Warsaw the most crisis resistant residential market in CE region in 2009

2010-04-20

As the macro-economic situation has a significant impact on the residential market standing, the housing markets of the Central Europe region have, since the economic crisis began, differed markedly. The differences in the scale of the downturn in the region’s respective countries are also reflected in their housing sectors. While in recent months some of them have already shown signs of recovery, others still remain in recession.

Most residential markets of the Central Europe states enjoyed a boom until mid 2008. The economic crisis, however, disrupted this favourable period and revealed the vulnerability of the majority of the residential markets of the region. Last year the respective housing markets of Central Europe faced smaller or larger downturns and their current performances show much more local specificity, according to a recent report regarding the housing markets of Central European capitals prepared by REAS in cooperation with Jones Lang LaSalle (JLLS).

2009 saw a continuation of the recession, which began in 2008, for most CE housing markets. The number of sales transactions on the residential market drastically declined throughout the whole region, as a consequence of uncertainty on the market and the restrictive policies of the banks. The stock of new unsold flats rose considerably, forcing developers to lower prices. The scale and timing of the price cuts were different in particular countries, but in none of the markets were they sufficient to bring demand back to pre-crisis levels. As a result of falling demand and oversupply on the market, as well as problems with obtaining loans for new investments, developers reacted by halting many undertakings and suspending the beginning of new projects. Nevertheless, a few markets of the region observed a slight growth in the sales volume at the end of 2009.

The global economic crisis hit all the residential sectors of Central Europe, albeit without the same impetus. The most resistant market to this adverse phase was Poland, the country with the largest market in the region and featuring strong local demand. In terms of economic factors, Poland turned out to be a leader of the region, enjoying sustained growth in 2009 and relatively optimistic prospects for 2010 and 2011. Warsaw, the most sizeable market of the region, boasted, according to the report of REAS and JLLS, an annual output of completed dwellings in 2008 and 2009 more or less equal in volume to the annual number of new dwellings completed for use in Bulgaria or Slovakia. Last year 19,000 dwelling were completed in the capital city - not an apparent sign of the crisis. The downturn was reflected more clearly in the number of building permits issued and in the launch of new dwellings construction. The housing market of Poland’s capital reported its lowest figures in terms of number of dwellings sold in the last three months of 2008, itself followed by the next three feeble quarters. The asking prices for new flats, according to REAS and JLLS, decreased by around 9% from its highest level in Q2 2009 to PLN 8,350/m² (€2,157/m²) in Q4 2009. However, the last quarter of 2009 brought a significant improvement in sales, which encouraged developers to start new residential projects.

Last year, the residential market of Prague experienced a considerable decrease in demand and falling prices, despite the fact that it was the city among the markets in which prices withstood an early decrease. Developers were trying to sustain pre-crisis asking prices, even at the time when it was clear that transaction prices were much lower. At the end of 2009, the average offer price for new flats reached the same level it had at the beginning of 2007. Q4 2009 brought a good performance and the residential construction output in the Czech capital in 2009 was 16% higher in comparison with 2008’s result. Nevertheless, according to REAS and JLLS, due to difficult access to loans for construction projects and a wait-and-see strategy of residential developers, the amount of new housing undertakings will be limited for the current year at least. However, the residential market of Prague is thought to be one of the most steady in the region, to a large extent thanks to Czech banks which proved to be relatively stable.

Two years ago Slovakia was one of the fastest growing economies in the European Union. In January 2009 the country joined the Euro zone. This, however, did not prevent it from falling into recession in 2009. The crisis hit the Slovak residential market rapidly. Prices in Bratislava began to fall from mid-2008 onward. From Q2 2009 until the end of 2009 the average asking price for flats in the Slovak capital city fell by 15%, a report of REAS and JLLS. According to forecasts, over 2010 the Bratislava’s residential market will remain in stagnation.

The housing market in Hungary was one of the CE markets touched by the crisis most severely. One of the factors which negatively affected the market was foreign-currency loans. The capital city especially experienced serious crisis effects, as most new dwellings were being erected there. Last year the number of transactions on Budapest’s primary residential market fell dramatically – the sales of new flats was almost at a standstill, according to REAS and JLLS. The asking prices of new dwellings fell over the last year by 10%, continuing and deepening the downward trend in pricing. Taking into consideration the country’s continuing recession, a recovery of the residential market is not expected in the near future.

The crisis hit Romania hard also. The country which in 2008 noted the highest GDP growth in the European Union reported over 7% decline in GDP one year later. Bucharest’s residential market did not observe any improvement in the situation over 2009. Between the last quarter of 2008 and the last quarter of 2009 the average asking price of a new flat in the Romanian capital city decreased by 13%. The price reduction is not very high when considered in real prices. However, calculated in Euro, it is much more considerable, as the appreciation of the EUR versus the RON between October 2008 and October 2009 was estimated at 18.5%. The recession in the Romanian housing industry continues with a limited number of new housing projects starts and a considerable stock of completed and unsold dwellings on the market. However, a large maladjustment of residential supply to structure of demand for flats indicates great chances for the market in the future, according to REAS and JLLS.

Neither has the global crisis spared Bulgaria. In 2009 the Bulgarian GDP fell by around 6%. Furthermore, all major international institutions predict its further decline by 1 to 2.5% this year. The economic downturn was soon reflected in Sofia’s residential market. Sales decreased significantly, and, as a result, developers were forced to cut prices by as much as 20-40%. At the end of 2009 the average price of a new flat in the capital amounted to under €1,000/m², i.e. was 25% lower than the previous year. However, the size of Sofia’s population, a substantial deficit of flats in general as well as a lack of high-standard residential stock leads us to believe in good long-term prospects for this residential market.

Katarzyna Grabarz
Business Editor
PMR Publications