The end of the long property boom in Poland
Over the last three decades the Polish property market has grown without interruption. It was driven by favourable demographics, a dynamically developing economy and the rising prosperity of Poles. The largest cities turned into enormous building sites, and developers, banks and agents recorded record profits. Fortune smiled on practically everyone who decided on a flat purchase before 2023.
The last few years were a classic example of the peak of a multi-year economic cycle. Investment land in Warsaw, Kraków, Wrocław and Gdańsk reached astronomical prices, and demand seemed to have no limits. However, every boom eventually ends - and we are now seeing clear signs of a deep property price correction.
For property owners, investors and people planning to buy or sell a house or flat, the current situation has specific legal and financial consequences. Understanding market dynamics is crucial for making informed decisions, both investment-related and asset-related.
The "Safe Mortgage 2%" programme and its legal and market effects
2023 brought the government's "Safe Mortgage 2%" (Bezpieczny Kredyt 2%) programme, which was meant to be a lifeline for the property industry after a series of interest rate rises. The programme proved effective in the short term - it concentrated enormous demand into just a few months, with thousands of people taking out mortgages for record-priced flats.
The problem is that, under normal market conditions, many of these buyers would have put off their purchase decision for years. The artificial acceleration of demand led to a situation in which, once the programme ended, the market began to cool sharply. We are now seeing a fall in demand in Warsaw, in large regional capitals and in smaller county towns alike.
From a legal perspective, people who bought property at the price peak may face serious challenges. These include:
- Negative equity on a mortgage - a situation where the value of the property falls below the outstanding debt
- Difficulties in refinancing mortgages on more favourable terms
- Disputes with developers concerning the quality of workmanship and the standard of finish
- Problems on resale of properties bought at inflated prices
- Tax issues connected with the planned cadastral tax on a third property
We recommend that our clients carefully analyse their loan and developer agreements, especially with regard to possible claims for damages and options for renegotiating terms.
Real market data - prices are not keeping up with inflation
Average annual growth in property prices since the start of 2024 has not exceeded the level of inflation. In practice, this means a real loss on property investments - a phenomenon that, only a few years ago, seemed unimaginable to most market participants. So-called black spots, where prices have started to fall markedly, are already appearing on the map of Poland.
Significantly, this is happening despite solid growth in Poland's GDP and strong wage dynamics. Macroeconomic data that should in theory support property valuations has stopped translating into price rises. Demand is falling steadily, while the supply of property - a result of projects begun in good times - is growing rapidly, on both the primary and secondary markets.
New tax rules and investors' decisions
For the first time in decades, the property industry is seriously beginning to consider various scenarios, including one in which capital withdraws. In the background, legislative debates are under way that could radically change the profitability of property investment. These concern above all the planned cadastral tax on a third property and the possible abolition of tax reliefs from which the property market has so far benefited compared with, for example, the stock market.
The record boom on the Warsaw Stock Exchange, combined with transparent prices of financial instruments, creates an attractive investment alternative. An outflow of capital from property to other asset classes could accelerate the price correction, particularly in the segment of investment properties bought to let.
Geopolitics and the Middle East - the impact on the Polish property market
The scale of risk associated with property investment is well illustrated by the situation in Dubai. The escalation of the conflict in the Middle East and the prospect of drones attacking skyscrapers in the Dubai marina are factors that could lead to a collapse in property sales across the whole region. The share price index of Dubai developers fell by almost 33% in just 9 days.
Poland, located in a zone of heightened geopolitical risk, is not free from similar concerns. Investment capital by its nature calculates risk - regardless of whether a real threat materialises. The mere perception of risk is enough for investors to begin diversifying their portfolios and withdrawing funds from the property market.
Interest rates and inflation risk
The war in the Middle East may also affect the Polish property market indirectly - through a global economic slowdown driven by rising prices of oil, gas and other commodities dependent on the throughput of the Strait of Hormuz. In an extreme scenario, the National Bank of Poland will not be able to cut interest rates because of a spike in inflation risk.
Notably, even despite interest rate cuts of almost 200 basis points already made by the Monetary Policy Council, property sales have still not recovered. Price corrections in the segment of properties bought at inflated prices already reach 10-15%. This is a clear signal that the crisis on the market is not a prospect for the future - it is already under way.
How to protect your legal interests during a correction
The current situation on the Polish property market calls for particular legal caution - from buyers and sellers alike. The key areas in which it is worth consulting an experienced lawyer include:
- Audit of developer agreements - verification of clauses concerning withdrawal, contractual penalties and deadlines
- Analysis of loan agreements - assessment of the risk associated with variable interest rates
- Tax planning - preparing for potential changes in the taxation of property
- Negotiations in transactions - professional support when buying or selling in an unstable market
- Protection against claims - safeguarding your interests if the value of the loan collateral falls
Do not wait until the market correction adversely affects your financial position. Contact our firm for a professional legal analysis of your properties, agreements and liabilities. Our experts will help you make informed decisions and effectively protect your assets in rapidly changing market conditions.
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