from the Credit Information Bureau were also used. For the structural market analysis, data published by the Central Statistical Office and many studies containing sector data were used. 25 The survey of residential and commercial real estate prices in Poland s selected cities for 216 Q1 was published in the Decree of the Council of Ministers of 27 August 214 on the Programme for Surveys in Public Statistics for 215 (Journal of 214 item 133), symbol (73). The obligation to submit statistical data results from Article 3 item 3 of the Act of 29 June 1995 on public statistics (Journal of Laws of 212 item 591) and from the Decree of the Council of Ministers referred to above. The reporting forms for 215 were announced in the Decree of the Prime Minister of 18 March 215 on reporting forms, completion instructions and statistical questionnaires and questionnaire forms used in surveys of public statistics for 215 (Journal of Laws of 215 item 561). Since the survey is carried out by NBP, the Bank publishes the surveys on its website. In listings related to 216 Q3, approx thousand records were collected, including approx. 26.3% of records concerning transactions and 73.7% of records concerning offers. Altogether approx. 2.1 million records were collected in the base, including 21.% of records concerning transactions and 79.% of records concerning offers. Narodowy Bank Polski 8

11 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. List of abbreviations 5M 6M 7M 1M BaNK BaRN BIK CPI LD GD GUS IRR EURIBOR FMW KNF KRS LIBOR LTV MDM IFRS NBP PONT REAS RNS PM PAS SM ROE WIBOR WIG2 ZBP ZKPK 5 cities: Gdańsk, Kraków, Łódź, Poznań, Wrocław 6 cities: Gdańsk, Gdynia, Kraków, Łódź, Poznań, Wrocław 7 cities: Gdańsk, Gdynia, Kraków, Łódź, Poznań, Warszawa, Wrocław 1 cities: Białystok, Bydgoszcz, Katowice, Kielce, Lublin, Olsztyn, Opole, Rzeszów, Szczecin, Zielona Góra Commercial Real Estate Database Real Estate Database Credit Information Bureau Consumer Price Index Large real estate development company Households Central Statistical Office Internal Rate of Return Euro Interbank Offer Rate Rental Housing Fund Financial Supervision Authority National Court Register London Interbank Offered Rate Loan-to-Value ratio Government-subsidised housing scheme Mieszkanie dla Młodych [Housing for the Young] International Financial Reporting Standards Narodowy Bank Polski PONT Info Nieruchomości Real Estate Advisory System Government-subsidized housing scheme Rodzina na Swoim [Family on their Own] Primary housing market Polish Accounting Standards Secondary housing market (existing housing stock) Return on Equity Warsaw Interbank Offered Rate Index including top 2 companies listed on the Warsaw Stock Exchange with the highest value of publicly traded shares The Polish Bank Association Accumulated index of changes in banks credit policy criteria 9 Narodowy Bank Polski

12 III 26 II II II II II II II II II II III 26 II II II II II II II II II II III 26 III 26 II II II II II II II II II II II II II II II II II II II II III 26 II II II II II II II II II II III 26 II II II II II II II II II II Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. 1. Transaction, hedonic and offer prices of housing in the primary market (PM) and in the secondary market (SM) Figure 1 Transaction prices per square meter of housing PM (PLN/sq. m) Figure 2 Transaction prices per square meter of housing SM (PLN/sq. m) Gdańsk Gdynia Kraków Łódź Poznań Wrocław Warszawa Gdańsk Gdynia Kraków Łódź Poznań Wrocław Warszawa Note: the home price database of NBP (BaRN) has existed since 26 Q3; description of the database may be found in the Report on home prices and the situation in housing and commercial real estate market in Poland in 214 available on the bank s website. Figure 3 Weighted average price per square meter of housing, offers and transactions - PM (PLN/sq. m) Figure 4 Weighted average price per square meter of housing, offers and transactions - SM (PLN/sq. m) Warszawa RPT 6M RPT 1M RPT Warszawa RPO 6M RPO 1M RPO Note to Figures 3 13: the price weighted with the share of housing in the market stock, the average price for Warszawa; 6C are the following cities: Gdańsk, Gdynia, Kraków, Łódź, Poznań, Wrocław; 1C are the following cities: Białystok, Bydgoszcz, Katowice, Kielce, Lublin, Olsztyn, Opole, Rzeszów, Szczecin, Zielona Góra. Figure 5 Ratio of the average weighted transaction price per square meter of housing PM to SM 1,25 1,2 1,15 1,1 1,5 1,,95,9,85,8 Warszawa RWT 6M RWT 1M RWT Warszawa RWO 6M RWO 1M RWO Warszawa hed. 5M hed. 1M hed. Figure 6 Ratio of the average weighted transaction price to offer price per square meter of housing in PM and SM 1,35 1,3 1,25 1,2 1,15 1,1 1,5 1,,95 Warszawa 6M 1M Warszawa RP 6M RP 1M RP Warszawa RW 6M RW 1M RW Narodowy Bank Polski 1

13 III 26 II II II II II II II II II II III 26 II II II II II II II II II II III 26 II II II II II II II II II II III 26 II II II II II II II II II II III 26 II II II II II II II II II II III 26 II II II II II II II II II II Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Figure 7 Weighted average and real price per square meter of housing in the primary market to CPI-deflated price (26 Q3 = 1) Figure 8 Weighted average and real price per square meter of housing in the secondary market to CPI-deflated price (26 Q3 = 1) Warszawa RP T 6M RP T 1M RP T, AMRON, GUS. Warszawa RP T defl. CPI 6M RP T defl. CPI. 1M RP T defl. CPI Figure 9 Weighted average transaction price per square meter of housing adjusted by the hedonic price index in selected markets - SM, (PLN/sq.m) Warszawa RW T 6M RW T 1M RW T, AMRON, GUS. Warszawa RW T defl. CPI 6M RW T defl. CPI. 1M RW T defl. CPI Figure 1 Weighted average transaction price per square meter of housing in SM, adjusted by the hedonic price index, in the largest cities (PLN/sq.m) Warszawa hed. 6M hed. 1M hed. Warszawa RW 6M RW 1M RW Figure 11 Average offer prices per square meter of housing - SM in selected markets (PLN/sq.m) Gdańsk hed. Kraków hed. Łódź hed. Poznań hed. Warszawa hed. Wrocław hed. Figure 12 Average offer prices per square meter of housing - PM, in the largest cities (PLN/sq.m) Warszawa 5M 1M Note to Figures 11-12: prices are collected from all available sources. Source: PONT Info Nieruchomości Gdańsk Gdynia Łódź Kraków Poznań Warszawa Wrocław Source: PONT Info Nieruchomości 11 Narodowy Bank Polski

14 I 26 III 26 II II II II II II II II II II zmiana w % tys. zł I 26 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Figure 13 Average offer prices per square meter of housing, new launched housing contracts PM, selected markets (PLN/sq.m) Figure 14 Average rent rates (offers and transactions) per square meter of housing in the largest cities (PLN/sq.m) Łódź Kraków Poznań Trójmiasto Wrocław Warszawa śr.6m Note: prices refer only to new contracts put on the market for the first time. Source: Real Estate Advisory System Gdańsk Gdynia Kraków Łódź Poznań Warszawa Wrocław 7M śr.waż.zasobem 2. Housing availability, loan availability, availability of loan-financed housing, profitability of housing investment (Figures 15 2), Figure 15 Estimates of available mortgage loans and accumulated index of changes in banks lending policy criteria (ZKPK, right-hand axis) Wykres 16 Kwartalne zmiany szacowanej kredytowej dostępności mieszkania średniej dla 7M oraz siła i kierunki wpływu poszczególnych składowych 15% 1% 5% % -5% -1% -15% -2% -25% Gdańsk Gdynia Kraków Łódź Poznań Warszawa Wrocław śr. 7M ZKPK cena (śr.rp i RW) wynagrodzenia maks.udział dochodu przezn.na spłatę stopa procentowa kredytowa dostępność mieszkania Available housing loan a measure specifying the potential maximum housing loan; expressed in PLN thousand in a particular market, taking into account banks lending requirements and loan parameters (i.e. interest rate, amortization period, minimum wage, as the minimum income after payment of loan instalments). Availability of loan-financed housing a measure specifying how many square meters of housing may be purchased with a mortgage loan obtained basing on the average monthly wage in the enterprises sector in a particular market (CSO), in view of bank s lending requirements and loan parameters (interest rate, depreciation period, social minimum under-stood as the minimum income after payment of loan instalments) at an average transaction price of housing (4% in the primary market and 6% in the secondary market) in a particular market (BaRN). The pace of changes of the index and differences between particular markets provide important information. ZKPK Index accumulated index of changes in banks lending policy criteria; positive values mean the easing, and negative values the tightening of lending policy as compared to the initial period i.e. 23 Q4. Computing methods of the index are described in the Financial Stability Report, December 212, NBP., GUS., GUS. Narodowy Bank Polski 12

15 III 26 II II II II II II II II II II I 26 I 25 I 26 Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Figure 17 Estimated housing availability in terms of square meter of housing for average wages in the enterprise sector in the largest cities 1,1 1,,9,8,7,6,5,4,3 Figure 18 Costs of a housing loan for consumer as deflated with CPI or wage growth in the enterprise sector 8% 6% 4% 2% % -2% -4% -6% -8% Gdańsk Gdynia Kraków Łódź Poznań Warszawa Wrocław śr. 7M Housing availability a measure of potential availability to purchase housing space at the transaction price for an average wage in a particular city. It expresses the number of square meters of housing that can be purchased for an average wage in the enterprise sector in a particular city (CSO), at an average transaction price in a particular market (4% in the PM and 6% in the SM) (NBP)., GUS. Figure 19 Profitability of home rental (average in 7 cities) as compared with bank deposits and loans, 1- year Treasury bonds and rate of capitalization of commercial property (offices and retail space) 5,5 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1,,5 nom.st.proc.kred.mieszk.pln real.st.proc.kred.mieszk.pln def. CPI real.st.proc.kred.mieszk.pln dla kred.rns / MDM def.cpi real.st.proc.kred.mieszk.pln dla kred.rns / MDM def.dyn.wynagr.(wyrówn.) real.st.proc.kred.mieszk.pln def. dyn.wynagr.(wyrówn.) Note: values below denote negative real interest rate for the borrower; red lines separate the period of the absence of the government subsidized housing scheme, i.e. RNS (effective till the end of 212) and MDM (launched in 214). Source NBP, GUS, BGK. Figure 2 Estimate of housing demand in PM in 6C and its components najem do dep.gd najem do obl.1l. najem do kred.mieszk.gd najem do kap.nier.kom. czynniki popytu ważone, indeksowe (I 26=1) kredytowa dostępność mieszkania (I 26 =1) opłacalność najmu wzgl. inwest. gotówkowego (I 26=1) spekulacyjny zysk inwestora mieszkaniowego (I 26=1) sprzedane 6M (p. oś) Note to Figure 19: values exceeding 1 denote higher profitability of purchasing property for rental to third persons than other capital investment. This analysis does not take into account high transaction costs in the housing market and potentially long payback periods. Note to Figure 2: aggregate demand factor (profitability of rental against cash investment) consists of consumer demand - 6% (loan availability), profitability of home rental - 3% and speculative investor s profit - 1%; the weights were estimated by experts, the index presents moving average of two consecutive quarters., GUS., GUS. 13 Narodowy Bank Polski

16 II II II II II II II II IV 28 I IV 29 I IV 21 I IV 211 I IV 212 I IV 213 I IV 214 I IV 215 I I 24 I 25 I 26 I 23 I 24 I 25 I 26 zmiany kwartalne w mld zł stan w mld zł Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. 3. Disbursements of residential mortgage loans, interest rates Figure 21 Balance and quarter-on-quarter changes in housing loan receivables from households after adjustments and the currency structure of quarter-on-quarter increases in housing loan receivables (PLN billion) Figure 22 Currency structure of housing loan receivables from households resulting from residential mortgage loans (%) walutowe złotowe 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % mieszkaniowe kredyty walutowe po korektach (zm.kw.) (L oś) mieszkaniowe kredyty złotowe (zm.kw) (L oś) stan kredytu mieszkaniowego (P oś) w tym stan kredytu walutowego (P oś) Figure 23 Household loans for housing real estate and indicator of loans recognised as non-performing loans % 9% 8% 7% 6% 5% 4% 3% 2% 1% % Figure 24 Estimated ROE on residential mortgage loans denominated in PLN for banks in Poland 8% 6% 4% 2% % -2% -4% -6% -8% 2% 15% 1% 5% % -5% -1% -15% -2% Note: receivables (loans) with determined loss of value receivables from portfolio B, in relation to which objective premises of loss in value were observed and a decrease in the expected value of future cash flows (in banks using the IFRS) or which were deemed as doubtful receivables in accordance with the Ordinance of the Minister of Finance on establishing provisions against the risk associated with banking activities (in banks using the PAS). Kredyty hipoteczne mieszkaniowe (L. oś) Wskaźnik kredytów zagrożonych na nier. mieszk. (P oś) Wskaźnik kredytów zagrożonych na nier. mieszk. złotowych (P oś) Wskaźnik kredytów zagrożonych na nier. mieszk. walutowych (P oś) Obciążenie kredytów odpisami Efektywny koszt finansowania kredytów Efektywne oprocentowanie kredytów Skorygowana marża odsetkowa na kredytach ROE (P oś) Note: Income and costs related to the mortgage loan portfolio. The estimated ROE is calculated as the adjusted interest margin on mortgage loans with respect to the minimum required down-payment (buyer s own contribution). Calculation based on KNF publication, Solvency ratio - until 214, Total capital ratio - as of 214. The adjusted interest margin is the result of all income being added and all costs being deducted. The effective cost of financing was computed based on the WIBOR rates by adding estimative costs related to bank's own financing. As of 216, bank tax has been included. Narodowy Bank Polski 14

17 I 23 I 24 I 25 I 26 I 25 I 26 wartość w mld zł liczba w tys. mld zł Information on home prices and the situation in the housing and commercial real estate market in Poland in 216 Q3. Figure 25 New housing loan contracts: value and number in the quarter Figure 26 Territorial structure of the value of new housing loan contracts in Poland 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % wartość PLN liczba PLN w tym wartość walutowe w tym liczba walutowe Warszawa 6M 1M PP Polska (p oś) Note to Figures 25 and 26: the data inform about signed residential mortgage loan contracts and not the actual disbursement of residential mortgage loans. Source: ZBP Source: BIK Table 1 Estimated gross mortgage loan disbursements to households in Poland and the estimated value of cash and loan-financed purchases of developer housing in 7 largest markets (in PLN million) Date Estimated value of disbursed mortgage loans in Poland Estimated value of housing transaction in the PM in 7M Estimated value of disbursed loans with client s downpayment for home purchases in the PM in 7M Estimated value of home purchases in the PM in 7M Estimated share of cash home purchases in the RP in 7M 212 Q1 5,385 2, , Q2 7,325 2,791 1,254 1, Q3 7,661 2,512 1,312 1, Q4 7,441 2,882 1,274 1, Q1 6,295 2,597 1,121 1, Q2 7,867 2,897 1,428 1, Q3 9,14 3,457 1,69 1, Q4 9,84 3,989 1,773 2, Q1 7,571 3,998 1,478 2, Q2 8,899 3,794 1,737 2, Q3 8,894 3,811 1,736 2, Q4 8,122 4,59 1,585 2, Q1 8,996 4,25 1,756 2, Q2 1,64 4,676 2,77 2, Q3 1,341 4,953 2,19 2, Q4 11,237 5,396 2,194 3, Q1 9,742 5,421 1,92 3, Q2 11,661 5,73 2,276 3, Q3 9,963 5,723 1,88 3, Note: the estimates are based on the following assumptions: In the period 212 Q1-214 Q4, the estimated value of newly granted loans in Poland in particular quarters was based on increases in the volume of loans to households adjusted for loan amortization and flows between the foreign currency loan portfolio and the zloty loan portfolio, available in the NBP reporting. The entire banking system was taken into account, including SKOK credit unions. As of 215 Q1 the value of disbursements is estimated based on data collected from banks. In order to calculate the estimated value of PM transactions in 7 C (Gdańsk, Gdynia, Kraków, Łódź, Poznań, Warsaw, Wrocław), the average home price was multiplied by the average home size in square meters and the number of housing units sold (based on REAS data). On the basis of ZBP data it was assumed that the value of newly granted loans for the purchase of housing in the primary markets 15 Narodowy Bank Polski