Poland: Institutional investments in the Polish PRS

27. June 2017 | Reading Time: 3 Min

The structure of possessing rental apartment in Poland is approaching yet another major transformation: the emergence of an institutional rental market, according to the experts of TPA Poland and REAS in the report „Institutional investments in the Polish private rented sector”.

Poland’s young generation attracts foreign investors to Poland

Although operating efficiently, the private rented sector is relatively small and concentrated in large cities. Moreover, the vast majority of the dwelling stock in Poland remains in the hands of individual investors with a wide range of standards. In the post-socialist transformation period, the privatization process resulted in highly fragmented ownership of most residential buildings („Swiss Cheese”), with only a few buildings owned entirely by one landlord. A fragmented ownership, nevertheless, wasn’t exactly conducive to standarding rental agreements and a feeling of security among lessors.

Meanwhile, housing needs and living patterns are changing fundamentally in favor of the rental sector.

Growing interest in rental housing projects

The symbolic need for ownership is gradually becoming less convincing, while mobility and liquidity rationales are emerging as more prominent. „Thus, among other factors, the growing interest in rental housing projects within the institutional rental market. Investors are starting to notice the potential of the growing ‘generation rent’ in Poland,” stated Małgorzata Dankowska, Tax Advisor, Partner heading the Real Estate Market Advisory Department at TPA Poland.

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Investments by foreing institutional investors

In the past 12 months, we have seen 3 groundbreaking investments by foreign institutional investors in the Polish build-to-rent residential market. REAS and TPA Poland were involved in all 3 deals on behalf of the buy side, serving as transaction and tax advisor, respectively. By now, after 2 years of investment activities, the investment volume of institutional players has already surpassed PLN 1 billion. In total, more than 1,200 units have been traded in the largest cities in Poland in 2016, with an approximate value of PLN 625 million. This means there was an increase of 15% in the total investment volume year on year.

„The increase in interest should come as no surprise. Residential assets in Poland can deliver more stable cash-flows and higher returns than more traditional investment assets, such as stocks and commercial property. Last but not least, Polish housing offers far better returns than more established residential markets in Western Europe,” stated Maximilian Mendel, Partner, head of Transaction Advisory at REAS.

Taxation of foreign funds

„From a tax perspective, foreign funds are mostly concerned with the following issues in residential acquisitions:

  • tax status of the funds in Poland
  • VAT issues related to the acquisition and the lease of apartments
  • tax depreciation, and
  • real estate tax rate

Where residential investments are concerned, the key issue is to ensure the deduction of VAT, which in turn is directly related to the further use of assets. If, during the operational phase, the activity is covered by a VAT exemption, then the deductibility right is limited,” highlights tax advisor Małgorzata Dankowska. Hence, it is important to structure the rental product with careful consideration of how the relevant VAT rate or tax exemption is attributed.  All these aspects create complex puzzles, which, in the end, may prove to be a picture of effective investment.

Małgorzata Dankowska, tax advsior poland, transacion advisory, real estate transaction, international real estate projects, investmentIf you are planning to invest in rental housing projects in Poland or CEE/SEE, contact our experts on real estate advisory!