A drop in demand for new apartments by up to 60% - this is how the coronavirus pandemic has affected the real estate market in Poland. However, apartment prices have not significantly decreased. According to experts, we are now facing a period of price stability. The luxury real estate segment, on the other hand, is seen as a safe haven for investors in uncertain times.
In what mood did the residential market overcome the worst period since the downturn caused by the global crisis in 2009? The matter is somewhat illuminated by the latest report from the advisory firm JLL for Q2 2020. It shows that contrary to appearances, things are not bad. The housing market was only "scratched" by the effects of the 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 of Poland fell by as much as 60 percent. At the same time, the number of apartments introduced to the offer decreased by 19 percent.
However, JLL experts emphasize that although the drop in sales was significant, it occurred during a time of complete lockdown, with a physical ban on movement, so it had to have its impact. They also highlight that in the second part of the quarter—from the end of May and June—there was a noticeable rebound.
The authors of the report also emphasize that despite the sales slump, generally, investments were not halted, and construction work continued.
During the pandemic, the prices of new apartments introduced for sale in Q2 2020 fell the most quarter-on-quarter in Wrocław—by as much as 20 percent. JLL analysts explain that this was due to very high rates from Q1. In the Wrocław market, it was a time of very dynamic demand, with the demand for apartments far exceeding supply. Hence, prices rose rapidly. Secondly, in Q1, many premium segment apartments—of higher standard and apartments—were introduced for sale. Therefore, the average price was elevated. In Q2—at the peak of the pandemic—the rates were simply adjusted. They returned to average levels for this city.
In other Polish cities, price changes were not very significant. Currently, the most expensive new apartments are in the capital. A square meter costs almost 11,000 PLN. In second place is Trójmiasto—10,200, followed by 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, new apartments (introduced to the offer in Q2 2020) in Trójmiasto became much more expensive. Their prices were as much as 39 percent higher than at the beginning of the year. JLL experts emphasize that this may result from the introduction of a large number of very expensive apartments for sale. Why?
The premium segment as a remedy for COVID inflation
Very expensive, luxury properties are treated as a capital investment. Unlike the popular segment, people who already have capital invest in high-end apartments or estates, who do not rely on credit or do so to a minimal extent. Therefore, any increased credit restrictions by banks do not matter to such buyers.
They are looking for assets that will allow them to preserve the value of their capital in uncertain times and with increased 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 MPC's decision—due to the complete unprofitability of keeping money in banks—resulted only in further "pushing" investors towards material forms of capital storage. Among the most popular are gold and real estate, which is perhaps even more popular than the precious metal in our country. It is invaluable that apartments also allow for a decent passive income—from rentals.
Luxury always in demand
But why are luxury properties in demand during the coronavirus era? Well, market practice shows that such capital investments—very well-located apartments, apartments, villas, estates—are the most capable of "defending" themselves against a decline in value. While the popular segment, meaning apartments for the average Joe, is subject to economic fluctuations, the higher-end, the so-called premium segment does not lose value. This means that the prices of such properties are much more stable.
You can see this even by looking at the Polish luxury segment. The entry threshold for an investor wanting to purchase such properties has remained at the same level for many years. In the 2015 report by KPMG and REAS, based on customer opinion surveys, a price threshold was defined, from which one can speak of real estate luxury at 16,500 PLN per square meter.
This was determined by wealthy individuals with monthly incomes in the range of 10,000 – 20,000 PLN. They considered that properties costing at least those 16,500 PLN/sqm could be defined as luxurious. And to this day, this range has essentially not changed, even though the market itself is developing very dynamically and also offers more and more ultra-expensive properties, with rates above 30,000 PLN per square meter.
In summary, the luxury segment has "defended itself" against the effects of the lockdown, and it can be assumed that in the event of a potential pandemic resurgence and restrictions, or simply in economically uncertain times, very expensive apartments will still be in demand among wealthy investors who are keen on preserving capital.
