It's back to work and school in Poland following the summer break, and the signs are positive for the Polish economy and the property market in Krakow.

After an extremely depressed period during winter 2009/9, with falling prices and low levels of transactions, the property market in Poland began returning to life in spring 2009. Since the market peaked in mid-2007, it is estimated that the average price of apartments in Krakow fell by approximately 25-30%.

The world financial crisis of late 2008 has not affected Poland to such a great extent as the USA or certain Western European countries, but is resulting in much lower GDP growth in Poland in 2009. Nevertheless, figures released this week showed that GDP grew by 1.1% in Poland in the second quarter of 2009, meaning that Poland remains one of the strongest economies in Europe.

In terms of the Polish property market, the biggest factor influencing the level of transactions and prices during the past 12 months has been the difficulty in securing mortgage finance. Despite a highly competitive banking environment in Poland, most banks have severely restricted their offers since the financial crisis reached its nadir in late 2008. Whilst there is still strong local demand for property, particularly from first-time buyers, availability of mortgages is still more restricted than before the economic crisis. Mortgage LTVs offered by banks are lower and margins over base rates are higher. Even those applicants who qualify for a mortgage are often deciding to postpone a purchase in the hope of securing a better deal. This, coupled with falling prices, led many buyers to decide to hold off on purchasing.

There is evidence that prices have stabilized over the past 6 months in Poland, and that buyers are now electing to move ahead with the purchase of apartments. Negotiation of offer prices is still common, with buyers normally able to secure discounts of between 5-10% from the advertised sales price. The level of sales enquiries to our Krakow office has increased significantly since spring, and more sales are being conducted.  We expect this positive trend to continue during the autumn months, and are actively seeking new sales offers at present to meet stronger demand.

The weakness of the Polish zloty has also influenced the property market, mainly due to the predominance in Poland of un-hedged foreign currency mortgages. After rising strongly over a number of years against all major currencies, peaking in summer 2008, the zloty fell quickly when it became apparent that the emerging economies of Central and Eastern Europe would be impacted by the global economic crisis. This caused investors to panic and to reduce exposure to economies in this region, of which Poland is one of the largest.

The zloty fell heavily during the third and fourth quarters of 2008, losing more than 50% of its value against the USD and EUR in quick time. The good news, particularly for existing owners in Poland, is that the zloty is now making a comeback, having risen more than 10% against the major currencies – EUR, GBP, USD and CHF – in the last month.

The rental market in Krakow has been characterized by subdued demand, increased supply and hence falling prices for the past 18months (down 20% from the mid-2007 peak), but the signs are that prices have stabilized and are beginning to rise again. The supply of new rental properties is flowing on from the high number of new apartments constructed during the final year of the real estate boom, which are now only being delivered to the market.

Several landmark developments in the centre are now complete, such as Sobieski Residence, Angel City, Wislane Tarasy and Apartamenty Ludwinow.  A high percentage of apartments in such developments are owned by investors who are keen to ensure they are rented out to cover mortgage payments, and have been lowering prices accordingly. Strong demand continues to be experienced for small studio apartments in good locations, particularly in the price range of 1200-1600 PLN per month. Such apartments are normally rented within a week or two.

Larger one-bed and two-bed apartments generally take longer to rent. At the high end of the market, for luxury properties in the centre, demand has recently improved from a depressed base. Much of the demand in this area has been from foreign (expat) employees of large international companies in Krakow, particularly those involved in outsourcing/off-shoring. Whilst such companies had a freeze on hiring new employees during the height of the economic crisis, they have also benefitted from the weaker Polish zloty, and have begun hiring again recently. Autumn is traditionally the busiest period of the year for rentals, and PKG Real Estate is actively looking for new properties of a high standard in the city centre and surrounds to add to our existing offer.