25.07.2023

What Challenges Are Ahead for the Real Estate Industry?

Key information:

  • The hope for Poland's real estate sector in 2023 is the introduction of the government's "First Apartment" program, which aims to rebuild demand by providing mortgages on favorable terms with subsidies from the state.
  • The prices of building materials have risen significantly, posing a challenge for both developers and individuals building homes.
  • The unavailability of land in attractive locations and rising prices are having an impact on the real estate market, forcing investors to look for cheaper land on the outskirts, which could lead to lower margins for developers.
  • The increase in the price of finishing work in the real estate market is mainly due to increased demand, pressure from developers, inflation and changes in the labor market.

Details below!

More and more households, as well as developers planning to build, are being forced to postpone this decision. As we all know, 2022 has not been an easy year, rising inflation and the increase in the cost of living have forced most of society to tighten its belt. Is society facing a bigger crisis? What will be the biggest challenges of the real estate market in the near future?

Inflation and rising interest rates and the housing market

Inflation and interest rates, factors that have outlined the real estate market situation in recent years, have not been eliminated. So can we expect changes in the current year?

In 2023, interest rates may again prove to be the biggest challenge for the real estate sector. They were invariably raised by high inflation. However, they have remained unchanged since September 2022, when they rose to a record high of 6.75% following the NBP's decision. Interest rates directly affect mortgage lending, and their increases have caused many people to lose their creditworthiness. By the end of 2022, banks had issued almost 70% fewer loans than in the same period in 2021. As a result, people were forced to postpone the purchase of their dream apartment, and real estate prices stopped rising.

The hope for developers in the Polish real estate market is the government's new "First Apartment" program, to be introduced this July. Those interested in the program will be able to obtain a mortgage on favorable terms, with subsidies from the state, so that the borrower will pay low installments. This will allow the gradual recovery of demand for residential real estate.

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    Increase in the price of construction materials

    Rising prices of construction materials are cited as one of the main challenges of the real estate market. This is a problem not only for real estate developers, but also for individuals who have started building their dream home.

    According to price data, at the end of 2022 they were relatively stable, but compared to December 2021 they were still more expensive, and by about 20%. And how were the prices of construction materials at the beginning of 2023? Well, January in 2023 turned out to be, by as much as 17% more expensive compared to the same period in the previous year. Using an analysis of sales prices for building materials and for the home and garden PSB Handel S.A. Group., the increase is as follows:

    • cement, lime (+55%),
    • drywall (+26%),
    • walls, chimneys (+21%),
    • tiles, bathrooms, kitchens (+20%),
    • waterproofing (+20%),
    • trims (+19%),
    • garden and hobbies (+19%),
    • paints, varnishes (+19%),
    • construction chemicals (+18%),
    • Automotive (+18%),
    • installations, heating (+17%),
    • thermal insulations (+16%),
    • woodwork (+15%),
    • tools (+14%),
    • equipment, household appliances (+13%),
    • roofs, gutters (+12%),
    • decorations (+11%),
    • home environment (+11%)
    • lighting, electrical (+10%).

    OSB and wood, on the other hand, have cheapened by about 6%. In contrast, over the course of a month, from December 2022 to January 2023, construction materials have already managed to increase by 1%. According to forecasts, the increase in the price of construction materials in 2023 will be between 4TP3T and 8%. The dynamics will be lower than in previous years, but could still prove challenging.

    Availability of land for investment

    For years, the real estate market has faced limited availability of building plots. Demand absolutely outstrips supply. Market surveys show that the attractiveness of land is declining significantly, and those in the most favorable locations are becoming more expensive. Investors are mainly interested in land in the largest cities, where construction can begin as soon as possible.

    Higher land costs will translate into higher housing sales prices, so some developers will be forced to cut margins to continue to keep buyers interested.

    The difficulty of finding well-located plots of land is a challenge for the real estate market. They are forcing pressure on investors to look for lower quality land, such as in smaller towns or areas with buildings to be demolished or revitalized. Therefore, market analysis allows to see new opportunities in real estate. Namely, due to the low percentage of creditworthiness, potential customers are looking around for more favorable prices. It is the cheaper land located on the outskirts that makes it possible to make investments at cost.

    Rising costs of finishing work

    In recent years, the real estate market has grown significantly, so the increase in the price of finishing work should be sought in increased demand, as well as as as a result of pressure from developers who are anxious to deliver their investments on time. One should also not forget about inflation. It translates into an increase in the cost of energy, fuel, construction materials and interest rates. In addition, it makes budgeting difficult, so finishing companies need to approach this very carefully so as not to expose themselves to losses.

    Higher fees for subcontractors are also linked to changes in the labor market. In 2023, pension and disability insurance premiums and the minimum wage have increased - by as much as double. Workers themselves also expect even higher wages to offset the negative effects of the rising cost of living.

    Poland's real estate market, despite high prices, begins to stabilize

    Investors are trying to overcome the barriers they encounter by looking for new solutions to meet demands. The public is getting used to the prevailing conditions.

    If you have concerns about the market you operate in or plan to enter and would like to conduct a market analysis For your business, but don't know how to go about it -. get in touch with us! During your free consultation, we'll work together to determine how we can help you!

    Agata Polaczek

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