Country Introduction
Poland arguably attracts more pure investment buyers from Ireland, the UK and Germany than any other country. The largest and best-known of the 2004 EU entrants, the difference between Poland and neighbouring Germany was a gulf which buyers expected EU entry to close. This optimism has been partly justified: economic growth is over 5% and is expected to stay at this rate for the next five years at least; property prices are rising at a steady 10% per
annum in the major cities. With wages increasing after EU accession, the Polish are getting richer and are expecting better quality residential property (the average disposable income of Polish households increased significantly from PLN3,150 at the start of transition in 1990 to PLN 44,740 in 2005). Borrowing is still relatively low, with the total mortgage market being less than 20% of GDP (although lending now forms a part of around a quarter of transactions, and interest rates have fallen) and the level of home ownership is rising steadily, increasing from 48% in 1998 to 60% in 2006. Rents are also increasing. There is a broad consensus across the political lines that welcomes foreign direct investment, and the government offers a number of incentives to attract new firms that will bring capital, technology and jobs to Poland.
In the 2006 study of potential capital appreciation over the next ten years conducted on behalf of the Channel Four television programme A Place in the Sun, Poland was placed second after Romania. The firm of accountants commissioned by the programme concluded that Polish real estate could offer 393% returns over the next ten years - although this level of growth is unrealistic, Poland clearly represents a good opportunity. Demand is rising steadily as a reflection of this, and is likely to continue doing so for a long while. With a population of 38m and only 2m in Warsaw, a young and rapidly urbanising workforce is demanding good location rental property and more now have the cash to pay the rents for the property they want. Across Poland yields range from as low as 4% up to 9%, averaging around 6.5%. With interest rates just below 6%, yields are effectively compressed to an unattractive level, however with cheap labour and low land prices, high levels of Foreign Direct Investment are set to continue to flood in, thus continuing to drive economic growth and salaries and therefore rents and property prices too.
According to the Emerging Trends in Real Estate Europe report released jointly by the Urban Land Institute and PriceWaterhouseCooper, in 2006 Poland should show the largest increase in residential sales across Europe. With an increasingly robust economy and within three hours flight of London, buyers are able to keep a close eye on their investments.
The size and economic clout of Poland gave the country the highest profile of the 2004 EU entrants, and buyers who invested in 2004 have not been disappointed as Poland is being successfully integrated into the EU. There is no doubt that Poland is taken very seriously by educated investors, and whether Poland can still be classed as an emerging market is debatable. However, the property market remains buoyant, and off-plan developments often sell out before building begins.
Why Invest in Poland?
- Poland now ranks 5th in the World on the Foreign Direct Investment Confidence Index
- Unemployment has decreased from around 30% in 2003 to 18% latest figures
- GDP growth has been high and is expected to increase by around 5% per annum for the next 5 years
- Wages increased on average 4.5% in 2005, up to 8% in some areas
- Urbanisation occurring at high levels in several cities, Warsaw currently has only 5% of country’s population (unusually low for a capital) - a figure set to double by 2010
- Property ownership is a relatively new concept (the country was communist until just 12 years ago), with 60% now homeowners
- Only small levels of borrowing; less than 20% of properties are mortgaged and the total mortgage market is less than 15% of GDP (in the UK this figure is around 40%)
- High loan-to-value mortgages are available (up to 80% for non-residents), for terms of up to 30 years and at low interest rates
- With an emerging indigenous middle class, the wealth to rent and ability to buy are both increasing, raising demand and thus signalling great prospects for the growth of real estate in Poland
Hotspots
A construction boom is spreading from Warsaw to Krakow, Gdańsk to Poznan and Wroclaw to Grodzisk. Poland’s primary and secondary cities are now ringed with new-build developments catering to young professionals and Poland’s growing middle classes.
Warsaw holds the bulk of the attraction for the young Polish population, but growth has reached unsustainable levels in some areas and it is important to conduct careful research before investing here.
Gdańsk attracts substantial tourism, especially the German market. The city lies on the southern coast of the Gdańsk Bay, in a conurbation with the spa town of Sopot, the city of Gdynia and suburban communities which together form a metropolitan area called the greater Gdańsk or the Tri-City area. Gdańsk is the capital of the Pomeranian Province and, as one of the main centres of cultural, economic and administrative life in Poland, plays a significant role in the development of the northern parts of the country. Its strategic geographical position, developed transport base, scientific and technical resources, extensive economic infrastructure, well-educated staff, large customer market and international contacts position Gdańsk among the most attractive cities in Poland in terms of investment potential. The airport, 15km from the city centre, is able to service up to one million passengers a year and receives flights from both local and European destinations, but some say that the ‘easyJet effect’ is ruining the area’s charm.
In the Tri-City area, the seaside spa resort of Sopot makes for an interesting investment opportunity, earning top ranking in ‘Poland’s Best Places to Live’ (www.sopot.pl). Sopot is known as the summer capital of Poland and is serviced by Gdańsk airport, the Gdynia and Gdańsk municipal bus lines, the commuter rail line and the Polish national railway, PKP. On the land side the town is sheltered by forested hills, whilst the bay is sheltered by the Hel Peninsula, making the water of Sopot beaches warmer than elsewhere in the Baltic Sea. The town hosts a number of sailing and watersports events, and is a popular tourist destination both locally and internationally.
Wroclaw is in a prime location to develop in many ways. The city is the fourth-largest in Poland and is the second financial centre after Warsaw. Situated strategically between Prague, Warsaw and Berlin, Wroclaw boasts a well-developed transportation infrastructure that connects the metropolis with the whole of Europe and beyond - including a well-serviced international airport. The city is not just an investment - it is also perceived as a good place to live, not only due to a large company base creating jobs in the region, but also due to the surrounding scenery and outdoor leisure opportunities. Tourism here is experiencing a boom, with over a million tourist arrivals, making Wroclaw the third most popular tourist destination in Poland after Warsaw and Krakow. Demand in the city is well illustrated by its population growth - with 638,000 in 2004, the number is expected to exceed 1 million in the next ten years.
Wroclaw is one of Poland’s ‘most often chosen by foreign investors’ cities due to the beneficial investment climate. Support programmes are being implemented for entrepreneurs, new investment lands are being extended, the technical infrastructure is constantly being improved, taxes are low and stable, and special economic zones have been established. The city also has an active promotional policy and is a major academic centre. The property market here has also been extremely dynamic in recent years, with net unit prices in new developments increasing by an average of 10-15% depending on location.
Zakopane is situated in southern Poland, about 100km to the south of Krakow, close to the border with Slovakia. The winter capital of Poland lies in the southern part of the Podhale region at the foot of the Tatras Mountains, and offers the best skiing and mountaineering in the country, visited by around three million tourists annually. Where the property market is concerned, demand for hotel space exceeds that available in high season, and the rental season is six months. The best hotels are booked out for almost the entire year, however, so top end properties will offer the highest yields. Careful and heavy planning restrictions will ensure that demand continues to exceed supply.
In Poland it is sensible to consider all areas before making a purchase, but the choice of investment must be made carefully and nothing should be rushed into.
Buy new or old properties, but nothing in between. Large-scale building programmes during the 1970s and 1980s contributed to a large increase in residential stock, however the build quality was substandard and now 60% stands in need of repair. A central location is always a good bet and will produce
attractive enough yields, but this will often not be a cheap investment, with some city centre prices already up at £3,500 per sq/m. Carefully chosen suburbs, aimed at Poland’s growing middle classes, may be the safest and most profitable investments medium-grade housing in locations where to urbanising
workforce will arrive.
Legal Costs & Implications
- Broker’s fees tend to be 2.5-3.5%
- Notary fees
- Court fees of 200 PLN - around 53 Euros
Ownership Structure
Polish property law is mainly governed by the Polish Civil Code. The law distinguishes between rights which are attached to the land, irrespective of its ownership, and contractual rights, which affect only the parties to the contract. Ownership under Polish Law is equivalent to freehold under the English legal system. The owner is subject to planning legislation and is obliged to refrain from activities which interfere with the rights of others, such as withdrawing support from neighbouring buildings or committing a nuisance. Ownership is freely transferable and mortgageable.
EU citizens can freely buy and sell property in Poland, except for agricultural land. Other foreigners are able to buy and sell property up to 0.4 hectares, with larger purchases requiring approval from the Interior Ministry.
Purchase Process
Foreigners do not normally have to set up a company to purchase property in Poland. The buying process can be carried out by appointing a local lawyer through an executed Power of Attorney (PoA). The PoA and the mortgage document must both be translated by an official government translator.
There are two contracts involved in a property purchase in Poland. A preliminary contract commits both parties to the sale, and is accompanied by a deposit of between 10% and 30%. The preliminary contract sets a date for the signing of the final contract in the presence of a notary. The role of the notary is to check the property title for undisclosed charges and to ensure that the seller has the right to sell. The final contract officially transfers the title of the property from the seller to the buyer, and is signed by both parties before the notary who then adds the official stamp to the contract. The notary then logs the change of title at the property registry. This is a slower process than in many of the new European member-states, and registration can take up to three months. The purchase price is transferred after the final contract is signed.
Mortgage Info & Situation
Mortgages are available up to 80% LTV with low interest rates and for terms of up to 30 years, and there are also some buy-to-let opportunities available. Buyers can borrow in different currencies and tend to avoid the zloty. The value of the Polish currency has risen more than 15% since foreigners were given the right to buy in 2004, adding a corresponding 15% to the value of the mortgage. Loans in Swiss Francs have the lowest interest rate at just 3.1%, rising to 5% for dollar loans.
A Warning:
With international investor interest high, some developers do appear to be taking advantage of inexperienced speculators. Two markets appear to be opening up, one for the international buyer and one for the local buyer.
Property Frontiers re-iterates that investors should be extremely careful to buy in locations and at prices that will attract future local buyers. For this reason we are taking great care not only to select the best investments, with strong growth potential and an affordable resaleability to a Polish buyer, but also one which will produce enough income to repay the mortgage.
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