Overview of investing in Poland

Big, and getting richer
Poland is, beyond doubt, the big beast among the new EU states of eastern European. With a population of 38 million, it dwarfs its eastern neighbours – both in terms of population and in area. (Remember, this is a country as big as Germany or France.) More important for you, there’s no doubt that Poland also offers some of the best investment opportunities.

Supply and demand
In some other countries, people have chosen to build their investment on sand – literally. You’ve probably read about the recent boom in tourist investment around the Black Sea, and the market in Spain, the Algarve, Provence, etc., has long been established. Poland is a very different kettle of fish. It may not have sun-drenched beaches and surf, but it has something arguably better: a large, rapidly growing economy, and a massive inflow of foreign companies and capital. As Poles get ever richer, and as Coca Cola, BMW, IBM and the rest set up factories and offices in the country’s main cities, the price of property should move ever upwards. This is compounded by the fact that, in the Polish housing market, demand is greater than supply. It’s the oldest principle of economics, and it can work to your benefit here.

Sustainable growth
Thanks largely to the pursuit of free-market, pro-investment policies, the Polish economy has been growing rapidly for years. Predicted economic growth for 2006 is a healthy 4.1%. There is no reason whatsoever to imagine this will change. As ever, a stable, prosperous economy means rising yields – both in capital and rental terms. The low rate of inflation (1.8%) offers you further reassurance in a market which, from the investor’s point of view, is exceptionally stable. Put simply, you can invest your money in Poland without worrying about nasty surprises round the corner. The country’s growth is sustainable, and the main political parties are committed to liberal, benign economic policies.

Warsaw, the country’s capital, was severely damaged during World War II, and was thus largely rebuilt in the communist era. As you’d expect, it remains the number one location for foreign investment. Disposable incomes are highest here (both among locals, and the ever-increasing number of foreign residents), but there’s a shortage of modern, well-built housing. So, find yourself a desirable apartment in a reasonably fashionable location, and potential tenants should soon be competing for your favours. Average capital appreciation in Warsaw in 2005 was 10-12%, with some of the fancier districts reaching 30%.

Not only Warsaw
Hot on the heels of Warsaw is Krakow. Since this city went unscathed during the war, it’s much more pleasing to the eye, and forms the hub of Poland’s fast-growing tourist market. Far from relying on foreign visitors, however, Krakow has a solid economic base of its own (engineering, services, telecoms), so that the investor can easily spot that magic sign of coming prosperity: an emerging local middle class. And don’t forget the other big cities too. For example, Wroclaw (formerly Breslau) is definitely a place to watch over the next decade. This is partly due to its convenient location near Germany and the Czech Republic, partly its young, educated population, and partly the avalanche of investment it’s now receiving from a raft of major foreign companies.

Whichever city you choose, however, it’s still not difficult to find a bargain. For example, while Krakow yields nothing to Prague in terms of elegance or culture, its property prices are significantly lower than those of the Czech capital. A modern, well-equipped apartment in a good district of Warsaw can, of course, be obtained at a fraction of the cost in a large British city. Moreover, with a growing mortgage market, and interest at around 4%, you should have no difficulty in selling your property when the time comes.

World’s best estate agents?
Dealing with estate agents may not, we know, always be a perfect pleasure – but Poland is very much the exception to the rule. Polish agents are almost fanatically hard-working, and will generally stop at nothing to help their clients. (This will even extend to picking you up from the airport.) Since properties in Poland are often not openly advertised for sale, their inside knowledge is key to making a good purchase.

Since EU accession, barriers against foreigners buying real estate have been done away with. The buying process is simple, and your estate agent will arrange all necessary meetings with the vendor and a qualified notary. One good thing about the Polish market: meetings are usually held with all parties present, thus saving time and making the process easier and more transparent. Horse trading between buyer and vendor is allowed, and even encouraged. Although locals do not usually employ a lawyer for real estate transactions, we of course recommend that you do so. In Poland, debts against a property remain with that property, not the original debtor. So, when you finalise the sale, you must obtain a notarised statement to say that the property is free of claims and mortgages.

A prime target for smart investors
Notary fees, etc., currently run at 2-2.5% of purchase cost, with VAT at 7%. However – there are indications that VAT on real estate will increase to 22% in January 2008. So, if you’re interested in Poland, it’s probably a good idea to move sooner, rather than later.

We have no hesitation in saying that, on current form, Poland offers one of the best prospects for investment in eastern Europe. Considering the strength of the regional competition, that makes it an interesting prospect indeed. Poland offers the combination of three key criteria: stability, high capital yields and good rental returns. If you like sun, sea and sand, you’re probably better off elsewhere. But if you like good, sustainable returns, in a stable environment, Poland could very well be just your cup of tea.