Poland Enjoys Best Growth

Interview with Chief Property Market Analyst Łukasz Madej, redNet Property Consulting

Interview with Chief Property Market Analyst Łukasz Madej, redNet Property Consulting

Has there been an investing boom in the property market in Eastern and Central Europe since the EU enlargement?

Investment risks continue to fall in the new EU member states after their accession in May 2004. Factors such as the growing number of foreign investors willing to purchase flats and luxury apartments are major contributors. In autumn last year Poland experienced a surge in investment, which still continues.

What countries do foreign investors find most attractive at present?

Foreign capital investing in Eastern and Central Europe has now concentrated on Poland. Previously, mainly the Czech and Hungarian capitals were most attractive, but now certain restrictions for aliens buying property have become effective (purchase of property must be performed by legal entity). The interest in other large cities there has increased recently. The cities that attracting most of the foreign capital in Poland include Cracow, Wroclaw, Poznan and Tri-City.
Croatia also saw some of the boom, but this proved to be only temporary mostly due to pervasive corruption and fears that investments may be disrupted. The Baltic States, Ukraine and Moldavia
show some potential but often lack investorfriendly environment.

Who are the most active investors in Central Europe?

Mostly, these include investment funds. Foreign investors are largely dominated by the English and Commonwealth citizens amounting to nearly 80 per cent. British investment funds mostly purchase land and property developers, not ready flats. Most of the capital comes from the private investor. Investment funds bring out prospectuses on future investment, distributed in 53 Commonwealth
states. The investors, usually moderately rich Englishmen, buy properties through a fund on terms specified in the prospectus, not even having to leave their homes. A representative company for the fund sees to everything.

Why all this unflinching faith in prices to continue rising?

The property market is affected by processes that take place in the international environment, which increasingly infiltrate into local property markets and boost their growth. Poland is predicted to experience an economic boom in the years to come. Consumption and investments are expected to increase, as result of the booming economy enhanced by optimistic expectations concerning EU membership. Foreign investors remember what the prices were and what spectacular
growth Poland had to offer at first. Purchase of a property is now negotiated with a developer
long before any earth works commence. Upon conclusion of the construction the return on the investment is 100 per cent more what it was at the beginning. Investors are attracted to Poland by other factors including infrastructure development, Poles’ growing spending power, increasing
rate of economic growth, people migrating to large cities, fall in the number of the unemployed, and banks’ loan and credit offers. Not long ago flats were cheap, less than 3,000 PLN per square metre. Another factor is the disproportion between supply and demand. The demand continues to be high due to the fact that the market is short of about 1.5 million flats. The reason for the Polish market to be so attractive is the fact that the tax rate on building materials is now only 7 per cent and will rise up to 22 per cent on January 1, 2008. Those willing to purchase a property now need bear in mind that the taxation will amount to 22 not 7 per cent, as the Inland Revenue accepts
only the date of title deed transfer, which lasts. On average, construction works take about 18 months plus another 6 months for title deed to transfer. There still, however, is a chance that the matter of taxation will be renegotiated and a compromise reached.

Is the phenomenon of prises abruptly increasing after Ireland and Spain joined the EU repeating itself now in Poland?

Foreign investors observed and participated in the boom that the two countries experienced after their accession to the EU. When prices levelled with what they were in the other member states investors directed their eyes on Eastern Europe, mainly Poland. The other countries may seem more attractive, but Poland offers the safest transactions, no restrictions for aliens willing to buy properties and opportunities to obtain credits of up to 80 per cent of a property’s value. What is
more, property prices impressively increased by 30 to 35 per cent.

What are today’s property investment trends in Europe, and what are they going to be in the next two or three years?

It depends on how much land property developers will be able to develop. Poland has one inconvenience, namely its lack of development plans. It proves to be little of a problem in the city of Gdansk, but such cities as Cracow or Poznan have got plans for only 7 per cent of urban areas. No development plans means an ordeal of obtaining a planning permission, estimating
the affects on the environment, which can last months. I believe property developers should be able
to build more flats and sell them in two years’ time. Today they are selling an excavated hole in earth. The disproportions may end in spring next year. One thing is certain, we are bound to witness increasing prices for a year ahead.