Beware of additional property taxes

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Inflation in Poland is currently breaking new records and is the highest in 20 years – so many people are looking for a way to protect their capital. Therefore, the real estate market for a long time has been increasingly popular among investors who see it as an opportunity to protect the value of their savings and at least a small profit.

In many countries, for years, one of the ways of investing has been the so-called REITY, or Real Estate Investment Trust, a form of investment fund that provides the opportunity to invest in the real estate market, even for individuals with a small capital. However, there is still no such solution in Poland, although some entities on the market operate in a similar way.

An alternative solution is, for example, the purchase of an apartment for rent, or the so-called turnover of the house, that is, the purchase, renovation and sale of apartments. Sometimes, the purchased apartments remain in the investor’s ownership for some time and are not rented or resold due to, for example, reduced interest in rental properties due to a pandemic crisis, or long waiting periods for necessary renovations related to the situation in the construction services market.

In the real estate market in Poland, demand still significantly exceeds supply. On average, there are only 393 apartments per 1000 inhabitants, and only 30 square meters of apartment per person. This result differs significantly from the European average, being about 40 square meters per capita. In terms of the number of apartments per 1000 inhabitants, we also differ significantly from most countries
European Union. As a result of this situation, year after year transaction prices are increasing at a very high rate, only last year by about 10%.

However, expensive apartments do not discourage investors, since it is difficult to anticipate a significant decrease in property values, or at most a slowdown in price growth. As a result, investments in this sector are considered stable and attractive.

Our public authorities have noticed this situation, and among their representatives are ideas related to the taxation of various types of investments in the real estate market. In recent days, a representative of the Ministry of Development shared his plans in this regard with journalists and announced the fight against speculators in the real estate market.

He used an example in which a Scandinavian investment fund simultaneously bought 1,000 apartments for €100 billion. At the same time, he pointed out that although the data indicate that speculative deals constitute a small percentage, and those conducted by investment funds are about 1 percent, the Ministry of Development and Technology plans to act in advance.
New taxes were announced for citizens who, due to the difficult situation in the real estate market, are not able to buy an apartment. Therefore, the introduction of a tax on vacancy, on speculative profits and an area tax on the second or third apartment is being considered. So let’s think about whether the department’s concerns are justified and what impact they have on the market.

According to data from the Polish Central Statistical Office (GUS), in the period from January to September 2021, 164.4 thousand apartments were commissioned, i.e. 5.2%. More than 4 years ago. If the Ministry’s estimates are correct, approximately 1.6 thousand of them were purchased by investment funds, and several thousand more by individual investors for “speculative” purposes. Therefore, the volume of such transactions is not large. Let us also consider the so-called “speculation”. Entities such as investment trusts are already buying large numbers of apartments for the purpose of reselling or renting them out. Such an investor is able to buy a larger number of apartments at an attractive price due to the high bargaining position in order to sell them at a profit. It is not in the interest of the fund to keep such real estate “vacant”. Such apartments usually return to the market very quickly, and the profit of the fund results from the difference between the purchase price and the sale price. Premises owned by the investor for a long time are for rent. These apartments will go to the end users, regardless of whether they are through a developer or a fund. At the same time, it must be emphasized that this is only one form of fundraising, since the apartments they buy are also for rent.

Another concern of the ministry concerns other “speculators”, that is, individual entities investing in the real estate market. In their case, it is difficult to talk about a negotiating advantage related to obtaining capital for “bulk purchases” of apartments. Their activity is usually buying single apartments for rent, or house flipping, i.e. buying properties at a lower price or requiring renovation and selling them at a higher price.

However, in this case, the possibilities for investment are limited, since the entry threshold is up to several hundred thousand zlotys due to the price of the property.

Another idea of ​​the Ministry is that the estate tax on the second or third apartment should be assessed as another blow to the middle class, as well as to those who, for reasons of life (such as inheritance), acquired more than one apartment.

In short, activity in the real estate market of investment funds and individual investors has a relatively small impact on real estate prices. Moreover, in many cases it has positive effects, since it is these entities that offer apartments and commercial premises for rent, and not every family can afford to buy an apartment due to lack of necessary funds.

Therefore, the ministry’s announcements do not seek to remove the injustice that can occur if investment in real estate is associated with a lack of taxes or the so-called “market corruption”. Their goal is rather to search for new sources of budget revenue.

In practice, however, it may turn out that they will not only fail to produce the intended effects but also cause capital to travel abroad. Each individual investor or fund who understands that in other EU countries will be able to work on better terms, will also invest his capital there.

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