Poland: Jet to Let Guide to Poland

The story so far…

Poland was one of the largest and most powerful countries in the 16th century but has had a troubled history since. Invaded and occupied by German troops at the beginning of the Second World War, Poland suffered cruel losses, losing the highest percentage of its citizens (six million) of all the combatant nations and 20 per cent of its pre-war territory. It became a satellite nation of the Soviet Union until the Solidarity party, led by Lech Walesa, won elections in 1989, the beginning of a period of lasting democracy in Poland. The country joined the European Union (EU) in May 2004.

Where is it?

The Republic of Poland is the largest of all the Eastern European 8 countries. Its neighbours are Germany to the west, the Czech Republic and Slovakia to the south, Ukraine and Belarus to the east, and Lithuania and Russia to the north. Poland also has a coastline to the Baltic Sea in the north, which is 491km long. The country’s total territory is 312,685km squared.

What is the weather like?

The climate in north-west Poland is slightly different to the rest of the country. The winters in these regions are humid and mild, while summers are wet and relatively cool. The rest of Poland has colder winters and hotter, drier summers. It snows on average 50 days a year with snow cover remaining in the Carpathian and Sudetan Mountains.

Language

Poland has an estimated population of 38.6 million people, consisting largely of Poles (96.7 per cent). The official language is Polish, spoken by 97.8 per cent. Small numbers of people in Poland also speak Russian, Ukrainian, German and English.

Currency

The currency in Poland is the Zloty (PLN), divided into 100 Groszy. Under the terms of accession to the European Union (EU), all new member state countries are expected to adopt the euro at some future stage. Poland is the only member which as yet has no target date to adopt the euro.

Politics

The political situation of the 1990s can be summarised by the dominance of the left-wing coalition between socialist and social democratic parties. During this time, Poland continued with its programme of free market reforms and achieved impressive economic growth. In 1999, the coalition became a party under the banner of the Social Democratic Alliance (SLD). However, in 2004, SLD’s Prime Minister Leszek Miller and his cabinet resigned due to many corruption scandals and the party’s popularity has since waned. The 2005 parliamentary elections were won by two centre-right parties: Law and Justice and Citizens Platform. The expected coalition between the two parties has failed, and even though they are both centre-right, they are in political opposition to each other.

Poland is a democratic republic. The current main party is the Conservative centre-right Law and Justice, which presently holds power with a minority government. Lech Kaczynski was elected as President in 2005. The Prime Minister is Kazimierz Marcinkiewicz, elected in 2005.

Economy

Poland was the first former Communist-planned economy in Eastern Europe to end its recession and return to economic growth. Since 1992, the Polish economy has enjoyed a strong recovery, driven by significant expansion in the private sector. This was achieved through large-scale privatisation and the restructuring of old outdated industries.

However, Poland’s economic growth has slowed since 2001, but it’s now recovering with the help of strong exports and growing domestic demand. The gross domestic product (GDP) forecast for 2006 is over four per cent and the economy is also benefiting from large inflows of foreign direct investment (FDI).

The agricultural sector remains very important, employing 16 per cent of the population. Poland’s biggest challenge remains high unemployment, which reached 17.9 per cent in 2005 (higher than in any other EU country).

Economic growth

GDP growth has been moderate over the last six years as shown in the table below. The European Commission reports that Poland’s GDP is expected to grow by 4.3 per cent in 2006, having reached 4.2 per cent in the final quarter of 2005. Poland’s GDP per capita in 2005 was €11,600.

Year Real growth of GDP (%)
2000 4.0
2001 1.0
2002 1.4
2003 3.8
2004 5.4
2005 2.6

Source: Eurostat, the Statistical Office of the European Communities

Inflation

Annual inflation in Poland was 2.2 per cent in 2005, caused by increases in the price of oil, fuel and food.

Interest rates

The Polish Central Bank cut its key policy rate to 4.00 per cent in March 2006. Interest rates are expected to drop further to 3.75 per cent during 2006.

Unemployment

Poland struggles with exceptionally high levels of unemployment, currently the highest in the EU. Unemployment started growing in the late 1990s due to an economic recession and the continuing restructuring of the economy. The rate of increase has slowed in the last few years due to a recovery in the economy. Unemployment is highest in rural areas and among the oldest, youngest and least educated workers.

Unemployment rate (percentage unemployed)
2000 16.4
2001 18.5
2002 19.8
2003 19.2
2004 18.8
2005 17.9

Source: Eurostat, the Statistical Office of the European Communities

Foreign direct investment (FDI)

Poland attracts large sums of FDI. The country has the largest market in Central Europe, with a diverse industrial base and an investment-friendly attitude. The majority of investment is in the manufacturing sector (42 per cent) and financial services (23 per cent). FDI accounted for almost five per cent of GDP in 2004. The largest foreign investors in Poland are France Telecom, Fiat, Daewoo, HVB and Citibank.

Foreign direct investment in Poland (€ million)

Year Real growth of GDP (%)
1999 6,824
2000 10,334
2001 6,372
2002 4,371
2003 4,067
2004 10,279
2005 6,132

Source: Bank of Poland

The property market

The property market in Poland has expanded significantly since joining the EU in 2004. Poland is experiencing classic multiplier effects as a result of FDI, although at a slower rate than some other new entrant EU countries. Factories, manufacturing plants and services relocating to Poland have provided new employment opportunities and have created greater wealth. This is reflected in the upward pressure on property prices. New jobs create demand for rented accommodation and, as a result, jet-to-let investors can expect yields of eight to ten per cent, depending on the location of the property.

The economy continues to grow at a steady rate, but Poland still struggles with extremely high levels of unemployment making the choice of location even more important for the jet-to-let investor. Property prices are growing in the main cities where jobs can be found more easily.

The property market is forecast to maintain a steady rate of growth as demand exceeds supply. The Institute for City Development (IRM) estimates that the market currently has a shortfall of around 1.4 million properties. To meet this demand, 300,000 units a year need to be constructed, which is significantly greater than the present rate of construction at 90,000 units. In June 2005 alone, building and construction output grew by 30 per cent on the previous year, according to Poland’s Central Statistical Office.

Prices remain low, but have been gradually rising – up by 17 per cent in 2004. Foreign investors choose mainly new-build or renovated properties in Warsaw and Krakow, although other regional towns have started to look attractive for investors.

Property hotspots

Warsaw is the main industrial and commercial centre of Poland. It’s a relatively small capital city and only five per cent of the nation’s population live there. However, as the city expands in line with the economy, the demand for labour should increase, which will lead to migration from rural areas to the city. The number of Poles moving to Warsaw is expected to double over the next 15 years, providing solid jet-to-let investment opportunities as properties are constructed to meet the increased demand. Prices for new-build properties increased by ten to 15 per cent in 2005 depending on location.

Krakow is one of the most beautiful cities in Poland and is the cultural and educational centre of the country. Unlike Warsaw, the property market in Krakow is supported by tourism, which is growing each year, aided by the arrival of low-cost airlines. The population is rising and demand for new off-plan properties is intense, outstripping supply by 40 per cent in some areas. Property prices rose by 27 per cent in 2005.

Apart from the big cities, Poland has much more to offer – ski resorts, mountains and the Baltic coast beaches. Property prices in the coastal towns of the TriCity area (also called the Triple City or Trójmiasto, consisting of Gdansk, Gdynia and Sopot) increased by 28 per cent in 2005.

Transaction costs

The process of buying property is relatively simple. The buyer pays a deposit, usually 20 per cent on signing the preliminary contract. The remainder is paid at the final contract meeting where the seller must provide documents ensuring that there are no debts secured on the house. As always, an independent lawyer will cut through the maze for you. The transaction costs are:

• Transfer Tax (stamp duty) is paid on the transfer of ownership and is two per cent of the market value of the property.
• Notary fees are two to three per cent of the purchase price.
• One per cent in legal fees and two per cent in court registration fees.
• Estate agents’ fees are about five per cent. These are normally paid by the seller.

Total costs come to about eight to ten per cent of the purchase price.

Annual costs

Real Estate Tax is paid annually by the registered owner of the land. The rate of tax is determined by the local authorities.

Taxes

Income Tax
Individual Income Tax rates in 2006:

Tax Annual tax base (PLN)
19% 0–37,023
30% 37,024–74,028
40% 74,029 and over

Corporation Tax
The standard rate of Corporation Tax is 19 per cent.

Capital Gains Tax
Capital gains are taxed as income for companies and individuals. Individuals pay ten per cent tax on the sale of the property. Properties owned for more than five years are exempt from tax.

Facts at a glance

Geography

Population (2005 estimate): 38,635,144
Language: Polish
Ethnic groups: 96.7% of ethnic Polish. Ethnic minority groups include Ukrainian and German
Local currency: Zloty divided into 100 Groszy

Political system

Political structure: Democratic republic
President: Lech Kaczynski
Prime Minister: Kazimierz Marcinkiewicz
Main parties: Law and Justice, Citizens Platform

Economy

Unemployment rate in 2005: 17.7%
Unemployment rate, February 2006: 17.0%
Inflation rate in 2005: 2.2%
Inflation rate, February 2006: 0.9%
Interest rate, March 2006: 4.0%
GDP growth in 2005: 2.6%
GDP growth forecast for 2006: 4.3%
GDP per capita: (income €11,600 per person) in 2005

Taxation

Income Tax: 19–40%
Corporation Tax: 19%
Capital Gains Tax: 10%

Corruption statistics
Corruption rate: 3.4
Corruption rank: 70th

Industry and technology

Major industries: Iron and steel, Coal mining, Food processing

The Polish property market

Hotspots: Warsaw, Krakow, TriCity (Gdansk, Gdynia and Sopot), Wroclaw

Property taxes (transactions)

Transfer Tax: 2%
Notary fees: 2–3%
Estate agents’ fees: 5%
Legal fees: 3%
Total fees: 8–10%

Property taxes (annual)

Property Tax: Varies from region to region

Mortgage

LTV: 60–80%
Term: 4–35 years
Currency: Swiss Francs, US dollars, euros, Polish Zloty and British pounds
Current interest rate: 3–6% in euros

Investor resources

Embassies

British Embassy in Poland
Warsaw Corporate Centre
ul. E. Plater 28, 00-688 Warsaw
Tel: +48 22 311 00 00
Fax: +48 22 311 03 11
Website: www.britishembassy.pl

Polish Embassy in the UK
47 Portland Place
London W1N 3AG
Tel: 0870 774 2700
Fax: 020 7291 3575
Website: http://poland.embassyhomepage.com/poland_embassy_london_united_kingdom.htm

Useful websites

Bank of Poland
www.nbp.pl

Central Statistical Office of Poland
www.stat.gov.pl

Invest in Poland
www.paiz.gov.pl

Tourism in Poland
www.polandtour.org

© Lawpack Publishing 2006

“The Jet–to–Let Bible”, Dominic Farrell
Reproduced with the permission of Lawpack Publishing.

Further information on this topic can be found in “The Jet-to-Let Bible”, by Dominic Farrell, ISBN 1 905261 11 X

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