Last Minute for Real Estate Investment

Real estate prices in Poland have skyrocketed by 10-15 percent on average over the last year. However, in the cities of Warsaw, Cracow, Poznan, Wroclaw and the so-called Tricity (Gdansk, Sopot, Gdynia) prices rose by as much as 30 percent, says Newsweek.

Real estate prices in Poland have skyrocketed by 10-15 percent on average over the last year. However, in the cities of Warsaw, Cracow, Poznan, Wroclaw and the so-called Tricity (Gdansk, Sopot, Gdynia) prices rose by as much as 30 percent, says Newsweek.

As apartment prices grow, demand for real estate is increasing. Those who want to improve their standard of living and those who want to invest in real estate to sell it later at a profit are hurrying to buy flats. The latter are both Polish and foreign individual investors, who purchase several or more flats in newly built blocks of flats. There are also investment funds purchasing whole buildings. Experts of consulting company Reas estimate that more than 114,000 flats completed last year served as a capital investment.

This year, the percentage of real estate purchased as an investment is expected to double. Demand is high because real estate is considered a good investment. The average profits from apartment sales have increased by 30-40 percent over the last two years. Although investors could earn more on the Warsaw Stock Exchange (WSE) and investing in equity funds, such investments are more risky, as recent declines on the WSE show. Compared to the equity market, the risk of investing in real estate is relatively low.

At present, a person who sells a flat has to pay 10-percent tax on the value of the apartment, provided that he or she has been the owner of the flat for less than five years. In addition, the person does not pay the tax if the profits from the apartment's sale are reinvested in other real estate. The government wants to introduce a change and impose 19-percent tax on the increase of real estate value, but so far it is not known whether the change will come into effect, or when. Real estate market experts claim that apartment prices will continue growing by some 15 percent per year for the coming three to four years. The reason is low supply and high demand.

According to real estate agent redNet, Poland is short of some 1.5m flats. Experts expect the largest price hike in the second half of 2007, before the implementation of a real estate VAT rise due to take place in 2008. "Afterwards, we'll see the situation calm down, but after a year, prices will go up again," says Reas President Kazimierz Kirejczyk. However, the situation will to a large extent depend on economic growth, as was the case in other European Union states. In Ireland, apartment prices have increased by 90 percent over the last seven years, in Spain - by 120 percent over the last decade.

It is not surprising then that foreign investors are attracted to the Polish real estate market. Even foreign investment funds are coming to Poland in search of decent returns. Recently, British fund Marcol Group purchased the luxurious apartment house Holland Park, attractively located in Warsaw. Both Polish and foreign investors are mostly interested in two-room 50-70 meters flats located in the centers of large cities, as it is easier to rent or sell such flats.

Investors are also very much attracted to old tenement houses, as their number on the market is limited and will not grow; and prices are expected to grow at a fast rate. More and more individual investors attracted by decent profits which can be generated on real estate invest not only their own savings, but also money from loans.

According to the Mortgage Credit Foundation, the value of mortgage loans taken by households exceeded ZL68bn. Some 20-30 percent of the total concerned capital investment. However, those who purchase apartments for rent have to be careful, as rent rates are flat and are not expected to increase, especially on the outskirts of cities.

However, it is worth investing in luxurious apartments destined for rent. Apartments located in attractive districts are sought by business people coming to Poland and recently by wealthy tourists. Monthly rents for such a flat amount to ZL8,000-10,000.

The invested capital is estimated to return in 10-15 years, while the investor still owns the flat.