As the report of Expander and Rentier.io shows, rental prices in the largest markets for residential developers continue to decline. Does this mean that apartment prices will also start to fall soon, because renting is less profitable? The Swedish company Heimstaden Bostad, which has recently carried out two transactions on the Warsaw market for a total of almost two billion zlotys, has a different opinion on this subject. This company only buys apartments for rent. The international tycoon sees this as a business opportunity. What about an individual investor?
- This year, there were two wholesale apartment sales transactions by Polish developers. The buyer in both of these cases was a Swedish rental company. This could have influenced the market prices of flats
- The Swedes believe that renting in the future will be a profitable business. However, the current data show that its profitability is declining
- The largest drop in rental prices during the year was recorded in Warsaw, but here too the rates are still the highest
- Renting is more profitable than buying only in Krakow – according to the calculations of Expander and Rentier.io
- More such stories can be found on the main page of Onet.pl
On Monday, May 24, Budimex informed about the sale of its development company Budimex Nieruchomości for PLN 1.5 billion, realizing a profit of PLN 667 million on the transaction at the capital group level. The buyer was CP Developer S.àr.l. based in Luxembourg.
A day later, the information appeared that Swedish real estate mogul Heimstaden Bostad will buy 2.5 thousand sq m in the next 2-5 years. apartments in Poland for PLN 1.4 billion just from Budimex Nieruchomości. It’s 40 percent. the entire construction portfolio of the company’s development.
It is easy to count that Swedes will pay an average of PLN 560 thousand for a flat. PLN. This is another Heimstaden Bostad transaction this year. In January, it bought 707 apartments that are yet to be built from Marvipol for PLN 381 million. Average price – below 540 thousand. PLN.
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Heimstaden Bostad does not plan to sell these flats afterwards. She will rent them. Proposal? The Swedes believe that the rental will soon be a good deal. In a situation where central banks maintain zero interest rates and bank deposits are not attractive, buying an apartment for rent may seem like a good and safe capital investment.
Rent pays less and less
The Heimstaden Bostad transactions explain in part, why housing prices, even though they are already horrendously high, continue to rise. New demand has just appeared on the market, and quite a lot of it. 3.2K dwellings covered by the aforementioned transactions constitute one third of the number of units commissioned for use in Poland this year by developers. Until April, keys to 42 thousand. flats went to buyers – by 721 more than in the previous record year since Gierek.
Transaction prices of new apartments in Warsaw went up in the first quarter of 2021 to PLN 10,666 per sq m. – the NBP recently announced. This is PLN 847 more year on year. For comparison, used housing in the capital city they went up “only” by PLN 134 per square meter. year on year up to PLN 10,135 per sq m
Even faster than in Warsaw, new apartments increased in Gdynia and Gdańsk, where prices increased by PLN 1,189 and PLN 1,052 per sq m, respectively, approaching the level of PLN 10,000. for sq m And all this in an epidemic where people got married less, fewer children were born, many more died leaving empty apartments behind, and the situation on the labor market worsened. Renting in Warsaw, is the Tri-City so profitable?
An analysis by Expander and Rentier.io was published on Thursday, which showed that currently (data cover the period until April 2021) the profitability of renting is actually decreasing. Perhaps this will change in the future as students return to universities, but prices are currently going down.
“In Łódź, the average cost of rent is systematically growing and has already reached the level of PLN 37.16 per square meter, so it is 6.2 percent higher than before the pandemic. However, it is recording further declines […] Warsaw. Last month there was a decrease in the cost of lease by 1.2 percent. It is also worth mentioning Fr. Kraków, Gdańsk and Wrocław, where, similarly to the capital city, we saw strong declines last year. In their case, the past month has brought a stabilization of rental costs “- the analysis stated.
On an annual basis until April 2021, rental prices in Warsaw have dropped by as much as 7.9 percent. up to PLN 52 per sq m. Percentage high declines were also recorded in Gdynia, Toruń and Kraków.
Rental costs in April 2021.
“Is relative stability a signal of the end of price drops in the rental market?” – Expander and Rentier.io analysts wonder. In response to this question, they write:
There is no such certainty. Much depends on the speed of unfreezing the economy and the degree of return to pre-pandemic work and learning patterns. It is also crucial that progress in the immunization program will be large enough to save us from the next wave of diseasesthat could force some sectors to re-close
Profitability of an apartment for rent
Even in Warsaw, where rental rates have dropped the most, investment in an apartment for rent is still paying off higher returns than keeping money in the bank. The question is, of course, what will happen when interest rates rise in the wake of rising inflation, and with them also interest rates in banks?
If the owner is lucky and has tenants for the full 12 months of the year, then after taking into account the tax and all costs, the profitability will be 4%. annually (in Warsaw – ed.). In the event of bad luck, i.e. when the apartment “works” only for 6 months of the year, the net profitability is 1.4%. per year, so eight times more than on an average bank deposit
– we read in the analysis.
Analysts took into account the rental tax, rent and fees in their calculations – also when the apartment is empty and not only has no income, but also has to be paid for. They also took into account the prices of flats in individual markets and all costs related to the purchase and preparation for use.
Their calculations show that the most profitable is to buy an apartment for rent in Łódź, and the least – in Kraków.
Net profitability of an investment in an apartment
The success of a rental investment depends on how long a flat is rented during the year, and if we have months of downtime, whether the rent in a given location is higher than that estimated by analysts.
To buy or to rent?
Expander and Rentier.io analysts have checked what is more profitable – to buy an apartment or rent? Their calculations show that the answer varies depending on the city. Renting is more profitable than buying only in Krakow, and in other cities it is cheaper to buy and pay in installments to banks.
“Despite the drop in rental costs in the vast majority of cities, it is still a more expensive solution than paying an installment for your own apartment” – they indicate.
“Especially stand out here Łódź and Sosnowiec, where the monthly rental cost is as much as over 40 percent. more expensive than a loan. In Łódź, by replacing a 40-square meter rented flat with your own, you can save PLN 5,236 per year. The only city where rent is cheaper is Krakow. The annual sum of the loan installments there will be PLN 1,040 higher than the cost of the lease “- we read.
Compare rental costs and loan installments
The calculations were made on the basis of 25,226 rental advertisements and 54,461 apartment sales advertisements (unique, i.e. without duplicates). The analysis concerned flats appearing in internet advertisements from April 1 to April 30, 2021.