Franc reality depresses home sales

The soaring value of the Swiss franc after the euro rate cap was removed last week does not only present problems for those in Poland paying mortgage instalments in this currency – it also has repercussions for the entire real estate sector. This can be seen in the stagnation in the market for homes built when mortgages denominated in Swiss francs were popular, that is, in 2006–2008. The peak came in 2008, when the proportion of mortgages denominated in the currency came to almost 80 pct in some areas. In this period the exchange rate varied between PLN 1.95 and PLN 2.50 – today it is around PLN 4.26. According to Metrohouse, homes built in the 2005–2009 period constitute app. 10 pct of all those on sale at this time. In order to sell such a home at a profit it is now necessary to increase the price to take account of the increased mortgage payments, but this is entirely unrealistic under the current market conditions. Buyers who are looking for new apartments on the secondary market at the moment are in a strong negotiating position. However, demanding a price reduction in such cases will be met with an outright refusal from the start. The owners of homes bought with franc denominated mortgages are now being forced to re-evaluate the legitimacy of selling in the current market conditions. Many are having to hike up their prices, in the process making them entirely unable to compete with similar products on the residential market. They might instead have to postpone selling their homes and wait for the franc exchange rate with the złoty to stabilise.

The long-term consequences of the high exchange rate is also apparent in other sections of the market, such as the developer segment. According to research carried out at the peak of the demand for mortgages denominated in francs, the majority of sales in the main cities involved rather small two-room apartments purchased as a first home. They were certainly not intended to be the ultimate homes of the buyers. The number of such flats put up for sale shows that their owners could represent a significant group interested in the purchase of larger apartments. Following recent movements on the currency exchanges, however, the number of such buyers could shrink considerably.

Editorial note:

“The impact was felt as far as in Poland where 700,000 mortgages, or 40% of the total, are denominated in the franc. The zloty lost a fifth of its value against the Swiss currency, making it more expensive for Polish homeowners to repay their loans.” http://www.bangkokpost.com/business/finance/457062/switzerland-scraps-euro-rate-cap-franc-soars