As Bartosz Turek, the chief analyst of HRE Investments points out, The Polish Order for at least several reasons – directly and indirectly – may affect the situation on the housing market. This will include, for example, the effects of changes in the tax system and the construction process. The government also decided directly to influence the housing sector through a loan program without own contribution.
As Bartosz Turek explains, it is specifically about guaranteed home loan program. The introduction of such a solution has been postulated by the HRE Think Tank for many quarters. This idea, translated into a law, will enter into force at the end of May. The program will be available to everyone who does not have their own “M”, but also families who live in an apartment that is too small. Having the creditworthiness and credibility as well as the money needed to carry out the transaction (commissions, fees, notarial fee, taxes), you will be able to take out a loan to buy real estate or build a house without your own contribution or with a small contribution.
The maximum amount of the guarantee that can be applied for is PLN 100,000. zloty. Nobody will give us this money. This amount will only be able to replace or supplement the own contribution to the loan, which, thanks to the guarantee, will be able to finance the entire cost of the apartment or house. The cost will be the commission (1% of the guarantee amount). It is also speculated that the beneficiaries of this program may take out loans with a slightly higher margin than in the case of standard mortgage loans. It is also worth remembering that the apartments that can be purchased using such preferential debt cannot be too expensive. G.If the program were to operate today, from the current market offer in large cities, from several to over a dozen percent of offers in Szczecin, Lublin or Krakow to over half of offers in Bydgoszcz, Gorzów Wielkopolski or Olsztyn would qualify for the program.
People who will take advantage of this type of debt and will have children will also be able to apply for subsidy from the budget in the form of a loan overpayment (20,000 for the second child and 60,000 for each subsequent child). The program starts at the end of May. Its greatest advantage will be the real shortening of the way to your own apartment by several years. On average, it takes a couple that long to put aside money for the own contribution required by the bank.
The effect of this program should be, above all, enabling the purchase of a flat to compatriots who, despite having decent wages, are not able to collect the own contribution required by banks (e.g. bearing high rental costs every month). Recently, it was additionally made more difficult by the dynamically growing housing prices. It is worth being aware that only among people up to 35 years of age, there are still potential buyers of tens of thousands of apartments who have resigned from buying due to the epidemic turmoil and have not yet realized their dreams of having their own “M”.
Of course, the loan program without own contribution may launch only a fraction of this group of potential buyers, but there is also another – undoubtedly very numerous – group of tenants who, in the face of rising apartment prices and high costs of living for years, could not put off a sufficient own contribution to finally live on your own. The loan program without own contribution is a chance for them to live in their own four quarters.
And although the program should stimulate demand, it should not significantly translate into an increase in housing prices. It is not that someone wants to give potential beneficiaries money for free. After all, they must have creditworthiness, they must be credible and they must have money to complete the entire transaction. Ultimately, each zloty borrowed will have to be returned with interest, and interest is much higher than a few months ago due to interest rate increases. Beneficiaries should be rational about their capabilities. Therefore, there should be no mindless pursuit of a loan without a contribution, which could undoubtedly happen more often when the possibility of getting into debt meant, for example, several tens of thousands of zlotys from a budget subsidy, as in the case of the Flat for the Young program, which operated years ago.
As the expert from HRE Investments points out, it is also worth recalling what happened in Great Britain when a similar program operated on the islands. After several months, he could be attributed an increase in real estate prices by about 1%. In the current situation (price increase by 10-15% in 2021), the potential impact of this program on real estate prices is negligible, and the social benefits are large. At the same time, of course, the success of this government program will ultimately depend on the banks and the loan offer they prepare.
In the context of the Polish Deal, the government also spoke about the idea of a housing voucher, under which you will be able to get support in applying for a flat with a rent lower than the market rent (e.g. SIM or TBS), and also, for example, families could count on a subsidy to buy real estate or build a house. The amount was to be the higher the larger the family. This idea – communicated during the presentation of the Polish Deal – was not remembered for a long time. It was only at the end of 2021 that the Ministry of Development and Technology confirmed that work on this program is still ongoing. If this solution is actually implemented efficiently, it is very likely that the program will not be operational until 2023 at the earliest.
2. Tax benefits for a large part of my countrymen
We are already witnessing today how The Polish Order affects the remuneration of compatriots. Despite the hiccups in implementing the changes, estimates suggest that the changes may lower the taxation of many households. If we add the expected wage growth, even after taking into account inflation, there is a chance that many people will close this year “in the black”. This is so important that the level of disposable income of the population translates into the demand for housing. And although the change is unlikely to be diametrical, at least theoretically it should contribute to an increase in demand for housing – especially the cheaper ones, i.e. popular segment.
3. Top earners will pay more
The opposite may be the case on the other side of the tax spectrum. Yet changes in taxation will reduce the earnings of those who earn the most. The higher health contribution, which will not be additionally deducted from the tax, will simply leave less in the pockets of the highest-earning compatriots. Obviously, this may limit the demand for flats in this group, which, after all, is particularly active on the housing market. At the same time, you should be aware that this impact should also be rather small.
4. Higher taxes will backfire tenants
It is impossible not to mention the tax changes that will affect tenants, at least partially. It is about the need for landlords to pay a lump sum on rental income instead of income tax. This is a big change, because many owners of apartments for rent in Poland have legally failed to pay taxes on income for years, taking advantage of the benefits of depreciation. This lowered their rental income, and therefore also the tax they paid. Today it is partially impossible. The transitional provisions only allow the current form of settlement to be maintained in 2022 only for those who have so far paid. Unfortunately, we should not be under any illusions – the owners will not assume this additional cost in full. They will, at least partially, want to burden the tenants with it.
In addition, the inability to use the benefits of depreciation, and thus the resulting higher taxation of private rental, means de facto preference for foreign investment funds, which in recent quarters have built portfolios of apartments for rent, spending billions of zlotys on the purchase of blocks or even entire development companies. Such foreign investment funds, unlike individual owners of apartments for rent, have a much wider range of ways to avoid taxation in Poland.
5. Homes without permits do not worry developers
In the context of the Polish Deal, Fr. the possibility of building houses up to 70 sq m without a permit. When we got to know the details of this solution, the original euphoria gave way to cautious optimism at best. The simplified procedure allows you to slightly shorten the time needed for formalities and reduce costs by several to several thousand zlotys. It is not certain, however, whether the countrymen will massively start construction works on the basis of the new regulations. The ability to build buildings up to 35 sq m without a permit (“on application”) was not a hit earlier.
When building a house up to 70 sq m under a simplified procedure, you will have to have projects anyway, use the services of a surveyor or designer in the same way as when applying for a building permit. In addition, using the new path, you will have to build the house exactly as in the project. If we want to make significant changes during construction, we will have to apply for a building permit and suspend the investment for some time.
For this person who would like to build a house up to 70 sq m, must declare that he is responsible for any design errors. Already today there are voices that this may mean a problem with financing the construction by the bank or with insurance of the resulting real estate. And if that was not enough, when building a house up to 70 m, you should declare that you are building a house to meet your own housing needs.
All of this can bring about the effect that the new regulations will first of all give the potential for compatriots to build simple, prefabricated summer cottages faster and cheaper. Rather, most investors should follow the current administrative path and apply for a building permit. Thus, the effect of the new regulations may be additional demand for construction and recreational plots, but this demand has already been very high so far.