Pole Position

At the crossroads of central and eastern Europe, Poland has been a country in a state of flux for much of its history. In the 20th century it has truly suffered. Large areas of it, including most of the capital, Warsaw, were flattened during World War II, and the communist era was endured under a particularly Draconian regime. After such a turbulent time, it is perhaps no surprise that the resilient Poles have grabbed the opportunities that came with the collapse of communism with both hands, and are transforming their country in a hurry.

Since joining the EU in 2004, Poland has seen significant growth in GDP, and it is expected this will have risen 50 per cent between 2004 and 2010.

In line with the economic transformation, property in Poland has attracted interest from overseas buyers, mainly from the UK, Ireland and Germany, who were quick to identify the property investment opportunities the emerging new Poland presented.

The country has seen some of the most astonishing capital gains in any market over the last three years, although this is inevitably beginning to slow due to a combination of a maturing market and global economic conditions.

During 2006, average property prices rose 33 per cent, with some cities such as Krakow, seeing much higher figures than this, according to David Cox of property Frontiers.

According to the most recent Knight Frank global house price index: “Poland is a first-time entrant to the global index. Property prices rose over the course of the year (2007) by around 22 per cent, although the last two quarters saw falls in growth, of seven per cent and 2.3 per cent in Q3 and Q4 respectively,

somewhat negating the 16 per cent growth seen in each of the previous two quarters.”

Although Poland has seen some price falls, it is bearing up well when compared with other eastern European property markets which saw similarly stratospheric levels of growth. According to Knight Frank, prices in Latvia fell by 7.1 per cent in 2007, and in Estonia they dropped a hefty 14.5 per cent.

Much of the overseas interest in property in Poland has come from a pure investment point of view, and was originally heavily focused on new-build residential properties in Warsaw and Krakow. Many property buyers took advantage of the fact that the domestic demand for decent accommodation was huge. A recent report by the Organisation for Economic Co-operation and Development said that by 2010, three million Polish households will be without dwellings of their own. Consequently, the demand for new apartments has been outstripping supply by around 40 per cent, with 40,000 new units a year needed to address the imbalance.

In this climate, the lack of property for sale in Poland, combined with an emerging Polish middle class and a huge number of international corporate workers (Poland has more Foreign Direct Investment than any other eastern European country) has created a large market for suitable rental properties. Early investors have been having their cake and eating it thanks to huge capital gains and regular reliable rental returns.

But now the market has cooled a little, where should buyers be looking?

Warsaw is still an attractive option. One of Europe’s fastest growing cities, the number of professionals relocating there is set to double by 2010, according to Property Frontiers. GDP in the city is rising four times faster than much of the rest of the country, and has reached a rate per capita of 75 per cent of the European average. City centre property prices appear to have hit the buffers, but the right deal in the suburbs could still offer good capital appreciation and rental yields of around six per cent.

Nick Hadcock of Krakow Property Holdings says that although the market has cooled, Krakow is still a good et. “Between 2005 and 2007, prices went up by around 100 per cent, which is obviously not sustainable. Over the last year prices have remained stable but in the next year we anticipate a five to ten per cent rise, and slightly more the year after that. In the long-term, Krakow is a very, very good investment.”

The strength of the Polish economy, and especially the Zloty, is one reason Hadcock cites for the property market cooling, but this has coincided with an increase in sales to returning Poles who have been working in the UK and elsewhere, and are moving back home.

Hadcock’s company has historically specialized in converting old and listed buildings in the more expensive areas of Krakow, but he has just released a new-build scheme in the south of the city, and has bought development land in Katowice, which he describes as a very exciting market.

Another trend Hadcock has noticed is Anglo-Polish families based in the UK buying holiday homes in Krakow, the ski resort of Zakopane, and the ‘Tricity’ northern coastal resorts of Gdansk, Gdynia and Sopot.

Agent Validus tips Poznan, which it describes as Poland’s premier business city. It says rental apartments are in great demand by international workers and young professionals. “As well as the international trade fairs that are hosted in Poznan, the city has also attracted the likes of Volkswagen, Alcatel, GlaxoSmithKline, Exxon, and Nestle.”

Poznan sits on an important arterial route between Warsaw and Berlin. It has many elements in place that make it a good potential investment – it is growing fast, has high employment levels, a young, well-educated population, the second-highest average salary in Poland after Warsaw, and a short supply of new build, high-quality developments.
Other locations which are tipped as good property investment locations are Poland’s second- and third-tier cities such as Lodz, Wroclaw, Gdansk and Katowice, which is described by David Cox of Property Frontiers as “Poland’s sleeping giant”. All these cities share, to a greater or lesser degree, the basic fundamentals for good property investment. Foreign inward investment continues at a good rate, the burgeoning Polish middle class is increasingly economically active, and Poland’s transport infrastructure and strategic location are ideal – budget air carriers serve most Polish cities from the UK.

So in the race for attracting the UK investor’s property pound, Poland has seemingly fought of the competition from its eastern European neighbours, and is still firmly in pole position.