Poland: Overview

RENTAL YIELDS

Warsaw yields moderate at 5.15%

Warsaw yields are still dipping, albeit slowly. A 120-sq. m apartment in central Warsaw now generates a gross rental return of 4.6%. In Mokotów, an apartment with the same size generates a slightly higher yield of around 5.22%, but is cheaper at €3,559 per sq. m compared to €4,088 per sq. m in central Warsaw.

Yields on apartments in Krakow are lower at around 4.7%. Properties are cheaper as well with apartments selling for around €3,160 per sq. m.

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TAXES AND COSTS

Income taxes are moderate in Poland

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	17.4%	19.4%	19.7%
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Rental Income: Taxes on rental income can be high in Poland, at rates of 19%, 30% and 40%. Value Added Tax is imposed on income from the lease of residential buildings at 22%.

Capital Gains: Capital gains incurred for properties sold within five years of acquisition are taxed at a 10% flat rate.

Inheritance: Gifts and inheritances of a Polish property are not taxable if both the deceased and the heir are not Polish nationals or Polish residents.

Residents: Residents of Poland pay taxes on their worldwide income.

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BUYING GUIDE

Buying costs are low in Poland

Roundtrip transaction costs, i.e., the cost of buying and selling a property, are around 5.5% - 9.9%, with all costs falling on the buyer. For residential apartments, real estate agent’s fee is typically 3%. Civil Transaction Tax of 2% is paid on transfer of second-hand buildings. Reduced VAT of 7% is levied on transfer of new-build residential property until 31 December 2007.

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LANDLORD AND TENANT

Law neutral between landlord & tenant, but unstable

Rent: Rents can be freely negotiated between landlord and tenant. Rent indexation clauses are legal.

Tenant Security: However, the general situation over rental laws is worryingly unstable. Strict re-regulation of the rental sector was recently legislated by Parliament. Fortunately, it was declared unconstitutional shortly after coming into law. Populist pro-tenant feeling is strong.

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ECONOMIC GROWTH

Economic boom after market-transition shock

Poland was the first country in post-Communist Europe to embrace rapid economic liberalization at the beginning of the 1990s. Poland has a population of 38.5 million and a 2007 GDP/capita of US$9,594 (IMF). Poland joined the EU in 2004, NATO in 1999, and the Organization for Economic Cooperation and Development (OECD) in 1996.

An economic boom followed Poland’s ‘shock-treatment’ transition. Poland remains the primary recipient of foreign investment among the Eastern emerging countries, though GDP growth slowed in the late 1990s to 1.0% in 2001, boosting unemployment to 20% in 2003.

The country has now recovered from the 2001-2002 economic slump. Annual GDP growth in 2007 is estimated to have been 6.6% (Statistical Office preliminary figures), after 6.0% in 2006 and 3.6% in 2005. Gross fixed capital formation grew by 20.4% in 2007, after an increase of 15.6% in 2006, i.e. the most in ten years. The investment rate increased to over 22%, against 19.7% in 2006 and 18.2% in 2005.

In November the Central Bank’s Monetary Policy Council (MPC) raised interest rates by 25 bp. This was the fourth interest rate hike this year, bringing the reference rate up to 5% from 3.75% in early 2007, when the tightening cycle began.

The prices of consumer goods and services rose 4% in the year to December 2007, exceeding the Monetary Policy Council’s 2.5% target. Unemployment has been falling rapidly. Since 2002-2003, the unemployment rate has halved from 20% to 11.4%. In 2007 alone, the unemployment rate dropped 24.4% within twelve months.

The political situation has greatly improved since the ouster of former prime minister Jaroslaw Kaczynski, head of the conservative Law and Justice party, who had opposed rapid free-market reforms and favoured retaining social welfare programmes. His calls for a return to Christian values and "moral change" were combined with a strong streak of xenophobia. His identical twin Lech Kaczynski remains President, but under the Polish constitution, the president has fewer powers than the prime minister, though he has a significant say in foreign policy.

After the victory of the centre-right Civic Platform in October 2007, Donald Tusk formed a government. The Civic Platform party is governing in coalition with the centrist Peasants Party.

Tusk wants better relations with the EU. He has promised to improve relations with Germany. He has also promised to calm Poland's tense relations with Russia, which have been at their lowest ebb since Warsaw broke free from the communist bloc in 1989.