Private rented sector (PRS) in Poland
The private rented sector in Poland is on the radar of foreign institutional investors. Investments in residential rental properties are in vogue in Western Europe. Despite the global crisis caused by COVID-19, investors actively seek opportunities in friendly foreign markets, including Poland. The Polish market is considered promising, even though historically in Poland there has been a tradition of owning rather than renting.
Progressive demographic and social changes, high prices and restrictions on financing, along with the inconveniences of the existing rental sector, which is fragmented and mainly in private hands, have sparked a new trend in favour of the institutional rental sector. There is a concern for mobility and income stability as well as a preference for flexible rental agreements over mortgages. This leads to an expectation of a professional rental market and overall quality. Tenants are beginning to prefer dealing with a single professional investor who can provide decent standard residential premises, as well as additional facilities and services, including property management.
Currently, the residential rental market needs to be adapted and developed to meet those needs. This may be solved by institutional investors coming to Poland. Several large deals in the private rented sector have been concluded over the past few years, and further acceleration is expected. This is due to residential rental property being considered a low-risk asset class. Poland is favoured by demographics. The stable economy and strong results in the housing sector make Poland a market with great potential, offering stable cash flow and high returns. The number of developers seeking to diversify their revenues by building projects entirely for institutional investors is increasing. There is also rising interest among property management companies eager to support investors in professional management of rent and services.
Advising foreign investment funds on complex, multi-phase real estate transactions shows that investing in the private rented sector should be preceded by comprehensive due diligence. The analysis must cover all legal aspects of the transaction, including purchase of the land or building, zoning and environmental issues, as well as property and rent management. Legal analysis must be supported by a comprehensive exploration of tax and financing matters. For instance, one issue specific to Poland is that many Polish properties are subject to restitution claims related to unlawful post-war nationalisation, especially in Warsaw. This requires special legal analysis when choosing the site for future real estate projects. At the final stage of handing over the development to be managed and leased, it is important to negotiate favourable property management and lease agreements. They should secure the investor’s interests, in particular with regard to rent increases or in case of termination of agreements with tenants, whose legal position against the landlord is strongly protected by Polish law. Fortunately, there are ways to strike a balance between the landlord’s and the tenant’s rights and make lease management economically reasonable and efficient.
It turns out that providing the investor with the right legal expertise throughout the entire transaction process, a sound and supportive housing market environment, and a readiness to deliver the desired investment product are the key factors ensuring a successful and safe transaction in the private rented sector that meets the investor’s expectations.
With all these factors present, there is expected to be significant allocation of capital to this asset class and gradual growth of this sector in Poland in the upcoming years.
Barbara Wiśniewska, attorney-at-law, Real Estate practice, Wardyński & Partners
The content of this article is a part of Episode 4 of the programme News from Poland – Business & Law. You can watch the episode here >>>
