Polish property offers good prospects

It was the only EU member country not to go into recession following the onset of the credit crunch and its growth has accelerated in the past couple of years. GDP is set to grow by some 4 per cent this year.

The Polish economy is a large one, the seventh largest in Europe by GDP and sixth largest by population. Its size has allowed it to develop a vibrant internal economy and, unlike most other countries in central and eastern Europe, it is not mainly reliant on exports. Indeed, exports only account for some 40 per cent of its GDP.

In addition, the populace is not debt ridden

and government finances are relatively healthy. Although the country is running twin budget and current account deficits of 5.5 per cent and 4.8 per cent respectively, by comparison with some western European countries these deficits are low and steps are being taken to reduce them.

The country’s finances are also underpinned by the fact that its government debt is locally financed and very largely denominated in Polish zlotys. The government also has automatic access to a $30bn (£19.6bn) credit facility made available to it by the International Monetary Fund (IMF).

Attractive environment

As a result, Poland’s economy represents an attractive environment for property investment. Occupational demand and levels have remained relatively high throughout the credit crunch, and demand for retail and office space in the main cities is now rising. There are some new retail and office schemes being developed in Poland, but the rate of delivery is not so high as to undermine the prospects for growth in rents.

One of the most attractive aspects of investing in Polish commercial real estate is that properties can be acquired on relatively high yields with the added attraction of good prospects for rent increases.

Yields on prime property in London are at 3.5-5.5 per cent, whereas equivalent properties in Warsaw can be acquired at yields of 6.5 per cent or higher. Furthermore, as a result of the relative health of Polish banks, it continues to be possible to borrow against commercial investment property in Poland, more often than not on better terms than available in the UK.

Transacting commercial property in Poland is not an expensive exercise. Stamp duty varies between zero and 2 per cent depending on the age of the building. In the UK, this can be up to 4 per cent. The higher yields available on property investments combined with these lower costs mean that the income return quickly defrays purchase costs, more often than not within the space of a few months. The equivalent period in the UK, for a similar property, can be as long as one and a half years.

With a modest degree of leverage, these higher yields can be converted into rates of return on equity in the low teens, with the added prospect of rental growth and therefore capital gain.