A decline in demand for new apartments of up to 60% — this is how the coronavirus pandemic has impacted the real estate market in Poland. However, apartment prices have not significantly dropped. According to experts, we are now entering a period of price stability. The luxury real estate segment is perceived as a safe haven for investors in uncertain times.
In what mood has the housing market overcome the worst period since the shock caused by the global crisis in 2009? The recent report by the consulting firm JLL for Q2 2020 sheds some light on this. It shows that, contrary to appearances – it's not so bad. The housing market was only “nicked” by the effects of lockdown.
Seemingly, the data for Q2 2020, during the peak of the pandemic, does not sound optimistic. Sales in the analyzed period in the largest cities in Poland dropped by as much as 60%. At the same time, the number of apartments introduced to the market decreased by 19 percent.
However, JLL experts emphasize that although the decline in sales was significant, it coincided with a complete lockdown, a physical ban on movement, so it must have had an impact. They also highlight that already in the second part of the quarter – from the end of May and June – there was a clear rebound.
The report's authors also point out that despite the decline in sales, investments were generally not halted, and construction work continued.
During the pandemic, the prices of new apartments introduced to the market in Q2 2020 most significantly decreased quarter-over-quarter in Wrocław – by as much as 20%. However, JLL analysts explain that this situation was influenced by the very high rates from Q1. Wrocław experienced a very dynamic demand period, with demand significantly exceeding supply. Hence, prices were rising rapidly. Additionally – in Q1, many premium segment apartments – with higher standards and luxury apartments – were put on the market. Therefore, the average price was inflated. In Q2 – during the peak of the pandemic – rates simply adjusted to realistic levels, returning to the city’s average.
In other Polish cities, price changes were not very significant. Currently, the most expensive new apartments are in the capital. The price per square meter is nearly 11,000 PLN. Second is Tricity – 10,200, then Kraków – 10,000, Wrocław – 8,600, Poznań – 7,900, and Łódź – 6,400 PLN.
Rates slightly decreased in Łódź and Warsaw. In Kraków, they remained unchanged. Interestingly, the prices of new apartments (introduced to the market in Q2 2020) in Tricity increased significantly – by as much as 39% compared to the beginning of the year. JLL experts highlight that this may be due to the large number of very expensive apartments introduced to the market. Why?
Premium segment as a remedy for COVID-era inflation
Very expensive, luxury properties are treated as capital investments. Unlike the popular segment, where people invest in standard apartments or higher-end estates, buyers are usually those who already possess capital, who do not rely heavily on loans, or do so only minimally. Therefore, increased lending restrictions by banks do not significantly affect such buyers.
They seek assets that will help preserve their capital value in uncertain times and amid rising inflation. During the pandemic, the Monetary Policy Council made an unprecedented decision to cut NBP interest rates to a minimum. Let’s add – they cut rates that were already at a very low level.
The RPP’s decision – due to the complete unprofitability of keeping money in banks – resulted only in further “pushing” investors towards tangible forms of capital storage. Among the most popular are gold and real estate, which in our country might even be more popular than precious metals. It is also crucial that apartments allow for decent passive income – from rentals.
Luxury always in demand
Why, then, do luxury properties remain popular during the coronavirus era? Market practice shows that such capital investments – very well-located apartments, penthouses, villas, estates – are most capable of “defending” themselves against value decline. While the standard segment, i.e., apartments for the average Kowalski, is subject to market fluctuations, the higher-end “premium segment” retains its value. This means that the prices of such properties are much more stable.
This is evident when looking at the Polish luxury segment. The "entry" threshold for investors wanting to purchase such properties has remained the same for many years. In the 2015 report by KPMG and REAS, based on customer opinion surveys, a price threshold was defined, above which a property can be considered luxury at 16,500 PLN per square meter.It was set by wealthy individuals with monthly incomes ranging from 10,000 to 20,000 PLN. They concluded that properties costing at least this 16,500 PLN/m² can be classified as luxury. And this range has essentially not changed to this day, despite the market developing very dynamically and offering increasingly more ultra-expensive properties, with rates exceeding 30,000 PLN per square meter.
In summary – the luxury segment has "withstood" the effects of the lockdown, and it is reasonable to assume that in the event of a pandemic relapse and restrictions, or simply in uncertain economic times – very expensive apartments will still be in demand among wealthy investors who want to preserve their capital.
