On our site and in other articles we have pointed at the benefits of investing in real estate. In this article we want to provide more information on the benefits of investments in (residential) Polish real estate specifically. We think the general public and also many investors are more focused on the Western EU countries and overlook the potential of Eastern European EU countries, with Poland being the largest country in this area. Although it is difficult to make predictions for the short term due to (uncertain) macro-economical and geopolitical factors, like the high interest rate environment and the ongoing war in Ukraine, in this article we provide specifically arguments for the long-term potential.
There are some some good resources on this topic that comprehensively explore Polish Real Estate in more detail and not just residential real estate and offer more in-depth information[1].
Poland and the Polish economy
Poland has seen a rapid development in the 21st century and is the 6th economy within the EU based on (October 2023) GDP size[2]. To provide some additional important statistics, it has a population of around 40m people with a median age of 40 years[3]. Poland is the largest EU country both in terms of land area and population in Eastern Europe.
Poland is a very safe country, as a matter of fact it is one of the safest countries in Europe and the world based on statistics like the homicide rate[4]. If we look at the level of education, a topic very interesting in itself, the Polish population is well educated with Poland performing well on the PISA[5], most notably in the 2018 report ranking around the 10th spot, and on the English Proficiency Index[6]. This all shows that there is a strong foundation to enable future growth.
The growth rates of Poland have profound implications towards the future while many people, including investors, seem to be not very well aware of these. If we look at what forecasts say, we can find articles that state that extrapolating current growth rates would mean that Poland overtakes the economy of the UK in 2030[4]. This will of course translate itself in an increase in real estate prices.
Investment risks
In making investments we also advice to assess (potential) risks. In specific we can identify the following factors:
Demographic trends
An important and particularly relevant rate of our time is that of the fertility rate, which is a measure for the average number of children born per woman over her lifetime. A rate of roughly 2.1 is needed for a stable population size while all developed countries lie below this point. This implies a persistent decrease in the population (if not accounted for factors like most notably migration), which has of course massive implications for the economy, pensions etc. There are different sources that publish fertility rate numbers, but these show a notably low rate in the range 1.3 – 1.5 for Poland, which is considerably lower than what is observed for neighbouring countries[8][9]. This might indicate that the demand for housing will decrease as a result
There are however developments that offset this trend:
- Poland attracting more migrants in recent years, a trend which is expected to rise as a result of the growth in the economy[10];
- Most housing in large cities is old or built in the communist era, there is a large demand for modern housing in areas with modern amenities[11]. In contrast it can be a bad idea to invest in the countryside;
- Other factors, like the increase in tendency of people to remain single longer and as a result live alone.
Macro-economical factors
Increase in the interest and mortgage rate has had a severe impact on sales of houses and as a result negatively impacted real estate prices, similarly to what is seen in other countries, however this is a temporary effect.
Geo-political factors
The war in Ukraine has had a massive impact on Poland as it is the country that recorded the most Ukrainian refugees[11]. It is needless to say that the inflow of refugees led to a quick rise in real estate prices and rents. The return of refugees can therefore cause a reverse shock, however it is often seen with conflicts that people often don’t choose to return due to growing accustomed to their new environment as well as other reasons.
Some investors raise concerns with the geographical position of Poland, bordering to conflict and potential escalation. However as Poland is a NATO member we don’t see this as a significant risk. Conversely the geographical position poses opportunities as it makes the country an appealing destination for people from former Soviet republics.
Regulatory risk
This is currently not seen to be an issue, certainly not to the extent seen in Western EU countries.
Currency risk
Unless stated otherwise in the contract, rental income will often be in the Polish currency, which exposes investors to a currency risk. We can provide assistance in hedging of this risk, while it is also good to emphasize that the Polish currency has become considerably stronger in the last 6 months and is not a weak currency.
Overall, we see the demographic considerations as the most significant as the openness of the country for expats, students and migrants plays an important role in the projected real estate prices. In this context it needs to noted that after the 2023 election Poland decided to pursue a more pro-EU course, which should be expected to lead to more openness of the country.
Key considerations for a positive outlook
Now that we have discussed risks, we want to outline key considerations why investors should be at the least enthusiastic about investing in Poland:
- Economic power: As stated earlier, the Polish economy is growing rapidly and is set to overtake the British economy in 2030. In the extension of this rapid growth the real estate prices should be expected to increase considerably;
- Wages: In the extension of the previous point, also the wages are quickly rising in Poland. If we look at the minimum wage, it has almost doubled in the span of 5 years (from PLN2.250 or $560 in 2019 to PLN4.242 or $1.060 in January 2024)[13]. This rapid rise in wages implies that the wage gap with Western European countries, like Germany and the Netherlands, will decrease;
- Price level: The square meter price is much lower than in Western European countries. [14] shows an average transaction price of new dwelling of 1.975 EUR/sq m in Poland vs for example 4.639 EUR/sq m in France, 4.800/sq m in Germany and 4.116 EUR/sq m in the Netherlands. This metric even lies lower than what is seen in Czech Republic and Hungary. If we look at the cities, we see that prices in the big cities is also relatively cheap with Warsaw, which shows the highest prices, lies at 2.682 EUR/sq m. This is much cheaper than cities like for example Munich (11.400 EUR/sq m), Berlin (7.300 EUR/sq m) and Prague (4.942 EUR/sq m). We expect these differences to narrow down, among others because of the decrease in the wage gap between these countries, due to which Polish real estate should be expected to generate more yield than in these other countries;
- Home owner protection and expenses: In contrast to what many people probably believe, home owners are well protected in the Polish marketplace against risks like delinquency due to mechanisms enforced in the contract. The contract is approved by a notary and expenses are paid by the tenant rather than the home owner;
- Fiscal advantages: The fiscal pressure on investors in Poland is low compared to other countries, especially for the first (no property purchase tax) and additional 4 houses (2% property purchase tax). We inform our investors in detail on this topic.
Rental yields
Apart from the appreciation of the property price, Poland offers one of the best rental yields in Europe, with an estimated average yield of 5.75% as of 2024[15]. The exact yield depends on the type of property, location and negotiated price. We think yields up to 10% are feasible.
Contact us
Based on the provided arguments, we recommend to diversify the real estate portfolio by investing in Poland. In a personal conversation we will of course discuss our clients aims and considerations in more detail and assist as much as possible in the selection of the optimal properties.
Resources
[1] EY – The Polish Real Estate Guide 2024, 2024
[2] IMF – World Economic Outlook Database October 2023, 2023
[3] Worldometers – Poland population (live) data
[4] UNODC – Intentional homicide victims per 100.000 inhabitants, 2023
[5] OECD – PISA results (various reports available)
[6] EF Education First – English Proficiency Index, 2023 edition
[7] The New European – “When Poland overtakes the UK”, 2023
[8] UN Population Fund – Total Fertility Rate 2023, 2023
[9] World Bank – Total Fertility Rate 2021, 2021
[10] European Commission – European Website on Integration, 2024
[11] Notes From Poland – “Poland builds most new homes in four decades”, 2021
[12] UNHCR, UN High Commissioner for Refugees figures, 2023
[13] Littler – “Minimum Wage Rises in Poland and Other Central and Eastern European Countries”
[14] Deloitte – Property Index, Overview of European Residential Markets, 2023
[15] Global Property Guide – “Gross rental yields in Poland: Warsaw and 7 other cities”, 2024