The real estate market in Poland in 2022 was one of the most active in the world. However, high inflation, rising mortgage interest rates and rising prices in general have made the market stagnate by the end of 2022. Does this mean that apartment prices will go down? And what is the economic outlook for Poland in 2023?

Macroeconomic outlook for Poland

According to EU forecasts, after strong GDP growth in 2022, economic activity in Poland will weaken in 2023. The main reasons for the weakening: increased uncertainty, tougher financing conditions, and the economy adapting to higher commodity prices. At the same time, inflation will continue to rise, as higher production costs are passed on to consumers. Expenditures related to national defense and the energy crisis should not be forgotten - they will lead to an expansion of the government's general deficit.

Poland's active economic growth is expected to slow in 2023-2024 and turn negative in early 2023. At the same time, low trust levels, higher price pressures and higher financing costs will affect the growth of private investment, especially in construction. Nevertheless, growth in public defense expenses and local government investment more than outweighs the decline in private investment, leaving overall investment growth in 2023 in a positive direction. Despite rising inflation, private consumption growth is expected to remain optimistic, thanks to strong political support, low unemployment, and an influx of people from neighboring countries.

Regarding foreign trade, the trade balance is expected to be achieved through an increase in exports and a slight increase in imports of goods. Overall, real GDP is predicted to decrease to 0.7% in 2023 and increase to 2.6% in 2024.

Meanwhile, the accumulation of expenses that were not included in the initial budget, combined with income tax cuts, is likely to increase the overall government deficit in 2022, estimated at 4.8% of GDP (the government deficit is the excess of budget expenses over its incomes - ed.). The government has taken a number of measures to mitigate the impact of high energy prices, including lower VAT rates, cash subsidies for heating to households, and a multi-year scheme to support energy-intensive industries with a total budgetary impact of 2.1% of GDP. At the same time, public finances are affected by the cost of assistance to people leaving Ukraine, which covers social benefits, housing subsidies, and education and health care costs.

The government has taken further support measures to mitigate the impact of high energy prices next year. Electricity prices will be frozen for households within certain consumption limits and limited for households and small and medium-sized enterprises. A fixed-price coal-buying scheme will be introduced. Expenditures on assistance to people coming from Ukraine will remain unchanged. The government has also embarked on a major multiyear program of investment in defense, increasing expenses in this field to 3 percent of GDP per year. All of this will increase the government deficit, which will rise to 5.5% of GDP in 2023.

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Decline in real wages and record inflation

The HICP inflation rate in Poland reached record levels in 2022, and further, unfortunately, this record will be broken (HICP - Harmonized Index of Consumer Prices, which is an indicator of inflation and price stability for the European Central Bank - ed.). The main reasons for this rise in inflation: higher commodity prices, increased production costs and relatively strong demand, which allowed businesses to pass the costs onto consumers.

Strong wage growth in 2022, higher energy prices and significant political support will continue to fuel core inflation over the coming quarters. However, as economic activity weakens (and high interest rates suppress demand), inflationary pressures are projected to gradually subside by the end of the forecast horizon. As a result, after peaking at nearly 19% in early 2023, inflation is projected to slow to 4.3% by the end of 2024.

However, the report indicates that this outlook is subject to significant risks. A more sustained rise in inflation, especially given Poland's tight labor market, could put considerable pressure on real income.

Poland's rate of unemployment is expected to rise to 3.1 percent by 2024. However, despite an acute labor shortage, wage growth will slow. At the same time, many companies will adapt to high inflation and rising energy prices, thus real wages will fall in 2023. Going forward, despite the energy price freeze imposed by the government, energy price inflation is expected to remain high mainly because of rising natural gas prices, especially in early 2023. Under the assumption of no policy change, it is expected that some price support measures, in particular VAT rate cuts, will be phased out in January 2023, which will also put upward pressure on energy prices.

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«Now, it is time to bargain». What will happen to the real estate market in Poland in 2023?

woman holding glasses— Now the real estate market in Poland does not look as optimistic as desired, says realtor and market expert Galina Kharlamova. — In 2022, interest rates on mortgages increased several times, and as a result now the lowest percentage at which you can take a loan for real estate in Poland - 8% annually. And this is expensive for our clients. As a consequence, demand in the domestic market has declined and supply has grown slightly. And this plays into the hands of those buyers who are willing to buy the "here and now", because today you can bargain with developers a good discount on the new buildings or take advantage of the installment plan system "20-80", when 20% of the property value should be paid immediately, and 80% - after completion. There are offers where the parking space comes as a gift to the apartment, and this is also very advantageous.

In the secondary market you can bargain with the sellers just the same, even though the offer prices have not changed much. Today it is very important to ask for help from a talented realtor who can negotiate the purchase at the best price - the owners of the apartments are ready to make concessions.

At the same time the external demand continues to grow. There are more buyers from Belarus and Ukraine. This is because they do not need a mortgage, they operate with their own money. Those of them who have sold everything in their country and came to Poland for permanent residence, usually choose townhouses on the outskirts of Warsaw. For them, it is important that for the same money to be able to buy a property with a larger area without the permission of the Ministry. Those who want to buy property in Poland as an investment choose one-and two-bedroom apartments in near-central areas (Mookotów, żoliboż, Wola), because they are easy to rent out.

The demand for rental properties in major Polish cities is still growing, so investment property in Warsaw can bring up to 10% per year - a very good return.

In terms of real estate prices now the situation is as follows: closer to Warsaw, a townhouse of 120 square meters will cost about 850,000 zl (about € 180,000). It will be a complete new building directly from the developer. If you are looking for a house with the renovation, the price will be about 1,000,000 - 1,100,000 zl (about € 235,000). It all depends on the quality of finishing and size of the land.

Apartments in Warsaw, on average, are about 650,000 zl for the new building type 1+1 with finishing (about € 138,000). Turnkey housing with a total area of about 45 square meters will cost about 850,000 zl (about € 180,000).

— What is the forecast for the real estate market in Poland in 2023? Will housing prices fall?

— And here's a little surprise. There is a bill currently in process that, if passed, would allow young families to buy their first home with a mortgage at 2% per annum. Considering that mortgage rates are now about 8-9%, that's a very good deal. And I would say that a significant part of the market has frozen — everyone is waiting for this bill to pass. And even though no one knows its exact terms, some buyers are even putting off buying real estate now to be able to take advantage of this offer.

And now, if this bill is passed (and with a high probability it will be so), we will see another surge in demand in the real estate market in Poland. I am sure that in the third quarter of 2023, we again will see a deficit in the housing market, and apartment prices will go up again. In the market again there will be a domestic buyer, plus those foreigners who have already received a residence permit in Poland, also be able to get a mortgage at 2%, and they will mostly take advantage of such a favorable offer.

Therefore, I would not expect apartment prices in Poland to collapse. Even if the bill is not passed, the market will stagnate. But it all depends on the fact that from July 1 we are going to have another "boom" in the market, which will provoke a sharp increase in prices. Therefore, those who have money "here and now" had better not put off buying - it will not be cheaper.