Housing prices in Poland are growing at a double-digit pace. Despite the expected cooling of the market, it may be similar in 2022, for example due to the so-called the development act, i.e. on the protection of the rights of the buyer of a flat or single-family house and the Development Guarantee Fund, as is the full name of this legal act, which comes into force on 1 July this year.
“For the Development Guarantee Fund (DFG), which will be created as a result of the act passed in May last year, developers will pay contributions on each payment made to a housing escrow account. In the case of a closed account, it will be 0.1%, and in the case of an open account, it will be 1%. Of course, the latter amount is of key importance here, as the popularity of closed escrow accounts is much lower among developers than among open ones. Although the final rate of the contribution will be passed in the regulation, its maximum level should be expected – which would be suggested by the government position presented during the works on the act,” says Anna Herbetko, associate in the real estate team of the Warsaw office of Wolf Theiss.
According to the Expander report for the fourth quarter of 2021, on average, flats in Polish cities increased by as much as 16% per year. The prices for the smallest spaces in Warsaw increased by 13 percent, in Wrocław by 17 percent, and in Białystok by as much as 23 percent. As Tomasz Chróstny, the President of the Office of Competition and Consumer Protection (UOKiK) declared, in media statements, he does not expect the DFG contribution to affect housing prices. It is estimated that about PLN 600 million annually will flow into the fund from the contribution.
“It has to be honestly said that the DFG contribution will affect housing prices. Inviting the reality that it will turn out otherwise is naivety on the part of some analysts and the position presented by UOKiK. Let us recall that the original maximum premium was supposed to be as high as 5%. Later, as a result of legislative work, it was reduced to 1%, mainly due to the votes of the development industry, which clearly stated that the adoption of the provisions in the original wording, forced by the Office of Competition and Consumer Protection, would mean an average increase in the price of a flat by up to 10,000 PLN. PLN,” adds Anna Herbetko.
According to the forecasts of the Polish Association of Developers (PZFD), in the entire 2022 apartments will become more expensive by 7-10%, and the increase in their prices will remain above inflation. Estimates assume that inflation and interest rates will increase further, even to the level of 4%. in the case of the base rate. However, the analysis does not take into account the factor related to the situation in Ukraine. Experts predict that in the event of an escalation of tension or an armed conflict, we may be dealing with a mass migration of the local population and, consequently, a jump in real estate prices in Poland.
“Developers are currently struggling with an increasingly difficult market. Despite signals of a slowdown in demand in the housing market, plot prices remain high and the supply of land remains quite limited due to legal barriers. The developer act and the creation of the DFG may also have such an impact on the market that both buyers and developers will be more prone to risk. It is difficult to estimate the impact of this factor on the market at this point, but please note that although the act itself sets the upper limit of the fee at the conclusion of the reservation agreement at 2%. there are no regulations there that would prevent the price of a flat or a house from being raised or valorised,” says the same expert from Wolf Theiss.
The issue of valorization of the price of an apartment or house in the new act is regulated only at the stage of the information prospectus. It should contain a box entitled “Allowing the indexation of the price and defining the principles of indexation.”
“It is a very complicated issue. Both UOKiK and the Court of Competition and Consumer Protection were against the application of indexation clauses by developers. There are also examples of judgments in national case law where such clauses have been challenged. Currently, however, with inflation already at 6 percent. and the constant increase in the prices of building materials, we can expect developers to try to apply legal solutions in order not to fall below the profitability threshold. The effect will be a further increase in apartment prices or the development of tools that will allow for price indexation based on market indicators,” sums up Anna Herbetko, from Wolf Theiss law firm.
At its February meeting, the Monetary Policy Council decided to raise the reference rate by 50 basis points to 2.75%. This is the fifth increase in interest rates in Poland in a row. According to the latest forecast of the European Commission, GDP in Poland in 2022 is expected to reach 5.5 percent, and inflation – 6.8 percent.
