Poland

You may never have been to Poland, but the chances are that you have already met a good number of Poles. Go out for a drink or meal in Britain, especially in London, and the barmaid or waitress could well be Polish. So could that useful handyman who does everything from plumbing in radiators to sanding floors. The good news for the fly-to-let investor is that there are still plenty of Poles left in Poland – more than 38 million of them to be precise – many of whom are looking for somewhere to live.

By far the largest of the 10 countries that joined the European Union in 2004, Poland is becoming an increasingly important player both politically and economically. The economy has been growing well, inflation has been falling and the currency, the zloty, has been one of the strongest in the world in recent years. There has been considerable foreign investment, both in the car industry and in the financial sector. Given the size of the Polish market, a number of multinationals naturally choose Warsaw for their regional headquarters.

As always, there are downsides, such as unemployment, which remains in double figures – although falling – and government debt, which is high. The country has not embraced wholeheartedly the dynamic, free-market polices seen elsewhere in the region and corruption remains a serious problem. The government of Kazimierz Marcinkiewicz, who was sworn in as prime minister in November 2005, also initially unsettled some investors with its populist rhetoric, including a bizarre claim by his finance minister that foreign hypermarkets such as Tesco were “not welcome”.

None of this seems to have dented the upward movement of property prices (or, indeed of the zloty). After surging in the run-up to EU entry in May 2004, they have been increasing more modestly since – but an annual 10% looks achievable for the near future. There is still potential for quite substantial gains if you leverage your investment; both Polish banks and the Polish subsidiaries of foreign finance houses are happy to lend to foreigners, offering as much as 80% loan-to-value, even though you cannot enjoy the 100% available to the locals. The growth of the mortgage market, albeit from a very low base, will give a further boost to prices.

At the time of writing, rates in zloty, at 7%, looked daunting – and certainly high enough to wipe out your rental income. There is a way around this: the banks are equally willing to lend in other currencies, such as dollars, euros and Swiss francs, at substantially lower rates. Dollars or euros will probably work out a couple of percentage points lower than in zloty, but Swiss franc mortgages in autumn 2005 were as low as 2-2.5%.

The usual rule of property investing is to keep your repayments and income in the same currency in order to avoid exchange rate risk. With such a differential, the risk looks attractive. There is a danger, however, that the zloty could fall, plunging you into negative equity.

While we are on peculiarities of the Polish market, another one is that new build apartments are usually supplied ‘black’ – that is, undecorated and without kitchen and bathroom – leaving it up to the purchaser to complete them. Although the choice of finish is welcome, this means more hassle and will add several thousands of pounds to the purchase price. There can be exceptions, so read the small print on the contract.

Warsaw

The Polish capital is not one of the most beautiful cities in Central Europe – indeed some might consider it downright ugly, but it is proving an increasingly attractive destination for investors. Demographics are the key. Warsaw is simply too small for Poland. Look around Europe – or indeed the world – and you will find that the capitals of most countries are home to around 10-20% of the population. Warsaw’s two million are equivalent to just 5%.

This is largely because of the effect of 40 years of Communism; while the rural populations of say, France and Italy, shrunk considerably during the 1950s, 60s and 70s, their Polish counterparts just stayed on the farm. That has changed since 1989 and the trend is expected to continue now Poland has joined the European Union. Warsaw, with its high paying jobs in finance, marketing and other dynamic growth sectors is acting as a magnet, especially for ambitious young people. A 2005 survey by Tabelaofert, a mine of information on the Warsaw property market, found 60% of new apartments in the city were bought by people who had not been born there. Add in the fact that the average Warsaw dweller has just 17 square metres of living space – one of the smallest amounts of any EU capital – and it is easy to see the appeal.

So where is the best place to start?

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