In Poland, home builders lead a rally in stocks, defying mortgage rates

Home builders have emerged as the best-performing stocks in Poland this year after the government stepped in with subsidies for first-time buyers to revive mortgage lending.

Warsaw's WIG Real Estate Index of 22 stocks jumped 21% this year, led by gains in the biggest residential developers: Atal and Dom Development. The rally contrasts with a 1.7% decline in Europe's Stoxx Europe 600 Real Estate index, dragged lower by declines for German and Swedish landlords.

The industry's advances defy the ongoing slump in mortgage lending that deepened as Poland's rapid rise in interest rates made mortgages among the most expensive in Europe.

Faced with a parliamentary election in the fall and mounting public outcry over the lack of affordable housing, the government proposed a plan that offers first-time buyers loans with a 2% interest rate. The regulation, which is now being discussed in the parliament, may take effect in July. The main opposition party leader, Donald Tusk, has separately floated an idea for zero-percent loans.

"Last year, the market was concerned that the surging cost of materials and labor could reduce home builders' margins amid weak sales and softer pricing," said Jakub Caithaml, an analyst at Wood&Co. brokerage in Prague. "With growing bets for higher demand ahead, such concerns seem to fade."

Apartments sales in seven biggest Polish cities soared 35% in the first quarter from a year ago and prices are starting to rise faster, according to data from Otodom, a real estate listing site. The number of cash transactions is growing after some wealthier buyers returned to the market anticipating that the subsidy program will boost demand and apartment prices, Katarzyna Kuniewicz, who analyzes the data for Otodom, wrote in a report Tuesday.

Growing demand...