Property boom hits Poland as European investors go east

Poland has jumped to the top of the European house price growth league table after property values there soared 33% last year, according to a study published yesterday. Locals and foreign investors who were smart enough to buy property in Krakow, Poland's ancient royal capital, are toasting a 58% rise. That makes the medieval city Europe's top-performing location.

Poland has jumped to the top of the European house price growth league table after property values there soared 33% last year, according to a study published yesterday. Locals and foreign investors who were smart enough to buy property in Krakow, Poland's ancient royal capital, are toasting a 58% rise. That makes the medieval city Europe's top-performing location.

The Royal Institution of Chartered Surveyors looked at the rates of house price growth in 26 European countries, and named other star performers as Denmark, Bulgaria and Estonia. Most countries saw solid house price inflation in 2006, with European markets failing to follow the lead from across the Atlantic, where the US property market ground to a halt.

Last year was supposed to be the year when housing markets in Europe cooled, dampened down by interest rate rises, increasingly stretched affordability and a supply increase in many markets, said the report's author, Michael Ball, a professor in the department of real estate and planning at Reading University. But in the main, Europe's housing markets had "another strong year," with several countries, including Britain, enjoying significant increases in their rates of price growth. The only country to experience a slight fall in prices last year was Portugal, while Germany continued its poor run with zero growth.

Professor Ball's report suggests that 2006 was very much Poland's year. While the influx of Polish plumbers and other workers into the UK has grabbed headlines it would appear that the traffic has been two-way, with growing numbers of British and Irish investors snapping up apartments in Warsaw, Krakow and Gdansk. Added to that, Poland now boasts one of the fastest economic growth rates in Europe, and that means growing numbers of Poles can now afford to buy. "People are desperate to move from the communist, drab apartment buildings," said Henry Wilkes, head of central and eastern European investment at estate agent Savills.

Another factor is the relaxation of lending rules which has led to more competitively priced mortgages.

Such high demand is outstripping supply, and the result has been an acceleration in the rate of house price growth in Warsaw - from 28% in 2005 to 33% in 2006. Krakow's 58% price growth has been partly attributed to the fact that a number of British and US companies have decided to open offices there, and to its burgeoning tourism industry; the city has been dubbed "the new Prague".

The Scandinavian countries continued their impressive growth. In Denmark, prices jumped by 22% last year following a similar rise in 2005, while Norway's annual rate of growth more than doubled to hit 17%, and Sweden also made it into double figures with an 11% rise.

"Something is clearly afoot in northern Europe," said Professor Ball. He added that some experts had suggested that high price expectations in an era of relaxed mortgage lending were driving up inflation.

Of the "big four", Britain, France, Germany and Italy, only the UK outstripped its 2005 performance, with house prices rising 10%, partly reflecting the lack of housing supply.

The medieval city of Krakow has seen prices rise by up 58% and by 100% in the sought-after centre, which miraculously escaped destruction during the second world war.