The current property boom in Poland is a bubble

that is funny - good old Polish stubbornness needs to be factored into the model of Polish property market!

???please explain.

You must not be aware of Poles refusing to lower their real estate prices, even though they're loosing money... You think this is driven by their optimistic outlook? ;)

Which Poles exactly?It didn't cross your mind that maybe they would be losing money if they lowered prices?What you don't factor in your theory is that is not as easy in Poland to walk away from debt/declare bankruptcy as it is in the US.You made a broad statement about 38 Million of people and this as stupid as for example saying (what I often hear) "Poles are hard workers".I am not a "hard worker" yet I am Polish.

good grief, grubas, you gonna have to find yourself somebody else to fight with..

I like the thought that the economic downturn did not get to Poland because Poles are too stubborn. :)

Poles are hard workers. Of course there's always that exception.

I'll give an anecdote that supports the stubbornness-of-Poles argument. A friend had an apartment to let in Warsaw; wanted 2400 for a two-room 40m2 place. It stood empty for two months.

She then got an offer of 2200. "It's all I can afford" said the prospective tenant. "But the price is 2400" said my friend, and refused to let it. It stood empty for at least two more months.

So that's four months' rent lost. 4 x 2400 = 9600 zl.

If she'd taken that tenant at 2200, she'd only have lost 4800 (two months' rent, plus the difference for the other two months). I tried to explain this; if you take a 200zl drop in rent, you'll lose the same amount of money over the whole year rather than in a single month. For every month the flat stands empty, you have to rent it out for another year to recoup your losses.

But she couldn't see it. "I need the money now, I have to pay the czynsz and the mortgage". Even though she was losing money hand over fist, she was determined to hold out for the perfect tenant rather than stem the financial haemorrhage.

And the twist? She is a Financial Analyst who graduated from Warsaw School of Economics.

Very well said. By the way, it has reminded me of the stories of ladies holding out for a perfect husband ...

Emotion rules logic when it comes to money.

I remember people complaining about this over a decade ago. There used to be some sort of tax break, but not as far as I know nowadays.

One has only to stroll down the street and look at the second floors and higher to see banners advertising sales, rentals and such that have been there for years.

The system is well-understood by most economists. Business and economies run in cycles. They self-regulate. When supply is greater than demand, assets sit idle until demand catches up to them. The most common way we see this is with the transaction pricing dynamic. As in the post above, the woman stubbornly holds out for what she thinks is the correct price, ignoring the people making offers in the meantime. At some point, when she realizes she has no more money, her "bubble" will burst and she will lose her place or sell it at the loss she has tried to avoid for all that time. She cannot grasp that her economic situation is of concern to nobody except herself.

Is she right or wrong? Time will tell. If she can afford to hold the asset until demand (offered prices) rises to her desired level then she's right (she'll let you know it too). If she loses everything, rather than accept responsibility for her ignorance and lack of financial sense, she will blame the government, the economy, the mayor, her boyfriend, her neighbors, customers, basically everyone in sight, until she feels better about her failure in her mind.

It's cycles really. This is the mechanism that a free market uses to regulate itself midst the imbalances that occur between supply and demand. As several other threads point out, individuals will always deny that they are in error or have made poor decisions. Believing that the cycles will not assert themselves from time to time is the reason that people will ride a rising market past it's peak and some poor schmuck buy at 1000 a sq meter only to realize a month or two later that the unit next door is selling now for 900/m2. It's why there are winners and losers in life. If everyone was a winner, there would be no contest.

You cannot legislate good judgment or common sense.

This is exactly they way bubble bursts. The psychological has to pop for the market to find a bottom. The people who understand this will then swoop in an make a killing.