Residential market impacted by supply restrictions and virtual purchases

04 maja 2020

Residential developers operating in the six largest markets in Poland see sales increase by 14% y-o-y while significantly lower supply and reduced offer size help mitigate slowdown caused by the Covid-19 pandemic.

In the first quarter of 2020, 18,900 residential assets/units have been sold across the six largest Polish cities, 7% higher than Q4 2019 and 14% higher year on year. According to the latest JLL report - Residential Market in Poland Q1 2020, only 13,000 new units came onto the market during this period. Compared to the units sold for the same period, the supply at the end of the quarter decreased by 12% compared to the end of 2019.

In the past, such a significant reduction in the offer resulted in lower sales. Today, in the situation of pandemic, this reduction may present some opportunities of mitigating the risks for developers. In Q1 2020, lower level of supply has meant the lower the market risk of a drop in sales, or the chance that large numbers of unsold units would force many developers to significantly reduce prices.

Katarzyna Kuniewicz, Head of Residential Research, JLL

At the end of March, there were 44,300 residential units available across Warsaw, Kraków, Wrocław, Tri-City, Poznań and Łódź. The last time there was such a low combined offer for all six cities was nearly six years ago, at the end of June 2014. Simultaneously with the decrease in the number of units on offer, the number of unsold finished units stood at 3,700, a 12% drop q-o-q, and only an 8% share of the offer.

Pre-sale levels are high

As experts from the JLL housing team emphasize, it is still too early to forecast changes in the housing market, because the level of uncertainty as to the development of the economic situation remains high. For now, it seems that development companies are handling the situation on construction sites and are continuing to implement projects. More than half of them (54%) are projects with completion dates in 2021 and 2022, so even a temporary slowdown on the part of contractors does not affect the ability of developers to meet contractual deadlines.

This is important, because most of the units in these projects have already been sold. The list of situations in which the contract between the developer and the buyer can be terminated without negative consequences is specified in detail in the Development Act. It, however, does not include such events as deterioration of the buyer's financial situation or changing market conditions. Therefore, we are not worried about a wave of mass returns of units that have already been bought. Pre-sale contracts may be an exception though

Paweł Sztejter, Executive Director, Head of Residential, JLL

The data presented in the report shows that at the end of March the level of pre-sales, in projects that will be commissioned no earlier than a year from the time of the survey, were the best since 2008. The situation is most favourable in Warsaw, where 53% of units in these types of projects have been sold. Developers in the Tri-City and Kraków also sold off nearly half of their stock, while in Łódź this number is over 40%.

Gradual price adjustment

Prices have been continuously rising in most cities since the beginning of 2017 with this upward trend continuing into the last quarter. Kraków saw record increases with the prices of units on offer in the city increasing by 9% q-o-q, and by 26% on Q1 2019. However, prices in Łódź (an increase of 0.4%) and the Tri-City (1.3%) remained relatively unchanged when compared to December 2019.

Since the crisis affects both sides of the market (supply and demand), the scale of price changes will depend on many factors, the impact of which is currently unknown. At this point it is clear, that adjustments will be more profound on those markets where developers have offered an unusually large number of units dedicated to buy-to-let investments. This is especially the case with short-term rentals, or where individual investors account for nearly half of all buyers. Even here, however, it is expected that developers will offer promotions and various incentives instead of significant discounts

Katarzyna Kuniewicz, Head of Residential Research, JLL

Digital transformation and experience

One positive phenomenon that has come out of the current situation is that the development industry, which seemed to have previously operated predominantly in an 'analogue reality', is now undergoing the same accelerated digital transformation as other market branches are currently experiencing.

The key task for developers today is to retain the buyers who have already started the purchasing process, i.e., for example they have pre-paid for a unit, and to maintain the interest of those who are ready to finalize the transaction when it is technically possible. During this time of movement restrictions, those developers who have already implemented modern online tools in their marketing and sales processes will fare better. However, even those who are just beginning to use these solutions are very open and flexible.

Katarzyna Kuniewicz, Head of Residential Research, JLL

Developers are entering this period of inevitable slowdown better prepared than ten years ago. The number of units on offer is moderate compared to demand potential, and the vast majority of units on offer are well-matched to the real needs of Poles.

Ultimately, the situation of entities operating on this market will depend on their project portfolios, as well as the methods of financing used by the company, including in particular the nature of liabilities, such as corporate bonds, cash reserves and availability of equity. In general, however, the Polish development market is entering this time of unknowns financially and institutionally stronger, as well as wiser, having learned from the experience of 2008-2009 and the subsequent years

Kazimierz Kirejczyk, Vice President of the Board, JLL

Ewa Tęczak

Marketing & Communications Manager JLL