Poland: Poland

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

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.

The optimism has been partially justified: economic growth is over 5% and property prices continue to rise at a steady 10% per annum in the major cities. Polish families are expecting better quality residential property and the level of home ownership is rising steadily, increasing from 48% in 1998 to 55% in 2003.

There are difficulties: unattractive grey Soviet apartment blocks still make up much of the housing stock and some new construction doesn’t live up to expectations.

The buoyant market is encouraging developers to build, and Poland’s major cities are now ringed with inexpensive housing. The balance between supply and demand may be shifting towards over-supply of affordable residential property. Exclusive high quality developments are therefore believed to be the best investment.

Is this a good place to buy?

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. Poland does present a good opportunity, but this level of growth is unrealistic.

According to the “Emerging Trends in Real Estate Europe” Report released jointly by the Urban Land Institute and PriceWaterhouseCoopers, 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 can 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. Buyers who invested in 2004 have not been disappointed. With close links to neighbouring Germany, Poland is being successfully integrated into the EU. The Polish are getting richer, and property prices look set for a sustained rise.

There is no doubt that Poland is taken very seriously by the educated investors. With residential yields in cities up to 6%, and as one of the few Eastern European markets to have dedicated property funds, whether Poland can still be classed as emerging is debatable.

A construction boom has spread from Warsaw and Krakow to regional centres such as Gdansk and Poznan. A high proportion of rural homes may still lack some of the most basic amenities, but Poland’s cities are now ringed with new-build developments catering to young professionals and Poland’s growing middle classes. Poland is also set to receive close to $13.5 billion to spend on infrastructure and economic growth is strong.

The property market in the cities remains buoyant and off-plan developments often sell out before building begins. Another sign of a growing market is the increase in available credit facilities. It is estimated that lending is now a part of around a quarter of transactions and interest rates have fallen.

The mortgage boom has been led by borrowing in foreign currencies as mortgages taken in zlotys have a nasty habit of becoming relatively more expensive. The interest rate on a loan in Swiss francs is as low as 3.1%, or 5% in dollar loans.

Price history

According to the RICS European Housing Review, prices rose by 10% in 2004. In 2002 and 2003 appreciation was closer to 20%. More than any other country Poland benefited from outside investment. Apartments in historic buildings in the very centre of Warsaw can now cost 200,000 euros (£140,000/$240,000), although studio flats designed for young professionals can be as little as 60,000 euros (£42,000/$73,000). Three bedroom houses in the suburbs cost about 140,000 euros rising to 300,000 euros for sizeable properties in very good locations.

Buyers this market will appeal to

Essentially an investment market, Poland has some buy to let opportunities in cities, particularly those on the inter-rail circuit. Most buyers prefer reliable long term lets to local tenants. The growing middle class creates a reliable market for good quality property.

Which type of property should you go for?

The rule in Poland is either to buy new or old, nothing in between. Large scale building programmes in the 1970s and 1980s contributed to a massive increase in residential stock. The quality of build was not high and over 60% of the housing stock now stands in need of repair.

Local analysts instead suggest buying new build apartments or small houses in the suburbs of major cities. These properties are suitable for renting to Poland’s growing middle classes and can return a reliable rental yield of 6%-8%.

Older properties are also a good buy. Turn of the century apartments with high ceilings command high prices and there is a new trend for developments to renovate townhouses before sub-dividing into apartments.

Hotspots

Buyers tend to start in Warsaw or Krakow. Krakow is popular because of its place on the UNESCO world heritage list and status as a favourite weekend break and inter-rail destination. Warsaw is not just the titular capital of Poland but is also the economic centre.

One of the fastest growing cities in Europe, the number of professionals moving to Warsaw to work is expected to double by 2010. GDP in Warsaw is increasing at a rate up to four times faster than throughout the rest of the country. There are signs that prices in the centre of the city may have topped out, but interest in the suburbs is strong. Rental yields here stand at approximately 6%

While capital appreciation in Warsaw and Krakow has dipped under 10%, the smaller cities are still showing growth closer to 15% per annum. Gdansk (German Danzig) was the best performer in 2005. Set on the Baltic Coast and surrounded by good beaches, Gdansk has a charming Old Town which was in fact reconstructed piece by piece after being bombed in the Second World War.

Cheap direct flights from London were introduced in 2005 and Gdansk is showing the increase in property prices known as the ‘easyJet effect’. There is however a lack of accommodation for visitors. The few hotels are aimed at business travellers and overpriced for tourists. This leaves visitors dependent on short-lets, and accommodation offices in the centre of the city often have long queues.

Purchase process

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 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 also to ensure that the seller has the right to sell.

The final contract 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.

Agents fees are charged to both buyer and seller, with the buyer’s share 1.5%-3% of the property value. Taxes add up to 5% of the sale price, significantly less for apartment buildings and capital gains is charged on real estate held for less than five years. 7% VAT is levied on new-build properties.

Key risks and opportunities

Poland has experienced some difficulties with unscrupulous developers, who have either taken deposits and run, or delivered something that differs radically from the original plans. The problem is concentrated in areas where development is something new. In Warsaw and Krakow developers can often point to previous successful projects. In emerging hotspots such as the TriCity area on the northern coast a more cautious approach is important.

For buyers interested in off-plan property local experts also recommend visiting the site in person, as surroundings vary widely. The shortage of housing in Warsaw means that some developments have been built in large run down estates. New apartment blocks include security provision, but these apartments will lose value faster than better located developments.

Mortgages

Mortgages are available through international lenders and local banks. Terms are some of the most attractive offered on an overseas property purchase – reflecting the comparative maturity of the overseas investment market here. Typical loan to value is 70/30, banks will include foreign income in their assessments and there is even a specific buy to let mortgage which takes account of expected rental returns. Mortgages are available over a thirty year term and fixed rate lending is now being introduced.

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. This adds 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.

Opportunity rating

Poland was a high profile EU entrant and shows many of the fundamental strengths to do well as an investment location. However, there is already evidence of over supply in certain areas and there has been extensive emigration as young Poles move to find higher paid employment in other parts of the EU. However, there are some good buy-to-let opportunities in Poland and good properties should experience long term growth.

Rating: $ $ $

Risk rating

The primary risk relates to over supply. However, there have been cases of unscrupulous and low quality developers, so a cautious assessment must be made on new build properties.

Rating: * * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in Supplied by ...

“Where to buy a property abroad – An investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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