1. real estate
2. apartments

Macroeconomic and Sector
Analyses Department
Outlook for the development
of the Polish real estate market in 2015
Prepared: Warsaw 8.04.2015
Table of contents
I Summary of 2014 and forecast for 2015 ..………..……………………………………………………..…..…. 3
II Domestic housing market.…………………………………………………….......................................... 4
 Housing stock.……………………………………………………………………………………….……..................... 5
 Determinants of supply…………………………………………………………………….…............................ 7
 Determinants of demand……………………………………………………………….…............................... 9
 Value of mortgage loans ……………………………………………………........................................... .10
 Price trends.……………………………………………………………….……………….................................... 11
III Housing markets in selected countries…………………………………………………………….………….. 14
IV Non-residential markets.………………………………………………………………………………..………...... 21
 Retail space market.……………………..................................................................................... 22
 Office space market ……….................................................................................................. 23
 Industrial space market………............................................................................................. 24
 Developed land ………......................................................................................................... 25
V Agricultural land market…………..……............................................................................... 26
 Price trends .…………………………………................................................................................... 27
 Transactions with arable land………………………………………………….……................................. 33
 International comparison……………………............................................................................. 35
 Outlook for prices……………….............................................................................................. 37
2
Summary of 2014 and forecast for 2015
 The record high sale of dwellings on the primary market in 2014 (ca. 42.6 thou. dwellings i.e. growth by ca. 20% y/y). Higher than in 2007 demand for developers
apartments on the one hand was recorded at historically low interest rates i.e. high availability of mortgage loans supported additionally by MdM scheme. On the other hand
it was generated by cash buyers, which share accounted for ca. 55%-60% (property purchases were for them more attractive than low-interest bank deposits). However
significantly weaker revival of demand was seen on the secondary market (symptoms of growth were observed only in the last months of 2014).
 Maintaining high demand for dwellings on the primary market second year in a row influenced significantly reduction in their oversupply from 2013. Thus since Q1 2014
developers have rapidly increased number of new investments, especially that new offer enjoyed great popularity. CSO statistics from 2014 show considerable growths in a
category „for sale or rent”: increase in number of building permits by 38.3% y/y and in dwellings started by 35.8% y/y.
 High demand for dwellings on the primary market and rapid rebuilding of supply of new apartments influenced maintenance of average price stabilization on the
market in 2014. Of course some developers with a very good sale decided on few percent increase in prices or limitation of discounts and bonuses. Such a good situation
was not observed on the secondary market, where annual changes in prices were close to 0. On average in Poland price growth amounted to ca. 0.5% y/y (according to
AMRON data). Excluding the secondary market from MdM scheme gives priority in favor of the primary market. Moreover, this factor reduces potential price increases of
apartments from the secondary market (prices in large cities on the primary market are on average by ca. 10% higher than on the secondary market).
 Achieving higher sale of dwellings in 2015 compared to historically high result in 2014 is unlikely. Maintaining of the level seen in the previous were will be good
outcome (this scenario is likely). The demand will be supported by: improvement on the labor market, record low interest rates (easier/cheaper access to mortgage loans
and financing of new investments) and changes in MdM scheme. Simultaneously taking into account low interest rates the share of cash buyers and investments purchases
will remain high. In 2015 price stabilization is expected on the market. Especially the tendency to higher number of offers launched compared to sold will be still observed.
Little price increases are possible in case of investments located in attractive localizations with higher standard. However, if in H1 2015 demand remains at the level higher
than in 2014, in H2 2015 developers could decide on few percent increases in prices of offered dwellings.
 Completion of the last apartments from low-margin investments in 2014 and maintaining for 2 years high demand for dwellings from the primary market are signs of
improvement in condition of the developers sector (in 2015 this improvement should be also seen in financial results of developers). Market tendency to strengthen
competitiveness of large, stable entities will be still observed (moreover in case of introduction of closed accounts the process could intensify). Too low liquidity, which to a
large extent concern subcontractors and smaller entities, will remain a problem in 2015.
 Year 2014 was quite good on the non-residential market in case of warehouse space and retail space located in smaller cities (<100 thou. inhabitants). In the first case
we observed rapid growth in demand confirmed by decline in vacancy rate to 5.5% from 10.8% in 2013 (record 1.1 mln sqm were put into use compared to 396 thou. in
2013). In case of retail space decline in new supply by 29.5% was observed due to reduction in construction of shopping centers in large agglomerations. However this
market was rapidly developing in small cities (46% of new supply in 2014) and in cities of so called eastern side. Growing level of saturation characterizes office market. High
supply in the last years with relatively high demand in 2014 seems to be difficult to maintain in the coming years as well as achieving attractive returns on investments (JLL
forecast growth of vacancy rate in Warsaw during 2 years to 18% in 2016).
 Rapid growth in agricultural land prices in 2014. An average cost of 1ha of agricultural land in private trade amounted to 32 317 PLN (growth by 22.7% y/y compared
to 3.5% y/y in 2013), while land from WRSP Resources to 25 592 PLN (increase by 17.3% y/y, in 2013 by 13.1% y/y). From a point of view of fundamental factors – declines
of milk and grain prices in 2014 – both in 2014 and 2015 we should observe slowdown in rate of price growth (land and meadows) (due to lower financial surplus of farmers).
Nevertheless the strength of impact of economic factors on land prices decreased in the last period. Demand for land remained high, despite the fact that farmers more
often claim, that at current land prices production profitability is too law. However one should note that at least to May 2016 or even to the end of the year, arable land
market will be under pressure of expiring memorandum for land purchases by foreigners. Thus we expect maintaining tendency to reduce supply and pressure on price
growth.
3
Housing market
4
Growth in developers construction and marginalization of housing
cooperatives activity
Accommodation resources in Poland
[thou.]
The structure of dwellings completed in years 1993 - 2014
180
160
140
40,4%
120
100
80
41,1%
0,5%
35,4%
29,0%
4,1%
60
40
47,2%
11,1%
23,6%
46,3%
40,5%
34,8%
27,8%
55,5%
50,5%
53,4%
52,9%
20
40,0%
7,2%
5,2%
2005
2008
0
1993
others
1995
1998
cooperative
2000
private
2,4%
2014
for sale or rent
The structure of accommodation resources by period of completion
Completed in
years:
before
1918
1918 1944
1945 1978
1979 1988
19892002
20032014
Number (mln)
1,24
1,58
5,39
2,22
1,44
1,67
% of total
9,16%
11,67%
39,81%
16,40%
10,64%
12,32%

At the end of December 2014 accommodation resources in
Poland equaled to 14,0 mln dwellings, out of which 67.7% were
located in cities. Moreover this share is growing, because in
the recent years considerably higher number of dwellings is
completed in urban areas (in Q1-Q3 2014 6.2 thou. were
completed in cities, while 3.8 thou. in villages). At the same time
flats with substandard conditions accounted for ca. 10.7%
of accommodation resources. They are inhabited by ca. 14.1%
of Polish population (according to National Census of Population
and Housing 2011).

In the last 10 years the most significant development
of housing construction was observed in the voivodeships with
positive net migration. In years 2004 – Q3 2014 the highest
growth in accommodation resources was recorded in mazowieckie
– by 16.7% and pomorskie voivodeship – by 15.3%. In turn,
the lowest was in slaskie by 3.7% and opolskie voivodeship - by
5.0%.

Housing cooperatives activity is in the process
of marginalization. In the 80’s cooperatives were building
80 thou. dwellings annually, in 2014 – 3.4 thou. In turn,
an increase in developer construction was observed (apartments
for sale or rent and ca. 10% of individual construction for
investment purposes).

In Q1-Q3 2014 the average duration of constructing of new
residential building amounted to 48.2 months (a year earlier –
58.3): 57.4 months in case of individual construction and 25.0
months (no change y/y) regarding developers’ investments.
5
Source: GUS; Prepared by AM
Potential for construction for rent purposes
Accommodation resources by regions
S hare of owner-occupied apartments
in accommodation resources in 2013
Romania
95,6
Lithuania
92,2
Slovakia
90,5
Hungary
89,6
Croatia*
89,5
Bulgaria
85,7
Poland
83,8
Latvia
81,2
Estonia
81,1
M alta
80,3
Czech Republic
80,1
Spain
77,7
Slovenia
76,6
Greece*
75,9
Portugal
74,2
Cyprus
74,0
Finland
73,6
Italy
73,0
Belgium*
72,3
Luxembourg*
70,8
EU 28
70,0
Ireland*
69,6
Sweden
69,6
Netherlands
67,4
Euro area 18
66,5
UK
64,6
France
64,3
Denmark
63,0
Austria
57,3
Germany
52,6
* 2012 data

At the end of 2014 domestic accommodation resources were by ca. 1.5-2% higher
than number of households. Regionally the highest mentioned surplus exists in mazowieckie
voivodeship, while the biggest shortage in warminsko-mazurskie voivodeship (Note: the data
do not include internal and external migration as well as resources for rent).

In 2013 statistics on housing conditions in Poland improved, although significant
changes in standard of completed dwellings were not recorded. The usable space of average
dwelling increased slightly by 0.3 sqm to the level of 73.1 sqm. Significantly bigger usable
space against the average is in voivodeships, which are dominated by single-family
construction. At the end of 2014 the space per capita amounted to 26.3 sqm (increase by
0.4 sqm y/y).

Domination of owner-occupied apartments shows that potential to construction for
rent exists, especially comparing Poland to Western European countries (see table).
Average usable space
in sqm per capita
Average usable space
in sqm per dwelling
6
Source: GUS, GPG; Prepared by AM;
Significant growth in dwellings supply, exceeding sale in 2014
Determinants of supply
[thou.]
Housing construction in Poland
90

In 2014 the decline in the number of dwellings completed was
observed. 143.4 thou. apartments were put into use (decrease by
1.2% y/y), what was the effect of decrease in number of dwellings from
individual construction to 76.6 thou. (fall by 5.7% y/y) and growth by
4.3% y/y in case of dwellings dedicated for sale or rent (to 58.9 thou.)
(developer dwellings – CSO category „for sale or rent”)
Developers Act
80
70
60
50
40
30
building permits issued in the last 12m
dwellings started in the last 12m
dwellings completed in the last 12m
Size of dwellings offer and time needed to sell it off
[Number of
quarters]

Maintaining high demand for dwellings from primary market
second year in a row influenced significantly reduction in oversupply from
2013. Thus since Q1 2014 developers have rapidly increased number of
new investments, especially that new offer has enjoyed great popularity.
In 2014 CSO statistics show considerable growths in category „for sale or
rent”: number of building permits by 38.3% y/y and number of dwellings
started by 35.8% y/y.

The growth in supply is confirmed by REAS statistics showing that in
2014 newly introduced offer in 6 the largest cities amounted over
47.5 thou. dwellings. It was significantly higher in comparison both to 2013
(24 thou. dwelling introduced to the offer) and the average from several
last years standing at 35-37 thou. new apartments per year.

Rapid growth in supply, exceeding very good sale level, contributed
to slight increase in oversupply of dwellings in 2014 (average time needed
to sell off the offer lengthened slightly). According to REAS data at the end
of Q4 2014 in 6 the largest Polish cities number of unsold completed
apartments declined to 11.3 thou. from 14.5 thou. at the end of 2013.

The reduction of oversupply, stable price level and growth in
demand are the main factors determining improvement of profitability in
the sector. Completed low-margin projects in 2014 and decline in
the number of dwellings in the offer (see previous bullet) should contribute
to increase in profitability of the sector in the short term.
7
Source: GUS, NBP, REAS; Prepared by AM
The actual condition of developers better than financial results in the sector
Condition of 41.10.Z sector
Financial results of companies from 41.10 industry
1,2%
Development of building projects
17,5%
1,0%
14,5%
0,8%
11,5%
0,6%
8,5%
0,4%
5,5%
0,2%
2,5%
0,0%
-0,5%
Q1-Q3 Q1-Q3 Q1-Q3 Q1-Q3
2007
2008
2009
2010
Operating profit margin (right axis)
Q1-Q3 Q1-Q3
2011
2012
Quick ratio
Q1-Q3
2013
Q1-Q3
2014
ROA (right axis)
Value of developers’ debt (commercial banks) and value of debt of
developers with financial problems
(large liabilities i.e above 500 thou. PLN, according to NBP)

In Q1-Q3 2014 financial results of developers (PKD 41.10) from finalizing
low-margin projects were weak (OPM1 median = 6.6%). Profitability in the sector
remained very low (medians: ROE = 3.76%, ROA = 2.17%). However due to high
number of started projects (large investment outlays), which sale will be
accounted after apartments will be put into use, the analyzed results could be
worse than actual condition in the sector. Positive trends in residential
construction are confirmed by growing number of dwelling started since several
quarters and growing number of buildings permits after 7 quarters of declines.

In medium term further improvement in condition of developers is very
likely. Due to high number of started dwellings in 2014 and high demand for
several quarters, just now the actual condition of the industry is better than
current financial results. At the same time if demand for dwellings on the primary
market in 2015 remains at the level seen in 2014, the condition of developers will
improve. It will be supported by: record low interest rates, which make access to
mortgage loans easier for broader group of households and government scheme
„Apartment for Young” (MdM).

On the market of new entities a tendency of enhancing competitive
position of large, stable companies will be observed. In 2015 low liquidity will be
still a problem, which concerns to a larger extent subcontractors and smaller
companies. They are less able to raise capital, thus risk of bankruptcy is higher. It is
true that financial institutions are still wary of financing developers, however,
access to external capital, even corporate bonds, is relatively high. On the other
hand, the high number of dwellings launched for sale increases the risk of overinvestment, especially if the expected improvement in economic situation would
be delayed.
8
Source: PONT Info, NBP; Prepared by AM
Record high sale of dwellings on the primary market
Determinants of demand
Number of sold apartments sold by selected market-leading developers
2011
2012
2009
2010
Robyg
Gant
Development
b.d.
b.d.
b.d.
752
541
929
JW. Construction*
Dom
Development
530
827
1262
1016
852
941
1107 248 248 311 300a
994
712
1375
1716
1451
1605
1889 400 463 495 531
Polnord
1046**
441
764
1086
943
1096
1253 309 313 303 328
Ronson Europe
Budimex
Nieruchomości
88***
265
269
358
472
572
711 206 210 149 146
b.d.
b.d.
b.d.
753
562
742
1685 275 278 478 654
Marvipol
Inpro
173***
b.d.
247
b.d.
218
b.d.
509
426
417
366
588
416
805 271 136 155 243
406 100 117 91 98
1015
857
1264
771
2013
2014
2014
2008
I
II
III
IV
1731
2118 576 480 513 549
bd.
-
-
-
-
-
*gross, without cancellations**Polnord informed about selling 717 apartments. This includes however project
realized in Gdańsk (land with construction permission for over 630 apartments) sold with profit to another
company *** no sales result in Q3
a- estimated data
Macroeconomic condition and number of newly granted mortgage loans
95,0
7,0
Forecast
6,0
85,0
5,0
75,0
4,0
65,0
3,0

Historically low interest rates and relatively low, stable housing
prices generated strong demand stimulus in 2014. Favorable impact of
interest rates was especially seen among cash customers (their share in
total sale volume is estimated to ca.55%). In 2014 demand of credit
customers was stable in comparison to 2013. In 2014 average quarterly
sale on the primary market amounted to ca. 10.7 thou. dwellings
(according to REAS). In the whole 2014 it was equaled ca. 42.6 thou
apartments and was significantly higher than record sale in 2007.
At the same time such good results were not observed
on the secondary market.

Good sales results are confirmed by public listed developers.
They show increases in their sale, which have not been recorded since
the boom. It is worth noting that according to NBP 70% of dwellings sale
is carried out by large entities.

In 2014 government scheme MdM supported credit customers,
although its utilization rate was low (in spite of price limits, mainly due
to availability of offers qualified to the scheme, which to a large extent
were booked in Q4 2013). Changes in regulations e.g. Recommendation
S did not considerably limit the demand (increase to 10% down payment
requirement and the obligation to extend credit in the currency of
the borrower’s remuneration, which, in practice, the banking sector had
already introduced earlier).
55,0
2,0
45,0
1,0
35,0
0,0
Q1
Q3
2008
Q1
Q3
2009
Q1
Q3
2010
Q1
Q3
2011
Q1
Q3
2012
Q1
Q3
2013
Q1
Q3
2014
Q1
Q3
2015*
GDP growth (y/y; in %)
the reference interest rate of NBP (in %)
number of newly granted housing loans (thou. units) (right axis)

Maintaining such good results third year in a row seems to be
difficult. Record low interest rates will rather not generate considerably
higher credit stimulus than in 2014, especially in face of low stable
geopolitical situation and growing uncertainty about the scale of
the improvement of the economic situation in the country.
9
Source: GUS, ZBP, NBP, companies; Prepared by AM
Stable demand for mortgage loans
Mortgage loans market

In 2014 demand for mortgage loans remained stable in comparison to the previous year. Relatively low sale in relation to the period 20082012 was recorded despite very low interest rates, which positive effect was reduced by systematic increases in loan margins (growth from 1.66%
in January to 1.80% in December 2014 – according to AMRON). In 2014 174.4 thou. loans (fall by 1.4% y/y) in the amount of 36.9 bn PLN (growth by
1.1% y/y) were granted (according to own estimation on the basis of ZBP data). Analyzing portfolio of mortgage loans, still currency loans accounted
for more than 50%, out of which CHF loans for ca. 37.3%

After relatively favorable H1 2014 (supported by first MdM credits), in H2 2014 mortgage loans market slowed down. Moreover, interest
rate cuts in Q4 2014 to historical low levels did not generate strong pro-demand impulse. It is worth noting that last months were characterized by
lower disbursement of funds from MdM (formal-regulatory factors). At the end of November 2014 210 mln PLN (9145 applications) from planned
600 mln PLN (ca. 35%) from state budget dedicated to MdM were used.

In the first year of MdM banks concluded 13 968 agreements in the amount of 2.6 bn PLN. Credits with subsidies accounted for 7.06% of value
and 8.02% of number of total credit agreements signed in 2014 (in the program RnS the share stood at 22-25% in the best years). The greatest
chance to participate in MdM belonged to buyers from Lodz (ca.75% of available offer met the requirements of MdM), Poznan (68%),Gdansk (64%)
and the smallest to buyers from Cracow (10%).
Structure of mortgage loans by currency
ty
330
mld
60,0
57,2
55,0
280
400,0
350,0
50,0
230
250,0
200,0
36,9
174,4
80
176,9
36,5
196,6
231,2
189,2
130
39,1
38,7
230,4
180
286,7
45,0
35,0
30,0
30
25,0
2008
2009
2010
2011
2012
2013
2014
Number of newly granted housing loans
Value of newly granted housing loans (right axis)
1,7
7,6
40,0
150,0
2,3
2,4
300,0
49,3
48,6
[bn PLN]
Number and value of newly granted housing loans
2,1
19,7
31,4
31,9
163,5
144,6
30,6
135,7
2,9
29,9
132,7
147,4
132,9
100,0
50,0
2,4
75,6
98,2
121,2
143,5
2009
2010
Other
2011
EUR
2012
CHF
167,0
190,3
0,0
2013
PLN
2014
10
Source: ZBP, NBP, KNF; Prepared by AM
Price stabilization on residential property market
Housing prices in 2014
Average housing prices on primary and secondary market* (PLN/sqm)
9 500
Wrocław
Warszawa
Gdańsk
8 500
Łódz
Kraków
Poznań
7 500
6 500
5 500
4 500
3 500
2 500
1 500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006
2007
2008
2009
2010
2011
2012
2013

In 2014 prices remained stable in comparison
to the previous year. On average across the whole
country the growth rate amounted to ca. 0.5% y/y.
• On the primary market developers were rapidly
rebuilding the offer of dwellings for sale, what with
high number of purchased apartments contributed
to increase in prices. Especially they were seen in
projects with high rates of sales at the beginning of
investment. At the same time in case of
investments located in the suburbia of large cities
they are often connected with change in price
limits of MdM scheme.
• On the secondary market there was domination of
growth rates close to 0 (according to agents the
demand was growing in the last months of 2014).
The secondary market is not included in the MdM
scheme, thus priority in choose is in favor of
the primary market and potential growth in prices
on the secondary market is reduced.
2014
* Data generated as of 05.02.2015 from AMRON System

In 2014 disproportions between housing prices on primary and secondary market remained significant. On average in 7 the largest Polish
cities (Gdansk, Gdynia, Lodz, Cracow, Poznan, Warsaw, Wroclaw) the prices on the primary market were by 10.6% higher compared to the
secondary market. They amounted to 6 269 PLN/sqm and 5 606 PLN/sqm respectively. For 10 rest of voivodeships’ capitals the disproportion was
even higher equaling 17.8% (it concerns following cities: Bialystok, Bydgoszcz, Katowice, Kielce, Lublin, Olsztyn, Opole, Rzeszow, Szczecin, Zielona
Gora). In 2014 in these localizations the average price of 1 sqm amounted to 4 650 PLN on the primary market and 3 824 PLN on the secondary
market.
11
Source: AMRON, Metrohouse; Prepared by AM
Growing supply, stable demand supported by low interest rates
will favor maintaining of stable housing prices in 2015 – part 1
60 000
Number of dwellings sold
50 000
Number of dwellings launched on the market
40 000
Forecast
30 000
20 000
10 000
0
2007
2008
2009
2010
2011
2012
2013
2014
2015*

High sale on the primary market encouraged developers to rebuild dwellings offer, which was sold out in 2013. Thus in 2015 growth of the dwellings
supply will be observed. Moreover investment plans of developers suggest 2015 will be a period of further increase of started buildings and issued
permits. Nevertheless annual rates of growth equaling 30-40% should slow down due to high basis from 2014 (amendment of the Act on construction law
does not provide for resignation from applying for a license in the case of multi-family buildings).

Achieving higher sale of apartments in 2015 in comparison to historically high sale in 2014 is not likely. Maintaining sale on the level similar to the
previous year, what is likely, will mean a third consecutive year of very good sales on the primary market. The demand will be supported by:
 Improvement on the labor market,
 Historically low interest rates and therefore much wider access to mortgage loans,
 Changes in MdM scheme (i.a. increase of price limits and scale od subsidies for families with at least 2 children).
At the same time in a face of low stable geopolitical situation and growing uncertainty concerning improvement of domestic macroeconomic condition,
the mentioned 3 factors will rather not generate considerably higher demand impulse compared to 2014. Especially taking into account the surge in CHF/PLN
exchange rate and tense geopolitical situation, long-term financing of apartments seems to be more risky. Simultaneously, observing low interest rates, share
of cash customers and investments purchases in buyers structure will remain high (55%-60%).
12
Source: REAS; Prepared by AM
Growing supply, stable demand supported by low interest rates
will favor maintaining of stable housing prices in 2015 – part 2
Average annual prices on the primary market (PLN/sqm)
7 500
7 000
6 500
Forecast
6 000
5 500
5 000
4 500
2006
2007
2008
2009
2010
2011
2012
2013
2014 2015*

In 2015 the residential market will be characterized by price stabilization. Especially it is likely that in 2015 the tendency to higher number of offers
launched compared to sold will maintain. Thus the time needed to sell out the whole offer of dwellings should increase (at the end of 2014 it was in range
from 3.6 in Tricity to 6.5 quarters in Lodz). Small growths in price are possible in case of investments located in attractive localizations with higher
standard. Most developers (56.1%) do not announce price increases (according to Home Broker survey). At the same time 24.4% of them do not preclude the
introduction of minor price increases and 19.5% announce the growth of prices. Price cuts are possible only in connection with temporary promotions,
packet sales or sale of last apartments in an investment. However if in H1 2015 the demand remains at the level higher than in 2014, in H2 2015 developers
will be able to decide on raising prices by several percent.

In short term government scheme „Fund for apartments for rent” could influence positively the supply. According to earlier announcements within
3 years the rental market was to be enlarged by 20 thou. dwellings (what accounted for ca. 30-35% of total annual production of new developer apartments).
Currently the Fund informs about analyzing ca. 3000 projects of dwellings located in the largest agglomerations: Warsaw, Tricity, Cracow, Wroclaw, Lodz,
Poznan and Upper Silesia. The apartments should be made available in years 2015-2017. Such large reduction in the offer (from 20 to 3 thou. units) causes
that potential of rental market remains unfailing. Moreover impact of Fund on decrease in investments purchases will be weak (market rental rates).

Current condition od developer sector may be disturbed by liquidation of escrow accounts (amendment of Act on the protection of buyers).
However the final version of amendment and vacatio legis period have been still unknown. Nevertheless if the scenario occurs, we could observe reply of
situation from Q1 2012 i.e growth of demand not proportionate to number of new investments (escape of developers before the Act came into force). One
hand we could observe pressure on price cuts, on the other hand the incentive to purchases due to possible growth in prices in long term connected with13
higher costs of closed escrow account and further market consolidation.
Source: AMRON; Prepared by AM
Housing market in selected countries
14
High potential of housing construction in Poland
The supply of dwellings – international comparison

In 2013 the total dwelling stock in Poland amounted to 360 apartments per 1000 inhabitants, what was one of the lowest levels among
European countries. This implies the high potential of housing construction sector.

In the recent years the average number of completed dwellings in Poland is one of the highest compared to presented European
countries. Higher value was observed only for Germany and Spain. However higher number of dwellings completed per 1 inhabitants is recorded
only in Finland.

Moreover it is worth noting that in the previous years in most countries rates of growth in number of completed dwellings stood below 0.
One hand it was a result of saturation of European residential markets, on the other hand effect of weak macroeconomic situation in Europe.
thou.
900
Average number of completed dwellings in years 2010-2013
817,5
800
662,4
700
600
500
400
300
189,6
200
151,2
100
141,3
44,3
31,8
29,9
29,1
23,8
13,4
13,0
10,5
4,9
2,2
0,9
0
Russia
USA
Germany Spain
Poland Romania Portugal Czech Finland Sweden Denmark Hungary Ireland Slovenia Latvia Iceland
Republic
Source: EMF ; Prepared by AM
15
Growth in building permits
Average growth in the number of issued building permits (y/y)
47,4
Denmark

Despite worse statistics on completed dwellings in European
countries, growth in number of building permits in Q1-Q3 2014 is a
symptom of improvement on European residential market. The number of
permits in European Union grew by 4.7% y/y , while in the corresponding
period of the previous year declined by 5.8% y/y.
43,8
Netherlands
Estonia
33,2
Q1-Q3 2014
31,0
Hungary
Q1-Q3 2013
Bulgaria
29,4
Sweden
17,4
United Kingdom
16,8
Poland
16,5

Still worse situation compared to the whole EU was observed in
Eurozone, where number of issued permits was still falling. In Q1-Q3 2014
it declined by 0.8% y/y. However the figure is considerably better in relation
to 2013, when it amounted to -13.8% y/y.
14,4
Spain

In 15 out of 22 analyzed European countries the plus rate of change of
issued permits was observed, while in corresponding period of 2013, the
number of permits grew only in 8 countries.
13,2
Slovakia
Czech Republic
7,3
Croatia
6,7
European Union
4,7
Germany
3,9
Austria
2,2
Ireland
1,7

The highest growth in number of issued building permits was recorded
in Denmark(47% y/y), Netherlands (44% y/y) and Estonia (33% y/y).

It is worth noting that in the strongly indebted countries with weak
condition of the residential market i.e Greece, Portugal, Spain rate of growth
of issued permits significantly improved in comparison to first three quarters
2013, while in Spain it even achieved value above 0. Still declines of building
permits were observed in Slovenia (-18% y/y), Finland (-16% y/y) and Greece
(-14% y/y).
0,1
Romania
-0,8
Euro area

In connection with the improvement of rates of growth in issued
building permits and possible improvement of macroeconomic condition in
part of European countries, in 2015 we expect further improvement of
situation on the housing market and increase in the number of completed
dwellings.
-5,3
Lithuania
Portugal
-11,3
France
-11,3
-13,8
Greece
-15,5
Finland
-18,3
Slovenia
-60
-40
-20
16
0
20
40
60
Source: Eurostat; Prepared by AM
Growing housing price on the European market, weak Asian and US markets
Prices on real estate market in particular countries
Growth rate of house prices y/y
25
%
7,5
EU GDP change y/y (right axis)
Spain
UK
Netherlands
Poland
20
15
%
6
4,5

In first three quarters of 2014 situation on the housing
market was varied depending on geographic region. Changes in
housing prices indicate that European residential market
considerably improved, while in Asia and USA slowdown in prices
growth was observed.
10,47 3
10
5
4,85
0,50
0
1,5
0
-0,41
-5
-4,24
-10

In 15 out of 20 analyzed European countries growth of
housing prices was recorded, while in 2013 it was observed on 9
markets. Only in 5 countries rates of price growth were worse than
the levels seen in 2013. It was a result of improving macroeconomic
condition in most European countries.
-1,5

In Q1-Q3 2014 the highest rate of change of housing prices
was recorded in Turkey (17.0% y/y), Ireland (15.0% y/y) and Estonia
(14.7% y/y). However the deepest declines were observed in
-4,5
Greece (-7.7% y/y) and Ukraine (-34.8% y/y).
-3
-15
2008
2009
2010
30
2011
2012
2013
Q1-Q3 2014*
7,5
World GDP change y/y (right axis)
Poland
RSA
China
USA
%
20
10
%
5
7,99
4,58
0
0,50
-2,40
-10
2008
*GDP- data for 2014
2009
2010
2011
2012
2013
Q1-Q3
Data for Poland cover the whole year 2014 2014*
Data for China in 2014 for Pekin, in the previous
years for Schanghai
Source: Global Property Guide, AMRON, IMF, Eurostat ; Prepared by AM

After high growth of prices in USA in 2013 (8.7% y/y), in Q1Q3 2014 the rate slowed down and amounted to 4.6% y/y. The
building activity on the American market also weakened. After
double-digit growths noted in the previous year, number of
completed dwellings increased by 8.1% y/y and number of building
permits by 7.8% y/y.
2,5

Although in most analyzed Asian countries rate of change of
housing prices remained at positive level, it considerably
weakened. The worst situation was observed on the Chinese
0
market, where prices fell by 2.4% y/y, while a year earlier the were
characterized by double-digit growth. It was a result if i.a.
worsening economic condition. According to IMF in 2014 GDP
-2,5
growth in China has been the lowest since 1990.
17
Low price availability in Poland
Dwelling prices in selected countries

Average housing price level in European countries is varied. In 2014 the highest prices were recoded in United Kingdom, where
they amounted to ca. 4000 EUR/1 sqm. However the lowest prices were observed in Portugal, where 1 sqm of apartment costs ca.
1000 EUR.

In 2014, similar to 2013, Poland was one of the countries with low average price of new dwellings. However number of gross
wages needed to purchase 70 sqm of apartment remains one of the highest in Europe. According to Deloitte estimation average
inhabitant of Poland need 7 annual salaries to buy such an apartment. Among analyzed countries lower price „availability”
characterized France (8 salaries), United Kingdom (8.6 salaries) and Russia (10.6 salaries).

Further slight improvement in rate of prices growth in 2015 is the most likely scenario for European residential market.
Declines in price will be probably noted in the most indebted European countries as well as in Russia and Ukraine (especially in face of
military conflict in Ukraine). Despite symptoms of improvement on European residential market, it is still seen as unstable, and
investment purchases are observed only in selected cities (often in capitols of EU members).
Average housing price in 2014 (EUR/sqm2) and price availability in selected countries
EUR/sqm
5000
12
4000
10
8
3000
6
2000
4
1000
2
0
0
Portugal
Poland
average transaction price
Russia
Czech
Republic
Spain
Germany Netherlands
Ireland
UK
number of the annual gross salaries required to buy a new dwelling (70 m2) (right axis)
18
Source: Deloitte, Global Property Guide; Prepared by AM
High level of debt in Western compared to Eastern Europe
Volume of mortgage loans as a share of GDP in 2014

Higher level of household debt remained in the Western Europe compared
to the countries of Central and Eastern Europe. Among the countries included in
the statement, in 2014 the highest volume of mortgage loans as a share of GDP
was recorded for Netherlands (98.4%). The lowest value of mortgage loans in
relation to GDP was observed in Romania (7.1%).

In 2014 debt under the mortgage in relation to GDP has decreased in 22
out of 25 analyzed countries. The highest decrease affected Netherlands (-6.5 pp.)
and Portugal (-5.4 pp.). On average this ratio in the whole EU declined by 2 pp.

In 2014, Poland with 20.0% share of mortgage loans debt in GDP remains
far below average for EU28 (49.1%). In comparison to 2007, the ratio increased
closely twice.
Netherlands Denmark
UK
Cyprus
Portugal
Spain
EU28
Belgium
Finland
Malta
Germany
France
Greece
2013
104,9%
93,8%
80,6%
71,8%
64,3%
59,9%
51,1%
49,5%
45,7%
45,5%
44,2%
43,8%
39,0%
2014
98,4%
91,3%
75,7%
66,4%
58,9%
55,5%
49,1%
56,4%
44,0%
45,4%
42,8%
41,0%
38,8%
Estonia
Austria
Italy
Latvia
Slovakia
Poland
Hungary
Croatia
2013
37,1%
28,0%
23,2%
21,7%
21,2%
20,7%
18,9%
18,7%
16,3%
15,0%
14,5%
8,8%
6,6%
2014
36,4%
27,6%
22,2%
19,6%
23,1%
20,0%
17,2%
18,3%
15,9%
14,4%
14,4%
8,3%
7,1%
Lithuania Slovenia
Czech
Bulgaria Romania
Republic
19
*Value of mortgage loans in European countries estimated on the basis of EBC data; Hungary – data for the end of November
Source : EMF. EBC; Prepared by AM
Growing value of mortgage loans in most European countries
Rates od change in mortgage loans
Country
United Kingdom
Germany
France
Spain
Netherlands
Italy
Denmark
Sweden
Belgium
Portugal
Austria
Finland
Poland
Ireland
Greece
Czech Republic
Luxembourg
Slovak Republic
Cyprus
Hungary
Romania
Croatia
Estonia
Lithuania
Slovenia
Latvia
Bulgaria
Malta
Value of
Value of
mortgage loans
mortgage loans
at the end of Change y/y
per capita
2014
(thou. EUR)
(bn EUR)
1381,9
1049,1
858,0
581,7
394,9
359,3
281,0
264,2
117,8
102,7
90,7
89,8
82,4
78,4
69,2
32,6
25,4
17,4
11,7
10,8
10,4
7,9
6,1
6,0
5,4
4,7
4,5
3,6
9,7%
2,9%
-2,7%
-4,1%
1,7%
-0,6%
0,4%
0,3%
19,8%
-3,6%
3,5%
1,6%
2,1%
-6,0%
-2,3%
3,0%
8,4%
13,5%
-1,9%
-4,1%
14,3%
-2,4%
2,9%
1,9%
0,8%
-6,7%
-0,9%
9,4%
27,4
15,2
16,8
15,2
29,7
7,2
63,7
34,6
13,3
11,9
13,0
20,6
2,6
23,0
7,6
3,8
59,4
3,9
17,0
0,0
0,6
2,3
5,6
2,5
3,1
2,8
0,7
10,5
*According to NBP data given in PLN in 2014 value of mortgage loans grew by
6.6% y/y. CHF/PLN exchange rate increased from 3.41 in December 2013 to 3.51 in
December 2014.

In 2014 total value of mortgage loans portfolio in European Union increased by 2.1%
in comparison to the end of 2013. The growth was observed in 17 out of 28 analyzed
countries, what indicates slight improvement on the European mortgage market. The highest
growths among EU countries were recorded in Belgium (19.8% y/y), Slovakia (13.5% y/y) and
Romania (14.3% y/y). In turn, value of mortgage loans fell the most in Ireland and Latvia
(by 6.0% and 6.7% respectively). In Poland the debt increased by 2.1% y/y.*It was supported
by low interest rates, however it is worth noting that according to EMF (European Mortgage
Federation) average rates on mortgage loans in Poland are one of the highest in Europe.

In 2014 the value of mortgage loans was the highest in United Kingdom and Germany.
In these countries the level of debt grew by 9.7% and 2.9% respectively compared to the end
of 2013.

Analyzing value of mortgage loans per 1 inhabitant (above 18 years old), the highest
ratio is observed in Denmark, Luxemburg and Sweden. In comparison to an average in EU
(14.4 thou. EUR per capita) in Poland saturation by mortgages per 1 inhabitant is
considerably lower and amounted to 2.6 thou. EUR. However in relation to 2007 the value of
mortgage loans grew 2.5 times.

We estimate that in 2015 value of mortgage loans portfolio should increase due to
improvement of macroeconomic situation in most European countries.
bn EUR
100
Growth in mortgage loans in Poland
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: EMF, EBC; Prepared by AM
20
Non-residential market
21
Growing saturation of retail space market
1600
1400
1200
thou. sqm
1000
800
1,6%
600
400
200
0
Existing space

In 2014 the total stock of modern retail space amounted about 10.4 mln sqm (according
to Colliers International). In the whole year about 451 thou. sqm were completed, which
Supply of retail space in 2014
represent approximately 29,5% decline compared to 2013. The structure of new space, contrary
4,0%
to 2013, was dominated by facilities located in small cities (<100 thou. inhabitants). Their share
3,5%
3,3%
3,3%
3,5% accounted for 46% of total space, while large agglomerations represented 11% of total new
supply (in 2013 – 69%). The growing interest in construction of retail facilities concerned cities in
2,8%
3,0%
2,6%
eastern Poland. Polish investment attractiveness for commercial real estates remained
2,4%
2,5% relatively high. In 2014 more than 40 brands started business on the domestic market (out of
which 40% represented clothing and footwear sector, 16% - healthcare and beauty sector).
1,8%
2,0%

Growing competition and high level of saturation by modern retail space
1,5% (269 sqm/1000 inhabitants at the end of 2014 according to Colliers International) forces that old
1,0% buildings have to be modernized or developed (13% of new supply represent developments;
10 pp. less than in 2013). The most saturated market is Wroclaw (765 sqm/1000 inhabitants)
0,5% and Lublin among regional cities (773 sqm/1000 inhabitants).
The average vacancy rate was relatively stable and amounted to below 4% at the end of
0,0% 
2014. The lowest vacancy rates were noted in Warsaw and Tricity (lack of new supply in both
localizations), while the highest ones in Upper Silesia (in 2014 3 facilities were completed and 2
Space under construction Vacancy rate (in %)(right axis) modernized). Pressure on price declines concerned facilities with weaker market position. The
rents remained stable in attractive localizations (ca. 90-100 EUR/sqm/month in Warsaw and
ca. 43-55 EUR/sqm/month in regional cities; according to DTZ).
Supply of retail space by cities size
Thpu. sqm
Small cities
Medium cities
Large cities
Agglomerations

In 2015 we expect that total new supply will be by 149
thou. sqm higher than in 2014 (estimated new supply at 600
thou. sqm; according to Colliers International) Both rents and
vacancy rates in each cities should remain stable (excluding
older retail facilities and cities with high level of saturation by
these kind of space, where pressure on declines could be
observed). In the short term the interest on development of
retail chains in cities with less than 100 thou. inhabitants will
remain high. At the same time demand will return on
markets in large cities, where 46% of new supply of shopping
centers is located.
22
* CBRE forecast
Source: CBRE, Colliers International, Cushman&Wakefield, Jones Lang LaSalle; Prepared by AM
[thou.]
High supply of office space and growth in vacancy rate
5 000
4 500
Total supply, new supply and vacant office space
in the largest Polish cities
30
25
4 000
3 500
20
3 000
2 500
15
2 000
10
1 500
1 000
5
500
0
0
Supply 2013 (m2)
Supply 2014
Under construction 2014
Vacancy rate 2013 (%) (right axis)
Vacancy rate 2014 (%) (right axis)
24
22
20
18
16
14
12
10
Rents in the largest cities (EUR/m2/month)
rents 2013
rents 2014

At the end of 2014 total office space in 9 biggest Polish cities
amounted to ca. 6.9 mln sqm. During the year 2014 developers completed
ca. 0.58 mln sqm of new space (slightly less compared to 0.6 mln sqm in
2013), which accounted for 8.4% of total volume (according to Colliers
International). Still Warsaw had dominant position on the office space market
with supply of almost 4.39 mln sqm i.e. 57.2% of total office space in Poland
and new supply of 280 thou. sqm in 2014. Simultaneously the number of new
investments in cities outside the capital is growing. Most of them was
completed in Cracow (111 thou. sqm) and Wroclaw (56 thou. sqm)

Increase in new office supply in recent years together with good level
of demand in 2014 determined stable level of vacancy rate (excluding
Szczecin, where vacancy rate = 10.9% in 2014 vs 11.6% in 2013). Growing
demand was observed on regional markets, where vacancy rate decreased.
Companies representing sector of modern business services were the key
tenant of such space. At the same time despite absorption of retail space,
the highest vacancy rate was reported in Szczecin.

Similar to the previous year, in 2014 rents in offices remained
relatively stable, although pressure on declines is growing. Investments risk
on the market is also growing.

In 2015 the space of completed investments will remain high.
According to Colliers International at the end of 2014 1.3 mln sqm of modern
office space were under construction, out of which above 700 thou. sqm in
Warsaw (growth by 330 thou. sqm y/y), 88 thou. sqm in Cracow and 84 thou.
sqm in Wroclaw. Taking into account strong saturation of the market by
office space we expect further growth in the vacancy rate (JLL forecasts that
in Warsaw it will increase to 18% in 2016). Pressure on rents decline will be
also observed. Still it will mainly concern owners of old office buildings, in
which rotation of tenants and tendency to move to new building is strong. This
situation enforces owners to investments in modernization and raising
the standard of office buildings.
23
Source: Colliers International, Jones Lang LaSalle; Prepared by AM
2015 – the year of good prosperity for industrial market
Demand for warehouse space
thou. sqm
3000
%
18,0

2014 was the year of strong growth in demand for warehouse space
and investment demand (volume of transactions exceeded 700 mln EUR).
13,5 In this period the record 1.1 mln sqm were completed (compared to
396 thou. sqm in 2013) (according to Colliers International). This space
included 3 completed warehouses of Amazon, which where the largest
9,0
investments in 2014. The total warehouse space on the main markets
amounted more than 8.8 mln sqm at the end of 2014. In the analyzed
4,5 period share of Warsaw market slightly dropped i.e by 3.8 pp. to 31.4%
(2.76 mln sqm) in the favor of Wroclaw (growth to 13.4% from 10.7% in
2013) and Poznan (increase to 13.4% from 11.8%).
2500
2000
1500
1000
500
0
0,0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Net demand
3000
Renewals
Vacancy rate (right axis)
Supply and vacancy rate in 2013 by localizations
35
30
2500
25
2000
20
1500
15
1000
10
500
5
0
0
Existing supply
Under construction
Vacancy rate 2013 (right axis)

The volume of leased space increased by 11.6% y/y to record high
level of 2.5 mln sqm, out of which 60% were leased in Q4 2014 (in 2013
leased space stood at 2.24 mln sqm) (according to CBRE). Still the greatest
popularity concerned pre-let or BTS agreements, while interest in
speculative investments was also growing. The largest demand for
warehouse space was created by logistic operators and for production
space by companies from automotive and FMCG sectors.

In 2014 the average vacancy rate decrease by 5 pp. to 5.5%
(compared to 10.8% in 2013). While rents remained stable. At the end of
2014 the rents on the most expensive Warsaw market were in the range
3.4-5.0 EUR/sqm/month. High levels of the rents were also observed in
Cracow (3.7 – 4.6 EUR/sqm/month). The cheapest warehouse space was in
suburbia of Warsaw (2.0 – 2.9 EUR/sqm/month) and Upper Silesia (2.0 –
3.0 EUR/sqm/month).

In the short term the growth in the number of planned warehouse
facilities is reported. Simultaneously we observe tendency to secure by
pre-leases and to limit speculative investments. We expect further
development of regional markets (Rzeszow, Lublin, Bydgoszcz, Opole) and
growth in demand of companies from e-commerce sector.
New supply 2014
Vacancy rate 2014 (right axis)
24
Source: Colliers International, Jones Lang LaSalle; Prepared by AM
Developers’ comeback to land bank.
Development lands In Poland
Average land prices for residential development 2014
in EUR/m2
1200
1000
15,4%
max
12,5%
10,6%
800
11,6%
12%
10%
8%
average
6%
4%
400
200
16%
14%
11,1%
9,5%
600
18%
2%
0,0%
min
0%
-2,5%
-2%
0
-4%
Warsaw
COB
Krakow
Warsaw Wroclaw
off-centre
Poznan
Tri-City
Lodz
Upper
Silesia
average price change y/y
900
800
Average land prices for office development 2014 in EUR/m2
max
90%
80%
700
600
70%
average
60%
500
400
300
50%
40%
min
30%
200
100
0
100%
20%
0,0%
Warsaw COB
0,0%
Wroclaw
0,0%
Krakow
0,0%
0,0%
0,0%
Tri-City
Poznan
Upper Silesia
10%
0%

In 2014 on the development land market the greatest popularity
concerned residential construction. High demand for developers dwellings
(number of sold apartments on the primary market was higher than in record
year 2007) maintained by the lowest interest rates (cheaper financing of
purchases) supported growing interest in building up land bank by
developers. These investments absorbed 75% of financial measures, land for
office-retail facilities – 15% and land for warehouses – 10% (according to
Colliers International). Demand pressure for investment land did not
concern saturated office market, except offers of land with attractive
location and stable legal status. In these cases transactions were conducted
in 3-4 months.

The value of transactions in 2014 amounted to 1.85 bn PLN –
the highest level since 2006 (in 2013 it stood at 1.5 bn PLN; growth by 23%
y/y). Despite improving demand for land under offices and residential
buildings in regional cities, still the largest number od such transactions , i.e.
80%, were conducted in Warsaw.

Together with growing demand, in 2014 rents of land for residential
buildings was rising in the pace of 10% y/y in most cities. Stable rents were
recorded on the land market for office investments.

Maintaining favorable situation on the residential market should
keep a revival in demand for land for this type of investments (especially in
Warsaw, Wroclaw, Tricity, Cracow). Considerably weaker demand will
concern land for office and retail facilities. Saturation of mentioned markets
make starting of such project with high return more difficult.

At the same time the most important pro-demand factor will be
attractive localization, which together with the appropriate price will
guarantee return on invested capital . Lands, which are well prepared for
investments process in terms of technical, legal and planning capability, will
also enjoy high interest of purchasers.
average price change y/y
25
Source: Colliers International; Prepared by AM
Agricultural land market
26
Growth in arable land prices again approached the maximum
Prices of arable land

In 2014 the growth in arable land prices again approached the maximum. The average price in transaction between farmers amounted to
32 317 PLN/ha, what represents growth by 22.7% y/y (3.5% y/y in 2013). Positive relationship between land and wheat prices, observed in
the previous year, was impaired (medium term correlation ratio = 67.9%, see chart below). Together with slowdown in wheat prices in 2013 and
introduction of the Russian embargo on food in 2014, we did not record worse pace of growth in land prices. Contrary, the inclination of farmers to
pay more for arable land was very strong in 2014.

In 2013 the highest growth in prices concerned highest quality land (bonitation classes I-IIIa). In this group prices in transactions between
farmers increased by 31.8% y/y and amounted to in average 42 538 PLN/ha. Growth by 21.4% y/y to 32 751 PLN/ha was recorded in case of prices
of medium quality land (IIIb and IV). The lowest growth equaled 16.2% y/y concerned low quality land (V-VI). In 2014 average price of such land
amounted to 23 460 PLN/ha.
35
[%]
35 000
30
30 000
35%
17 165
15 281
14 932
12 462
21 813
30%
15
20%
10
10%
5
32 317
26 339
25 442
20 004
18 037
17 042
-30%
-10
-40%
Price of ANR land (PLN/ha)
Price of land in transactions between farmers (PLN/ha)
Price change y/y (private trade) (right axis)
Price change y/y (ANR) (right axis)
20%
15%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10%
-20%
-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
25%
0%
-10%
0
30%
40%
20
0
15 395
9 892
12 134
7 374
9 259
5 607
8 244
4 682
6 606
3 736
5 753
3 438
5 042
3 414
5 197
10 000
19 288
20 000
15 000
25 592
25 000
5 000
60%
50%
25
3 554
4 786
[PLN\ha]

The average land price offered by ANR (Agricultural Property Agency- APA) in 2014 amounted to 25 592 PLN/ha i.e growth by 17.3% y/y
(13.1% y/y in 2013). Moreover in 2013 ANR sold the area of 121 thou. ha (in comparison to high statistics :148 thou. in 2013 and 130 thou ha. in
2012). In case of ANR’s land, the highest average prices were reached for properties in area group >300 ha - 28.3 thou. PLN/ha , while the lowest
prices for area group 1-10 ha – 21.2 thou. PLN/ha.
Correlation coefficient
R= 67,9%
5%
0%
Price change of wheat y/y
Price change of wheat y/y (t+1)
Price change of land y/y (private trade)(right axis)
27
Source: GUS, ANR ; Prepared by AM
HIgher land prices in private trade vs. ANR’s land

According to the presented map in 2014 only in two
voivodeships: mazowieckie and slaskie average prices in
private trade were lower than in case of land sold by ANR.
This disproportion is result of relatively high differences in
prices of state-owned land in these voivodeships. Thus
the weight of single transactions over- or understating prices
is considerable and can distort the average price level (even
one transaction concerning large-area land can strongly
influence change in prices)

The biggest disproportion in land price from WRSP
resources compared to private sector in 2014 concerned
podlaskie (ca. 14.1 thou. PLN/ha and kujawsko-pomorskie
voivodeship (ca. 11.2 thou. PLN/ha).
Please note!

The sale of state-owned arable lands is carried out mainly in
north and western Poland, where large area properties dominate.
Further trade of these lands causes, that the number of transactions
is the highest also on these markets. At the same time the number
of transactions of large-area land is significant higher in case of ANR
compared to private trade. In central and southern Poland the land
trade is observed mainly on private market, where the supply
consists mostly from small-area properties.
28
Source: GUS, ANR ; Prepared by AM
Regional price disparities – main determinants
(transactions between farmers)
 In 2014 strength of relation between land prices and factors indirectly connected with improvement in production profitability decreased (including
growth in food prices). Still significant correlation is observed between regional price differences and:
-intensification of pig farming (correlation coefficient = 73.3%) (see right chart)
-number of farms reaching revenues above 25 thou. EUR (correlation coefficient = 63.8%).
Nevertheless in annual relation correlation ratio decreased, especially between land prices and average revenues. This confirms thesis, that part of
demand for land may be generated by investors not connected with agriculture.
 In 2014 still the highest prices in private trade were paid for land located in kujawsko-pomorskie (44.4 thou. PLN/ha) and wielkopolskie voivodeship
(43.4 thou. PLN/ha). Comparable high prices (40.9 thou. PLN/ha) were reached in opolskie voivodeship, mainly thanks to higher annual growth in
prices i.e. by 43.6% y/y in 2012 and 30.8% in 2013. While the lowest land prices in 2014 concerned podkarpackie (ca. 19.7 thou. PLN/ha) and lubuskie
voivodeship (21.7 thou. PLN/ha).
wielkopolskie
kujawskopomorskie
opolskie
40 000
Correlation coefficient
R= 63,8 %
35 000
dolnośląskie
pomorskie
śląskie
łódzkie
30 000
mazowieckie
podlaskie
warmińskomazurskie
małopolskie
25 000
świętokrzyskie
20 000
lubelskie
lubuskie
zachodniopomorsk
ie
wielkopolskie
opolskie
40 000
35 000
30 000
Correlation coefficient
R= 73,3%
pomorskie
dolnośląskie
mazowieckie
śląskie
podlaskie
warmińskołódzkie
mazurskie
małopolskie
25 000 zachodniopomors
kie
lubelskie
świętokrzyskie
lubuskie
20 000
podkarpackie
15 000
0,0%
kujawskopomorskie
45 000
[Average arable price in 2014 in thou. PLN\ha ]
[Average arable price in 2014 in thou. PLN\ha ]
45 000
podkarpackie
15 000
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
[Share of farms with revenues > 25 000 EUR in total number of farms (2013 data)
0
50
100
150
200
250
[Number of pigs per 100 ha of agricultural land in 2013
(individual farms)]
29
Source: GUS; Prepared by AM
Decreasing disproportions between prices of agricultural and building lands
 High annual growth rates in arable land prices in face of stabilization on building lands market significantly determine changes in price
relations between both markets. The differences decrease, but their scale remains high (see chart below). Moreover it is so high, that land
purchases aiming to convert it from agricultural to building one are still attractive for investors. However, it is worth noting that not all transactions
ensure certain and quick profit, and additionally not all properties can be converted from agricultural to building (it is determined by land use plan
and in case of its lack – decision on development and land use conditions).
Differences in prices are considerably lower than average in typically agricultural regions of Poland. Domination of large scale production farms
causes that arable land is valuable asset and its prices are very high (e.g.. kujawsko-pomorskie and opolskie voivodeship) contrary to building land,
which prices are lower in comparison to domestic average. At the same time there is no agglomeration in the mentioned voivodeships (migration
balance is negative). Thus land prices in comparison to e.g. mazowieckie voivodeship are relatively less distorted by process of suburbia enlargement
and land purchase for non-agri purposes.
Average price of building lands with area
1200-2000 sqm in voivodeships (PLN/sqm)
Average price of building lands with area
1200-2000 sqm in capitals of voivodeships (PLN/sqm)
30
Source: GUS , otodom.pl; Prepared by AM
Release of milk quotas as pro-demand factor on the meadows market
Prices of meadows in private sector
17 364
14 283
13 070
11 838
8 214
6 164
5 000
5 155
10 000
10 994
15 000
17 742
20 000
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
26 000
160
24 000
150
25%
22 000
140
20%
20 000
130
15%
18 000
120
10%
16 000
110
5%
14 000
0%
12 000
-5%
10 000
30%
Correlation coefficient
R= 73,3 %
Change y/y (right axis)
100
90
80
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
2009
Average price of meadows in Poland [PLN/ha]
[PLN/hl]
35%
22 084
25 000
[PLN/ha]

In 2014 average meadows prices in Poland amounted to 22 084 PLN/ha i.e. growth by 27.2% y/y (decrease by 2.1% y/y in 2013). Prodemand factors determining such high increase in prices are following:
- Good prosperity on dairy market with the highest prices at the turn of 2013/2014. Thus farmers were able to accumulate financial surplus and
use it for purchase of meadows (correlation coefficient of average quarterly milk prices shifted by four quarters forward (i.e. by a year) and
quarterly prices of meadows amounted to 73.3% in years 2008-2014).
- Growth in demand for meadows and preparing of farmers to opportunity of increase in milk production in the anticipation of release of milk
quotas (since 1st April 2015).
- Growth in demand for arable land, which influence higher demand for meadows. Expectations of significant increase in arable land prices after
release of land sale (May 2016) cause, that despite deterioration in financial condition of farms there is lack of pressure on price declines. Farmers
in anticipation of further increases often limit land supply, especially that cost of its maintenance (tax on agricultural property) remains relatively
low.
2010
2011
2012
2013
2014
Average price of meadows in Poland (PLN/ha)
Average quarterly milk price (right axis)
31
Average quarterly milk price (t+4) (right axis)
Źródło: GUS; Opracowanie AM
Source: GUS; Prepared by AM
Decreasing influence of concentration in cattle farming on meadows prices
Prices of meadows – main determinants (transactions between farmers)

In 2014 changes in meadows prices were result of
strong growth in demand for arable lands and
consequently in their prices. In 2014 the highest meadows
prices were noted in kujawsko-pomorskie, wielkopolskie,
slaskie and opolskie voivodeships. Except of slaskie
voivodeship, in 2014 in the mentioned 3 voivodeships also
the highest arable prices were recorded.

Regional data show that meadows prices are less
determined by concentration and regional differences in
cattle farming (in 2014 the correlation coefficient between
average meadows price and number of cattle per 100 ha
decreased from 64.6% to 50.1%). In typical „dairy” Polish
region i.e. podlaskie voivodeship meadows prices decreased
by 4.5% y/y, so were in opposite trend to national average.
This decline was probably correlated with decrease in milk
prices in H2 2014 (see previous slide).

The cheapest meadows are located on the two
opposite Polish sides i.e. on north-western (lubuskie and
zachodniopomorskie voivodeships) and south-eastern
(swietokrzyskie,
lubelskie
and
podkarpackie
voivodeships). In 2014 their average price was in the range
of 16 – 16,5 thou. PLN/ha and was almost two times lower
than 1 ha in the most expensive kujawsko-pomorskie
voivodeship. Nevertheless rate of growth of the cheapest
meadows was significantly higher than the others, what
may be a sign of convergence in meadows prices.
32
Source: GUS; Prepared by AM
High activity of ANR in the areas of northern and western Poland
Transactions with arable land
Total transactions with arable land in 2013 and WRSP resources at the end
of 2014

In 2013 91 thou. transactions with arable lands were
conducted i.e. 3.1% more than in the previous year (according
to notarial records). According to IERiGŻ total number of
contracts per 1000 farms was equaled 58 (56 in 2012), out of
which 48 were conducted between private persons and 10
between legal persons (mainly from ANR). Thus 80% of
transactions represented private trade. Their largest number is
recorded in western regions of Poland. Contrary to eastern
side, where scale of transactions is significantly smaller and
donations are dominant form of contracts (see next slide).

In 2014 ANR sold 120.6 thou. ha of arable land
(ca. 28 thou. ha less in comparison to record high sale in 2013).
This result is an effect of speeding up privatization process of all
assets of WRSP Resources and more emphasis of ANR on selling
land instead their long-term lease (unless it relates to land
excluded from the sale e.g. due to repatriation or Bug River
claims).

High activity of ANR in the areas of northern and
western Poland determines secondary effect in the form of
increased turnover between individual farmers in these
regions (secondary sale od state land). In 2014 the largest area
of land was sold by ANR in zachodniopomorskie (ca. 21 thou.
ha), warminsko-mazurskie (17 thou. ha) and dolnoslaskie
(ca. 16 thou. ha).
Poland
Resource: 1 495 662 ha
Lease: 1 094 334 ha
For sale: 265 804 ha
33
Source: ANR, IERiGŻ; Prepared by AM
Non-market transactions as main factor of land fragmentation
5979
8576
4720
4548
7807
6 220
5020
Property sale to pay KRUS
1409
1910
1624
1707
2237
946
2061
Contracts of annuity
5070
5661
5524
5220
5098
5 132
8316
Inheritance and family divisions

In 2013 62 thou. notarial agreements concerning ownership change
of agricultural land were signed (decline by 2.0% y/y). The slowdown was
in line with the fall in intensity of the market trade (years 2012-2013). It is
estimated that non-market land turnover slightly increases during
deterioration of the economic situation. In the long term, however,
the whole process has a downward trend.
2007
2008
2009
2010
2011
2012
2013
54877
61736
55728
54079
56815
50 132
46351
Donations of arable lands
0

Donations remained the dominant (ca. 75% share) component
of non-market land turnover (however their number has been falling since
2011; in 2013 it declined by 7.5% y/y). A significant part of land is forwarded
along with other assets to the next generation in the family (number
of notarial contracts concerning transfer of the land in form of inheritance
and family divisions increased by 62% y/y).

Significant, more than two-fold increase was recorded in number
of contracts of annuity. Relatively high growth in this category could be
connected with high land prices and expected high profits from ownership of
land in exchange for care of elderly.

Non-market transactions are the main factor of land fragmentation
in Poland. This form of transactions has great importance in the regions,
which are dominated by strongly fragmented farms in terms of agrarian
structure (i.e. in south-eastern region – podkarpackie, malopolskie,
swietokrzyskie voivodeships), where in 2011 74% of changes in arable land
ownership concerned family trade. Considerably lower number of
transactions is concluded in regions dominated by high commodity farms.

Introduction of government programs announce by Ministry of
Agriculture will aim to improve the structure of farms. Part of funds from
13.5 mln EUR of Rural Development Program will be dedicated to
the elimination of social farms and development of commodity farms.
Financial compensation (bonus in the amount of 120% of direct payments
for 6 years) should encourage farmers to sell land by small area farms.
34
10000 20000 30000 40000 50000 60000 70000
Source: IERiGŻ; Prepared by AM
The highest growth of prices in new EU members
European market of arable land
-90,0%
10,0%
110,0%
Netherlands
Belgium
210,0%
66,6%
52 100
4,1%
28 300
Ireland
-56,8%
25 926
-2,4% Denmark
22 240
Italy
21,4%
19 300
United Kingdom
42,4%
Germany
-7,1%
19 057
16 381
Spain
8 100
Poland- priv. market
35,5%
6 275
162,8%
France
5 750
43,8%
Sweden
5 370
44,9%
Poland-ANR
5 197
Czech Republic
4 600
Slovakia
3 700
Romania
3 100
Bulgaria
3 037
Hungary
2 550
Lithuania
2 390
Estonia
1 934
-15 000 -5 000
83,9%
9 663
Finland
Latvia
310,0%
174,5%
183,1%
263,8%
158,3%
196,9%
64,5%
225,6%
210,4%

Rapid growth of average prices of arable land in Poland bring us closer
to lower zone of prices noted in „old” EU countries. Against European countries
characterized by comparable climatic conditions and by similar market
potential i.e. Germany or France, prices of arable land in Poland deviate
considerably less from price level e.g. in Netherlands. The most expensive land
in wielkopolskie and kujawsko-pomorskie voivodeships have higher prices than
some land in some eastern federal states (10 510 EUR/ha in 2013; rapid 20% y/y
growth in prices in years 2008-2011 slowed down to 8-9% y/y in years
2012-2013).

Three main price tendencies are observed on the land market:
• First concerns so called „old” EU countries. Very high land prices and
domination of free market transactions (excluding France, where the market
is supervised by SAFER) make land market correlated with macroeconomic
condition of the countries. Thus price declines were observed e.g. in Ireland
and Spain (also in 2013, when prices decreased by 0.8% y/y and 0.4% y/y
respectively). The highest growth was reported in Germany (since 2006
prices have increased by 83.9%, only in 2013 by 13.6% y/y).
• Second concerns „new” EU members (e.g. Baltic countries excluding Latvia).
The are characterized by very high growth in prices and domination of free
market trade. Also in 2013 annual change in prices were very high: 44.8% in
Lithuania, 39.1% in Estonia and „only” 12% in Latvia.
• Third - countries with high growth in land prices (ca. 200% since 2006) i.a.
Czech Republic (growth by 26.7% y/y in 2013), Slovakia (0.0% y/y in 2013)
and Romania (24% y/y in 2012). Usually these countries have unfavorable
agrarian structure of farms with dominating share of small-area farms (i.e.
Romania) and/or countries, where reprivatization process of state-owned
lands has not been finished (i.e. Czech Republic, Slovakia).
1 232 8,5%
5 000
15 000 25 000 35 000 45 000 55 000
Average price of arable land in 2013 (EUR/ha)
Price change 2013/2006
Please note! Described price changes in EUR, when taking into account
exchange rates differences the rates of growth in prices could be higher.
35
Source: IERiGŻ; Prepared by AM
Is it price bubble?
Is there potential to further growth in land prices?

Rapid growth in land prices in Poland in
the recent years provoke to discussion if potential
to further increases still exists or we observe
speculative bubble, especially that profitability of
agricultural production has been not growing at the
same pace. Comparing land prices to revenues from
1ha of land in Poland against EU countries, Poland
is placed between „old” and „new” members. For
average Polish farm investment in 1 ha of land will
return after ca. 11.1 years (in 2014 this period
increased to ca. 13.7 years). In Poland this period
is still significantly lower than in „old” EU
countries. Thus it is expected that potential to
further growth in land prices still exists.
United
Kingdom
Germany
Netherlands
Czech
Republic
Belgium
Spain
Italy
Poland
France
Hungary
How many years of work are needed to buy 1
61,6
ha of land (revenues EUR/ha)
How many annual salaries are needed to buy
2,0
70 sqm of apartment
Ireland
Denmark

Disproportions
among
EU
countries
in the period of return on investment in land are
considerably higher than in case of corresponding
ratio on residential market (see table). In Polish
capital one must save the same or longer period in
comparison to „old” EU. This tendency is opposite
on the land market, where return on investment in
land places us below average for „old” EU countries.
56,0
54,4
34,2
34,0
25,1
22,7
16,7
13,3
11,1
10,8
7,1
3,8
8,5
3,0
3,8
7,2
3,6
4,4
7,3
7,4
7,9
7,4
36
Source: IERiGŻ, FADN
Further growth in land prices
Outlook for arable land prices

Taking into account fundamental factors and declines in grain and milk prices in 2014, arable land prices (land and meadows) should slow
down (due to lower financial surplus of farmers). Nevertheless demand for land will remain high, despite farmers more often claim that at current
prices profitability of production is too low. In spite of this fact, one hand farmers are looking for opportunities to enlarge family farms, on the other
hand they reduce land supply. Both of these factors together with high uncertainty connected with situation after release of land market in May 2016
causes that land prices are growing and this tendency is not likely to slow down during the next two years. Especially that land purchases are
supported by cheap consumption loans (granted at historically low interest rates), de minimis subsidies for agriculture and preferential loans for
investments in farms (cost of land purchase can not exceed 10% od total investments).

The land market will be under pressure of expiring memorandum for land purchases by foreigners at least to May 2016 or even to the end
of the year. Existing expectations of price increases after this period give minimal chances for price declines in 2015. Introduction of restriction
concerning land acquisition by foreigners and entities unconnected directly with agriculture is more and more likely. According to preliminary
announcements of the Ministry the proposals concern:
 Transfer of functions and competencies of supervising and monitoring authority to Agricultural Property Agency. It would broker transactions
in the land market except for the transfer of ownership to farmers and close people (system close to the French market , where SAFER is the
market regulator/broker)
 Introduction of changes in agricultural properties trade aiming to improve structure of farms and ensure priority in land (including ANR land)
purchasing for farmers leading family farms (including priority in the acquisition by the existing tenants )and on the other hand to counteract
excessive concentration of agricultural property.

Changes in leases of land from WRSP from 9 February 2015 should bring market stabilization. For process of land management we find
favorable the possibility of extending the duration of the lease agreement to 10 years in cases where the property can not be sold or i.a.:
 Tenants bore significant financial outlays within agricultural activity and extension of lease agreement will ensure them stabilization of the
activity and maintaining farm liquidity
 Tenant bought economic center for business purposes
 Perennial cultures crops are on leased lands
 Leased land is pond property, which tenant can not acquire because of limit of 500ha of arable land (possible to sale for 1 buyer) and the
property can not be divided due to economic reasons
 There are social-economic aspects (e.g. employment, production profile).
37