Poland – A new buy to let market

Though it still has one of the lowest GDP-per-capita figures in the European Union, Poland appears to be on the up. The country saw impressive economic growth after joining the EU and remained relatively stable during the 2009 worldwide financial crisis. In the first quarter of 2015 Poland’s economic expansion was 3.5%, way ahead of the expected European average for the year of 1.5%. For this reason many investors are seeing the potential for substantial further growth, particularly in the property markets of Poland’s major cities.

A developing market

Nine million Poles are currently within the crucial 24-38 age demographic and this young urban workforce is looking for housing, either as renting tenants, first-time buyers or moving up the housing ladder to a more favourable property. There is also a growing Polish middle class and a large student market competing for scant accommodation close to universities in Poland’s major cities.

Recent figures showed that 16% of Warsaw’s population consists of students, accounting for 270,000 people. In Krakow students numbered 180,000 (24% of the population), in Wroclaw 135,000 (21%) and in Poznan 130,000 (23%). There is also a huge demand for quality stock in the big cities, with an urgent need for new residential developments compared to other European countries.

Buying to let

The residential market is by far the largest real estate market in Poland, with low interest rates, stable rents and attractive prices drawing in investors; however, this remains mostly small scale, with institutional investors outweighed by individual buy-to-let landlords. This may change in the future as sustaining land for future developments becomes increasingly important.

Zoning rules, property rights, infrastructure provisions and planning risks have led to a shortage of land for new developments, despite numerous vacant lots in most major cities; as a result, the residential market, despite its potential, remains highly fragmented.

In Warsaw the average buy-to-let yield rose to an attractive 8.4% at the end of 2014. Although the average prices in the city are the highest in Poland, they are still well below those of most other major European cities, averaging less than €1,900 (£1,344) per square metre.

In Krakow much residential property remains from the Soviet era, especially pre-1945, and is of low quality. Modern housing built after 2003 accounts for just 11% of the stock; however, 2014 saw a record number of new builds, with stable prices and low interest rates meaning new housing developments are often 75% sold before building is completed.

New property

In the last quarter of 2014 the average gross asking price for new-build apartments in Warsaw was 7,815 (£1,337) Polish zlotys (PLN) per square metre, excluding internal fit-out costs. The average in other cities was between PLN6,000 and PLN7,000; however, 83% of apartment sales are for between PLN5,000 and PLN9,000 per square metre.

Developers currently tend to build in the suburbs for the growing Polish middle classes, avoiding the legal difficulties of acquiring vacant plots in the city centre; nevertheless, with high demand, good prospects of economic growth and a favourable location in the heart of Europe, Poland looks set to be an increasingly attractive destination for property investors.