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When you want to buy a piece of land for building a new house, you should check not only the legal status of the property or infrastructure utilities for the plot, but also you should take account of surroundings. In that case, the sixty-four-dollar question should be: is my building plot located in a floodplain? Flood is a big problem that threatens people’s lives and their property. But how to check it? This article aims to help you in search of an answer to this question.

THE HIGH-RISK FLOOD ZONE – WHAT IS IT?

According to a definition from Water Law Act adopted on July 20, 2017 (article 16, point 34), the high-risk flood zones are:

• areas, where the probability of flooding is average and amounts to 1% (it means that the probability of a flood would be once in 100 years),
• areas, where the probability of flooding is high and amounts to 10% (it means that the probability of a flood would be once in 10 years),
• areas between the shoreline and a flood embankment or a natural high bank, in which a flood embankment has been built, as well as islands and mudslides constituting registration plots,
• technical belt of the seashore constituting a zone of direct interaction of the sea and land.

It follows from the definition that the high-risk flood zone is a classified area located at the very proximity to the shoreline, as well as area, which can be found under water in the event of a flood based on forecasting models.

FLOOD HAZARD MAPS AND FLOOD RISK MAPS – BASIS OF ANTI-FLOOD ACTIVITIES

Flood hazard maps (MZP) and flood risk maps (MRP) are the main planning documents, which are prepared by the State Water Holding Polish Waters.

MZP and MRP are the basis for flood risk assessment and anti-flood activities, which aim to counter negatives results of a flood, civil protection and protection of business, environment and cultural heritage. They constitute a benchmark for analysis and decisions, which are necessary for activities of various administration bodies, mostly for crisis staff.

The obligation of maps development comes from legal acts, such as:

• Directive 2007/60/EC of the European Parliament and of the Council of 23 October 2007 on the assessment and management of flood risks
• Water Law Act dated July 20, 2017
• Regulation of the Minister of Maritime Economy and Inland Navigation of 4 October 2018 on flood hazard maps and flood risk maps.

The boundaries of flood risk areas from MZP and MRP are the results of mathematical hydraulic modelling. It uses a digital elevation model and based on it calculates how water from the river will spread in a given area during a flood (also in the variant, when there is no embankment, as well as after its possible rupture) – taking into account the range, depth, flow velocity and its duration. It should be noted that the flood hazard maps do not present the range of historical floods, but areas with a probability of flood.

On the maps, the presented area is divided into:

• areas, where the probability of flooding is low, amounting to 0.2% (once in 500 years) or where an extreme event is probable;
• areas, where the probability of flooding is medium and amounts to 1% (once in 100 years);
• areas, where the probability of flooding is high at 10% (once in 10 years);
• areas prone to flooding in the event of:
• destruction or damage of the flood protection embankment,
• destruction or damage of the anti-storm shaft,
• destruction or damage to the damming structure.

In addition, the flood hazard maps show the depth and speed of water, as well as directions of water flow (for voivodeship capital cities and city with district rights, also other cities with the number of inhabitants higher than 100 000 people).

MZR AND MPR – WHERE TO FIND THEM?

The Hydroportal (https://isok.gov.pl/hydroportal.html) is a public portal run by the State Water Holding Polish Waters. It contains information about the waters in Poland. It enables to browse water management plans or data about flood and drought risk.

FIGURE 1. types of maps in the HYDROPORTAL

source: Hydroportal – ISOK

The structure of the Hydroportal is similar to the national Geoportal. There are several types of maps to choose from. From the perspective of the flood risk, the flood hazard maps (MZP) and flood risk maps (MRP) will be the most interesting. If you know a number of a plot, you can use the search engine in the panel in the upper left corner and easily find the property that interests us.

Using Hydroportal, we can interactively turn on and off the corresponding layers, which present appropriate degrees of a flooding probability. You can also check, which area can be flooded in the event of a breakage of flood embankments or the destruction of water structures.

FIGURE 2. Screenshot from A flood risk map

source: Hydroportal – ISOK

FIGURE 3. Screenshot from A PRE-FLOOD risk MAP

Source: Hydroportal – ISOK

The Hydroportal offers maps in cartographic form for download in pdf format, with a division on high and low-risk zones and flood risk zones. In the upper left corner in the bar with the map name, you just need to select ‘Hydroportal MZP i MRP w formacie pdf’. If you press on the map, a window with the name of the map’s sheet will appear on-screen. When you press on it, you can choose, which type of map you are interested in and then you will get a link to the appropriate map’s sheet.

FIGURE 4. SCREENSHOT FROM A map index of MZP and MRP in PDF format

source: Hydroportal – ISOK

FIGURE 5. SHEET OF A FLOOD RISK MAP

source: Hydroportal – ISOK

STRATEGIC AND PLANNING DOCUMENTS – MANDATORY INFORMATION ABOUT FLOOD HAZARD

According to article 166 of the Water Law Act, for ensuring the protection of people and their property, boundaries of a flood risk area must be obligatorily included in planning and strategic documents, such as:

• voivodeship spatial development plan,
• voivodeship development strategy,
• municipal development strategy,
• supralocal development strategy,
• study of conditions and directions of spatial development,
• spatial development plan,
• municipal revitalization program,
• decision on location of a public purpose investment, as well as in a decision on the development conditions.

Moreover, the level of flood risk is included in a decision concerning the location of a public purpose investment and in planning permission related to properties located in part or in total at that area.

Due to the scale of the study, the most appropriate study for checking the information will be the local spatial development plan, because it covers only a fragment of a commune or town. In case of a lack of a spatial development plan, it is recommended to check other documents. Because of the generalization of supralocal studies and voivodeship studies, communal studies will be more suitable, e.g. the study of conditions and directions spatial development of the commune or the commune development strategy. Having a development strategy by local government is not obligatory, but most municipalities in Poland develop this strategic document.

Very often local spatial development plans and development strategies has been facilitated on websites and/ or in public information bulletins. Some communes provide their map portals, which are called Geoportals, where local plans are published. This tool allows you to check the plan for your plot by searching for its location on the map. However, plans on Geoportals are often not updated.

In each city or commune office, after submitting an appropriate application, you can obtain an abstract from the spatial development plan with the map for a particular plot. However, to get it, you need to pay the appropriate fee and wait for the receipt of such a document.

FIGURE 6. A SPATIAL DEVELOPMENT PLAN WITH AREAS WITH RISK OF FLOODS

source: Commune office of Łomianki

TERRAIN PROFILE TOOL

The terrain profile is a graph, which on the horizontal axis presents distances along a selected line through the terrain and on the vertical axis is an elevation of points. Drawing a line from the examined property to e.g. a riverbank allows to determine the differences of elevation between two points and determine the height of the barrier, e.g. flood embankments.

In the National Geoportal available at https://geoportal.gov.pl/ in a section ‘Numeryczny Model Terenu’ in the main menu there is a tool ‘Terrain Profile’, which is based on the Digital Terrain Model (DTM) and allow to draw a cross-section along a user-defined line.

When you select the option ‘Terrain profile’, you will see a panel, in which you need to select the DTM resolution. The next step is to press a button ‘Draw a profile line’, which is in the upper left corner. Another step is to draw a line on a selected area of the map by clicking at selected points. Drawing can be ended by double-clicking on the left mouse button. Results are presented in a graph.

FIGURE 7. Terrain profile tool

source: own elaboration with using terrain profile tool in geoportal.gov.pl

BACKGROUND SURVEY

Conversations with neighbours are always a good source of information. It is worth asking them if in surroundings have ever been floods or are there any retention reservoirs or levees. In addition, it can be asked whether there has been any flooding of the river in the last few decades and how long after this event the water was on the surface. Senior neighbours certainly know how fast water flows down to the drains and when the drains get overfilled. They will also tell you if they have ever had their cellars flooded.

If there are no buildings in the area, you can take a look at the surrounding plants. Wetland territories are dominated by willows and alders. Meadows are full of field horsetails, woolly and rushes. The occurrence of these kinds of plants on the plot means that in this place, there is a high level of groundwater and therefore, the flood risk is higher.

SUMMARY

There is a lot of ways to obtain information about flood risk on a plot that interests you. Such information is a publicly available source of information, but you need to know how to get them. Information about floodplains is extremely valuable and they may preserve people’s lives and possessions.

Agnieszka Bartoszewska
Real Estate Market Analyst

Real estate expropriation is one of the procedures described in the Polish Act of August 21, 1997 on Real Estate Management (Journal of Laws 2020, item 1990) that regards to the possibility of depriving or limiting (under an administrative decision) the right of ownership, perpetual usufruct or the right in rem to real estate. This procedure is possible only for real estate located in areas designated in local spatial development plans for public purposes or for real estate with a binding decision to determine the location of a public investment. Moreover, expropriation may take place only when public goals cannot be achieved in the other way than by depriving or limiting rights to real estate. The expropriation procedure may only be carried out by the starost, who is the competent authority in this type of cases. Deprivation or limitation of rights to real estate in this procedure may only be made for the benefit of the State Treasury or local government units.

Basic principles of the expropriation procedure

1. Expropriation may apply to the entire property or just to its part. However, if the procedure concerns a part of the real estate, and the remaining part cannot be properly used for the current purposes, the owner/ perpetual usufructuary may request the purchase of the remaining part of the real estate, which from his point of view will lose its properties.
2. The initiation of expropriation proceedings must be preceded by negotiations between the starost and the owner/ perpetual usufructuary or a person with limited rights in rem to real estate. During the negotiations, the authority may offer the expropriated party a replacement property.
3. The proceedings are initiated ex officio (in case of expropriation for the benefit of the State Treasury) or at the request of the executive body (in case of expropriation for the benefit of a local government unit). The commencement of expropriation proceedings is recorded in the land and mortgage register at the starost’s request.
4. The transfer of the ownership right to the State Treasury or local government unit takes place on the day, on which the decision on expropriation of the real estate becomes final and valid. Similarly, in case of the right of perpetual usufruct – it expires on the date, on which the decision becomes final. However, in case of limited rights in rem – they expire after 3 months from the date, on which the decision becomes final.
5. The expropriated person receives a compensation for the expropriated real estate.

STAGES OF EXPROPRIATION PROCEDURE

source: own study based on https://www.pb.pl/procedura-wywlaszczenia-nieruchomosci-701174 (access: 12.02.2021)

Compensation for expropriated real estate and the role of a real estate appraiser in the expropriation procedure

According to the article no. 128 of the Real Estate Management Act, the expropriation of real estate, perpetual usufruct or right in rem relates to the compensation for the expropriated person. The amount of compensation is related to the value of these rights. In Polish law, compensation for expropriated real estate is narrowly defined, which means that the compensation is determined in accordance with the value of the real estate, and not the actual damage suffered by the expropriated entity. This means that when determining the amount of compensation, no other damage, loss or cost is taken into account, such as e.g. costs of moving to another place or lost profits, but only the loss of the right to real estate of a certain value.

The amount of compensation is presented by the starost in the decision of real estate expropriation. However, he does not determine it himself, but after obtaining the opinion of a real estate appraiser determining the value of the property (in the form of an appraisal report). The amount of compensation is calculated according to the condition, purpose and value of the expropriated real estate as for the date of the expropriation decision. Article no. 134 of the Real Estate Management Act indicates that the basis for determining the amount of compensation is the market value of the property. Interesting aspects that the valuer must take into account during the valuation are the issues regulated in paragraph 3-4 of the article no. 134 of the Act. They constitute that the value of real estate is generally determined according to the current type of use – if the purpose of the real estate, consistent with the purpose of expropriation, does not increase its value. However, if the type of use consistent with the purpose of expropriation increases the value of the property, the value for the purposes of compensation is determined according to the alternative use that results from that type of use. This is called ‘the benefits principle’. In practice, this means that the appraiser must assess, whether the expropriated entity will be more advantageous: while evaluating real estate in line with its current purpose, or with the purpose resulting from the expropriation purpose. The most common situations regarding the expropriation of land for public roads are as follows:

A real estate, on which a single-family residential building is constructed, is expropriated for a public road. In this case, the value of the property in accordance with the current purpose is usually much more favourable than the value determined in accordance with the new purpose – for public roads. The appraiser will therefore evaluate the property in accordance with the current type of use and purpose, which will be the basis for determining the amount of compensation.

Agricultural land is expropriated for a public road. In this case, the value of the property in accordance with the current purpose is usually less favourable than the value determined in accordance with the new purpose – for public roads. The appraiser will evaluate the real estate in accordance to the new type of use and purpose, searching for road real estate transactions on the market (provided that if there are too few sale transactions of such real estate on the market, it is possible to appraise the real estate assuming the intended use of the land adjacent to the valued property).

Summary

Real estate expropriation is a procedure provided in Polish law to ensure the achievement of public goals. Considering the extensive protection of property rights in Poland, expropriation procedures make it possible to implement investments that are important from the perspective of the entire community. Such procedures may seem controversial, especially from the point of view of entities directly affected by expropriation, as they may force perpetual owners/ users to make unforeseen changes in their lives, e.g. having to move to another place. However, it is worth remembering that expropriation may only be carried out if the area has been designated for the public purpose in the local spatial development plan (in case when a local plan is in force) or if a decision to determine the location of the public purpose investment for a given area has been issued (in case when there is no local plan). Therefore, by purchasing real estate or being its owner, we can check whether it is or may be threatened in the future by the expropriation procedure. In addition, it is worth remembering that Polish law provides the expropriated entity a compensation for depriving the rights to real estate, and it is also possible to obtain a replacement property.

Barbara Mariańska
Maintenance and Development Specialist

The European Banking Authority (EBA) published the final version of the Guidelines on loan origination and monitoring on May 29, 2020. They are in response to the European Commission’s action plan, the main objective of which is to reduce the level of non-performing loans at banks in the European Union.

The main objectives of introducing the Guidelines are:

• to improve the processes and mechanisms for new lending in Europe,
• to ensure reliable standards of credit risk taking, management and monitoring by institutions,
• to ensure high credit quality for new lending,
• to ensure that consumer protection is adequate and properly implemented.

The provisions of the document may have a direct impact on the practice of valuers in Poland. Chapter 7 of the Guidelines is devoted to valuation of real estate and movable property. There is a provision referring to the form of carrying out a real estate valuation.

At the time the loan is being granted, the value of the property serving as a collateral should be estimated by an appraiser based on a complete visual inspection of the property. The real estate appraisal may be prepared by a licensed external valuer, which means a person who prepares the study on behalf of the institution, or by an internal valuer, in other words a professionally licensed employee of the institution. Exceptions are residential properties on well-developed and mature real estate markets, which can be valued remotely using advanced statistical models. Models should be:

• based on a sufficiently large sample that is based on observed transaction prices,
• based on updated data of high quality,
• adjusted for location at the appropriate level of detail.

EBA makes it clear that the hallmark of a good model is the quality of the data it contains. The effectiveness and performance of the models should be continuously monitored. The institution is responsible for the proper operation of the model, while the appraiser is responsible for the valuation performed on the basis of the model. The valuer will evaluate, verify and approve the valuation proposal suggested by the model. It is important that the appraiser understands all the inputs and assumptions of the model. If there are doubts about the value proposed by the model, the appraiser should opt for another valuation method.

Institutions that have recourse to external valuers should create a list of acceptable valuers, who are knowledgeable in particular segments of the real estate industry.

The valuer, who carries out the valuation, must:

meet national or international requirements and accepted professional standards for appraisers,

possess appropriate experience, technical skills and the necessary knowledge (knowledge of the market, as well as the subject and the purpose of the valuation)

be independent from the lending process.

Institutions should evaluate the work of the valuers, for example by comparing their estimated values to the results obtained by advanced statistical models. Appropriate rotation of appraisers is extremely important – institutions should determine the number of consecutive valuations that can be executed by the same appraiser.

There is little time left to comply with the new requirements – the guidelines apply on June 30, 2021. Will the introduction of the guidelines have an impact on the work of valuers?

Dominika Gocalińska
Customer Relations Specialist

Tenement houses – some of them are neglected and have shabby facades with plaster falling off the walls, while others impress because they are richly decorated and maintained in excellent condition. Living in a historical and well-kept tenement house is currently synonymous with luxury that costs a lot. In Warsaw, a square meter of a floor area in tenement house is on average more expensive than in the new building. It is therefore not surprising that tenement houses are attracting more and more interest, not only among enthusiasts of old buildings with atmospheric interiors, but also among investors. This article presents the characteristics of tenements in Warsaw, the advantages and disadvantages of living in that kind of buildings, as well as the purchase and rental prices of their premises.

The tenement house is at least a two-storey residential building, usually located in a compact urban area and built in traditional stone or brick technology. In Poland this type of housing dominated from the late Middle Ages until the second half of the 20th century. The tenement house is the most often a part of a row of buildings called the frontage. In gaps left by buildings demolished or destroyed during the war, new ones are being built. In many cases, they refer stylistically to the surroundings. Typically, tenements have both residential and commercial sections.

CHARACTERISTICS OF TENEMENT HOUSES IN WARSAW

Warsaw tenements are located in the oldest districts of the city, mainly in Śródmieście, Praga Północ, Mokotów, Żoliborz and Ochota. Only a small number of them survived the war and still delights the locals and tourists. It is estimated that even 72% of residential buildings were destroyed during World War II. The reconstruction of the city devastated on such a huge scale was a real challenge. After the rebuilding of the Old Town, this part of Warsaw was added to the UNESCO World Heritage List in 1980. The tenements in the Old Town originate from the 15th to the 19th century. Most of them were rebuilt between 1947 and 1953. Frequently they are under the protection of the Warsaw Monuments Conservator. Moreover, these buildings are often given names derived from their owners or the ornament, such as “Riaucourt’s house” or “lion’s house”. On the walls of some of the tenements, there are plaques commemorating the stay of excellent artists, leaders and other prominent personalities. Apartments in buildings, where famous people used to live, are on average fifteen percent more expensive per square meter in comparison with those in the neighbourhood. Additionally, the purchase or rental of commercial premises in tenement houses is very popular in Warsaw. They are the most often located on the first floor and used as restaurants, cafes, luxury boutiques, museums, theatres or offices.

Many old and damaged tenements received a new life. They are not only completely renovated, but also overbuilt. If necessary, extensions or conversions of the premises were carried out. The profitability of such undertakings may reach even several dozen percent. In Warsaw, there are many well-established companies, the activities of which focus on renovation and resale of tenement houses. Their potential is also recognized by a growing group of individual investors.

CHART 1. REVITALIZATION OF THE TENEMENT HOUSE AT 13/15 FOKSAL STREET IN WARSAW

Source: nowawarszawa.pl

ADVANTAGES OF LIVING IN A TENEMENT HOUSE

UNIQUE ATMOSPHERE – the historical tenements are distinguished by their impressive architecture and aesthetics. They have rich ornaments and usually bas-reliefs and portals. Poles call them “buildings with the soul”.

EXCELLENT LOCATION – the majority of Warsaw tenements are located within a short distance from the city centre. Thanks to this, residents have such conveniences as the prestige of the area, good access to public transport, as well as service points and cultural centres.

LARGE AREA – apartments in tenements are usually bigger than in newly constructed buildings. Old dwellings usually have a separate kitchen and a spacious hallway. In addition, high ceilings can be a great advantage because they allow to construct mezzanines or storage spaces.

HIGH STANDARD – tenement houses are no longer associated with shabby walls and gloomy interiors. Currently they experience a renaissance. Existing buildings undergo renovation and expansion works. Common parts of the buildings are renewed, while obsolete installations are replaced. Apartments offered for sale are often of a standard similar to modern buildings.

ACOUSTICS – tenements have thick walls which effectively suppress noise from the outside and from the neighbouring apartments.

DISADVANTAGES OF LIVING IN A TENEMENT HOUSE

OWNERSHIP RIGHTS – the purchase of premises is in many cases problematic due to an unregulated legal status. It may be caused by the lack of heir’s entry in the land and mortgage register. Resolving the ownership issue can significantly lengthen the purchase process and generate additional costs. Moreover, it happened that buyers had to pay for additional square meters of the apartment because the area disclosed in the land and mortgage register differed from the actual one.

TECHNICAL CONDITION OF THE BUILDING – even if the building looks well-maintained, before buying an apartment it is always worth checking when the last renovation took place and what modernization are planned in the near future. Also the particular attention should be paid to the condition of the electrical and plumbing installations as they may be obsolete or inoperable.

HEATING – unfortunately, poor thermal insulation and leaky windows are common problems in old buildings. Rooms are usually large and have high ceilings, which makes it more difficult to heat them up. Before buying an apartment, check the operation of the heating system and make sure that the air humidity is appropriate and that there is no mould on the walls. All of this means that tenants usually face high heating bills.

SUPERVISION OF THE MONUMENT CONSERVATOR – entry in the register of historical monuments is certainly a source of pride and guarantees the preservation of the unique architecture. On the other hand, it can hinder modernization and renovation works and increase their costs. Interference with a historical building requires special permission from the conservator.

NO PARKING SPACES – new apartments include a parking space in a garage, while in case of tenements residents typically have to park their cars on the street.

NO ELEVATOR – elevators are rather rare in tenements, but in many cases they are installed during major renovations.

PURCHASE AND RENTAL PRICES

Apartments in Warsaw tenements are sold less frequently than those in large-panel concrete blocks or in new buildings. According to the AMRON Centre’s data on the structure of sales on the secondary market, in 2020 a tenement house was chosen by every seventh buyer. This is mainly due to limited supply, as obviously the number of historical buildings does not increase. Opponents of buying apartments in old buildings point out numerous risks. Despite them, in recent years the popularity of tenements and investors’ optimism have been growing. The reconstruction of deteriorating buildings allows to eliminate their defects and sell them at a great profit.

On the tenement market there is a wide range of prices. This is mainly due to differences in the technical condition of buildings and the interior finishing standard. The analysis of transactions concluded in 2020 in Warsaw showed that prices below PLN 10 000/sqm concern apartments for general renovation located in neglected tenement houses. For example, a low-standard 40 sqm apartment in the building in bad technical condition, with a 20-minute commute to the city centre by public transport, was sold for as little as PLN 7 000/sqm. On the other hand, there are luxury apartments in renovated tenements close to the city centre, which cost more than PLN 20 000/sqm. Nominal prices of apartments larger than 200 sqm reach even several million zlotys. The greatest impact on the value of such properties have their historical character, architectural values and attractive location.

The subject of trade is not only individual premises, but also entire tenement houses. There are certainly much fewer such transactions on the market, and the buyers are mostly the specialized flipping companies. Old buildings are often bought far under the average market price per square meter. After renovation, their value increases even twice.

The rent rates of apartments in tenements, similarly to purchase prices, are highly diversified. In Warsaw two rooms in a low standard currently cost from approx. PLN 1 600 per month, including counter charges. More demanding renters can find offers that exceed PLN 10 000 per month. The most expensive are large apartments located near the city centre, which cost around 20 000 PLN per month.

SUMMARY

Buying an apartment in a historical building can turn out to be a dream come true and an excellent investment, provided that all the risks associated with such a transaction are considered. Finding a profitable offer is difficult due to exorbitant prices. Apartments in Warsaw’s Old Town cost on average PLN 18 000/sqm and everything seems to indicate that they will continue to gain in value.

Ewelina Staruch
Real Estate Market Analyst

Despite disturbing information about the coronavirus pandemic threat that was coming from China, the beginning of 2020 on the real estate market in Poland was another period of growth. Demand for residential real estate remained high, mainly due to low NBP interest rates (reference rate at 1.5%), rising inflation and high price availability of housing. As a result, prices reached new records, flats were sold even within a few hours, the offer remained at a stable, high level and developers started new investments. Slowing economic growth was believed to be the main threat to the demand on residential market. Combined with high nominal housing prices, it was the source of expectations for a change in the market trend. At the same time, however, it was difficult to expect a drop of prices on the primary market, considering number of factors potentially significant for the housing construction costs. The most important of them were: Polish labour market condition and possible outflow of employees from the Eastern Europe due to opening of the German labour market, electricity costs increase, the situation on the market of land for multi-family construction or the amendment to the developer act forced by the Office of Competition and Consumer Protection with its possible financial consequences. In this situation, a decline in growth rate of housing prices and a reduction in development production with a consequent shift of some part of demand to the secondary market should have been expected rather than a significant reduction in prices. So far, however, prices continued to rise. At the end of the first quarter, the average price of a square meter of a flat in Warsaw was by 3.39% higher than in the previous quarter, in Cracow the increase accounted to 2.17% and Lodz was the only city, where a price decrease was observed – the average housing prices were lower by 1.61% than in Q4 2019.

The first case of the COVID-19 disease in Poland, recorded on March 4, changed the situation completely. The main role, apart from growing uncertainty about the economic situation, was played by further restrictions and prohibitions introduced by the government, including, in particular, the movement ban, in force since March 24, 2020. The first changes in the behaviour of real estate market participants were visible already in March. Traffic on sales websites was much smaller, offer prices did not increase as fast as before and the number of transactions slightly decreased. After introduction of travel restrictions, the real estate market practically froze. In April, realtors and developers reported a drop in the number of concluded transactions at the level of even 90%, which was largely a consequence of decisions made before the outbreak of the pandemic. Information about the situation on the market additionally encouraged people planning to buy a property to postpone their decisions and wait for further developments, hoping for a drop in prices. After lifting of a significant part of the restrictions, in the following months the activity of market participants started to increase, however, the number of sale contracts concluded in the second quarter was the lowest for many quarters. On primary market, the number of sold apartments decreased by as much as 64% comparing to the numbers recorded a year before.

CHART 1. AVERAGE PRICES OF 1 SQ.M. OF FLAT IN MAJOR POLISH CITIES

source: AMRON System

Developers’ performance was also significantly reduced. After a good first quarter that brought results comparable to those recorded in the corresponding period of the previous year, the number of flats, the construction of which started in April, was lower by 44.82%, compared to the number recorded a month earlier and amounted to only 6 181. The results recorded in the following month were just a little better (6 188 residential premises in May). Only June brought a clear improvement of the situation. Construction of 9 317 units was started then, but still it was a result significantly lower than numbers recorded before the pandemic. Similar trend was noted in case of permits issued for housing units’ construction. In April, there were only 9 647 such permits, i.e. 30.44% less than a month earlier. In May, a slight improvement was observed (10 722 units), but the rebound took place in June, when developers obtained permits for construction of 16 620 units.

Under these conditions, lack of expected sharp home price drops was a certain surprise for some market participants and observers. With such a reduction in the scale of transactions, much larger changes in prices could be expected, resulting even from the obvious changes in the structure of the market. Meanwhile, during the first three months of the pandemic, prices in the largest Polish cities remained virtually unchanged. In Warsaw, Cracow and Poznan, changes in average housing prices, compared to the level at the end of the first quarter, did not exceed 1%. At that time, the highest dynamics was recorded in Lodz and Wroclaw – increases by 3.76% and 1.87% respectively. The average price in Gdansk decreased by 2.7%.

Apparently, the period of prohibitions and restrictions turned out to be too short to change the situation on the market in a significant way. Additionally, despite the deep decline in GDP, no significant increase in unemployment was recorded and the level of consumer optimism slightly increased after the April slump. Maintaining the high level of housing demand and in consequence – prices on housing market, also resulted from a series of National Bank of Poland interest rate cuts, made on March 18 (to 1.0%), April 9 (to 0.5%) and May 29 (to 0 1%). In combination with slightly lower, but still worrying inflation at 3.3% in the second quarter of the year and announcements of reprinting money, limiting confidence in its future value, such low interest rates destroyed the sense and profitability of saving money on bank deposits. Therefore, it can be said that the Monetary Policy Council, with its decisions, sent Poles for shopping, including, perhaps primarily, purchases on the real estate market.

The turn of the second and third quarters of 2020 was a return to normality. Government’s decisions on lifting the restrictions and repeated assurances about defeating the pandemic, dictated both by economic considerations and political calendar, caused a further, though slow increase in consumer optimism, visible in the indicators recorded by the Central Statistical Office, which effected with the dynamic activity increase of real estate market participants. The number of transactions concluded and the level of prices rose significantly. In the third quarter, significant increases in average prices in all major cities of the country were recorded. At the end of September, the average price per square meter of a flat recorded in Cracow was 8.77% higher than in the previous quarter, in Gdansk the increase accounted for 6.74% and in Warsaw and Wroclaw it amounted to nearly 5%. The lowest dynamics was recorded in Lodz, where the average price increased by 2.26%.

Developers also made up for the arrears from the second quarter. In Q3 2020, the sector set a quarterly record in terms of number of newly built apartments – 40 283, which was higher by 85.76% than in Q2 2020 and exceeded the number of 39 743 apartments recorded in the fourth quarter of 2019. The result achieved in September – 17 007 – was also the highest monthly number of newly built apartments in the history of Polish developers’ sector. The number of apartments, for construction of which developers obtained building permits in this period amounted to 40 247, which meant an increase by 8.60% compared to the second quarter of the year. An increase was also recorded in the category of completed flats. In the period July – September there were 38 445 of completed housing units, i.e. 18.65% more than in the previous quarter.

CHART 2. RESULTS OF THE DEVELOPERS’ SECTOR IN 2020

source: Central Statistical Office

Dramatic increase in the number of infections, recorded at the turn of September and October, did not bring a fundamental change on the housing market. This time, market participants remained much calmer than in March and April, even if the number of infections, and thus the scale of the threat, was much higher. The nature of the measures and restrictions applied by the government was however different as well. As a result, the developers’ sector results in October and November showed no significant impact of the pandemic. For all three indicators listed by the Central Statistical Office, the sector’s results were comparable to those recorded in the corresponding period of 2019.

AMRON’s data for October and November indicate that the housing market reacted to the autumn wave of the pandemic in a different way. Again, although to a much lesser extent than in April, the number of transactions fell and housing prices remained close to the level recorded at the end of the third quarter. At the end of November, the biggest change in the average price of a flat, compared to the level from September, was the increase recorded in Warsaw, which accounted for 1.44%. In the same period, prices in Cracow declined by 1.08% and changes in average prices in other locations did not exceed 1%. It could therefore seem that the housing market, unlike the construction market, is experiencing a repeat of the situation observed at the turn of the first and second quarter and the subsequent periods would bring the expected improvement. At the moment, it is still difficult to say whether this is the case, but it must be remembered that one of the main factors driving the demand for apartments in the recent period has been increasing share of investments for rent, i.e. investments in the sector of the housing market that was affected the most by the coronavirus pandemic.

CHART 3. AVERAGE MONTHLY RENT RATES FOR A FLAT IN SELECTED CITIES

source: AMRON System

Remote mode classes at universities introduced in the winter semester and then extended for the next semesters (currently it becomes more and more likely that the return to the full-time mode of studies will only be possible in the winter semester of the next academic year), remote work system implemented by a significant number of companies together with restrictions in tourist traffic, resulting in sharp decline in demand for short-term rental are the most important factors that contributed to the significant decline in rent rates, which was already visible in the second quarter of last year. At that time, however, these changes were still small – the average rent rate in Wroclaw fell by 1.5% compared to the first quarter of 2020, in Warsaw and Cracow there were drops by approx. 1%, while in Gdansk, Poznan, Lodz and Katowice the observed declines did not exceed 0.50%. A clear change in the trend was recorded only in the third quarter of the year. In Warsaw, the average rent for a flat was lower by 8.43% than in the previous quarter, in Cracow the decrease amounted to 9.56% and in Wroclaw the average rent rate was lower by 6.88%. Slightly smaller drops in rent rates were recorded in Poznan (1.63%) and Gdansk (1.91%). In addition, the pandemic caused much deeper, structural changes in the rental market, resulting from the necessary adaptations to the new needs of tenants, such as the need to live among people with a high level of social trust or the need to find a suitable place to work. Certainly, the situation on the rental market was an important factor, influencing the reduction of demand for investment purchases of apartments, both through a simple calculation of their profitability, as well as resulting from uncertainty as to the durability and effects of adjustment processes. There are many indications that the period of this uncertainty, and hence – its negative impact on the housing market, will continue for at least a few or even more months.

Jerzy Ptaszyński
Research and Market Service Director

Revitalization is a concept heard more and more often in the context of space transformation, especially in big cities. According to Art. 2 of the Revitalization Act of October 9, 2015 (Journal of Laws of 2020, item 802), revitalization in Poland is understood as a process of recovering from a crisis state, through integrated actions for the local community, space and economy, territorially focused, carried out by revitalization stakeholders on the basis of municipal revitalization program. This means that revitalization does not only refer to the renovation or modernization of a building object, but apart from its spatial significance, it is also supposed to affect the social and economic sphere of the area. What are the main drivers motivating to conduct revitalization? Various factors motivate to undertake revitalization activities, including the expansion of urbanized areas and the need to re-develop valuable locations in city centers. In the past, industrialization and urbanization took place without taking into consideration any rules of environmental and nature protection. As a result, nowadays it is necessary to firstly identify the contaminants and pollutants present in the area in order to introduce new, market-attractive functions in the degraded post-industrial areas at the next stage.

The Revitalization Act states that the preparation, coordination and creation of the conditions for the revitalization process are the responsibilities of local governments. Communes have to carry out all revitalization processes in an open and transparent way, as well as prevent the exclusion of the inhabitants of the revitalization area. The principles of universal design should also be taken into account (including the needs of disabled persons).

Revitalization should be considered jointly in several aspects: spatial and urban, economic, social and environmental. Only such an approach, combining all four aspects, will allow to effectively conduct the revitalization of a given area. The spatial and urban aspect concerns mainly the development of infrastructure, transport, repairs and renovation. The economic aspect should relate to supporting entrepreneurship and launching sectors of the local economy, especially by activating financial support mechanisms. The social aspect should ensure the development of human resources and counteracting social exclusion, preventing unemployment and homelessness, and creating equal opportunities. The environmental aspect should be based on enhancing natural values and minimizing the negative impact on the environment.

HafenCity, Hamburg, Germany

One of the largest revitalization projects in Europe is HafenCity in Hamburg. It is the only example of the revitalization of a port area directly connected to the city center. The project is based on the transformation of the post-industrial area of the former river port and gasworks with a total area of 157 hectares. The entire area is divided into 13 quarters. The completion of the revitalization project is scheduled for 2025.

PICTURE 1. PLAN OF THE NEW HAFENCITY DISTRICT DIVIDED INTO QUARTERS

source: http://duolook.pl/plan-nowej-dzielnicy-hafencity-hamburg-kwartaly-architektoniczne-projekty-miasta/ (access: 17.11.2020 r.)

The idea for such an investment appeared among the city authorities when the prices of flats in Hamburg began to rise rapidly. That prompted the search for land for new investments. The idea to transform the area of a declining port located in the strict center of the city appeared due to lack of free space to plan new investments from scratch. In 1997, the city became the owner of the entire area, and just two years later, the Dutch architect Kees Christiaanse won the competition and started to prepare a Masterplan for this area. The involvement of such a high-class architect attracted other artists to cooperate in the project. The design requirements were high. Each building had to have an ecological certificate and the street spaces had to be as convenient as possible for pedestrians. One of the main advantages of the district, on which the architects focused on, are waterfronts, where many friendly public spaces are created. Construction of the first building in HafenCity began in 2001 and was completed in 2003. First residents of the new district showed up in 2004. As time passed, other buildings were erected, such as museums, primary schools and junior high schools. A metro line and even a university were also built there. Currently, there are five such universities in the district. The HafenCity was enlarged by the Speicherstadt district, which was the world’s largest complex of related warehouses. It was redesigned and adopted to new housing and cultural functions. In the Dalmannkai quarter, the most recognizable HafenCity facility was built – the Elbphilharmonie, which has become the new symbol of Hamburg.

PICTURE 2. HAFENCITY REVITALIZATION EFFECTS

source: https://www.hamburg.de/bkm/elbphilharmonie/, https://www.podrozepoeuropie.pl/hafencity-nowoczesna-dzielnica-hamburga/ (access: 17.11.2020 r.)

Both the city authorities and the authors of the project wanted HafenCity to become an inhabitant-friendly, actual part of the city of Hamburg, accessible to everyone. For this reason, both state-subsidized apartments, cooperative premises and luxury apartments overlooking the river have been built in the district. Thanks to this, the space is available to all social groups. All needs reported by the local community are analyzed and implemented, if possible, to ensure that residents can participate in the transformation process of the area. The entire district is planned to become a multifunctional space, distinguishing itself both nationally and globally.

Summary

Revitalization is an extremely complex process that requires appropriate planning of all activities aimed at restoring the splendor of areas that have lost their value in the city. Due to the large scale of the project, revitalization actions are processes with a long time horizon, that requires large financial outlays. The decision to start such activities should be taken by local authorities, which plan to conduct the entire process in a comprehensive manner and ensure the participation of all its stakeholders. The success of revitalization depends mostly on the correct adaptation of the solutions to the expectations of the local community, as well as the use of optimal architectural and urban solutions tailored to the nature of an area. A well-carried out revitalization can certainly have positive effects both for the local community and the promotion of the city. It can also increase tourist activity or encourage a new group of investors to invest in a given city.

Barbara Mariańska
Maintenance and Development Specialist

One-quarter period of restrictions related with the pandemic turned out to be too short to change residential market trends in a meaningful and lasting way. Contrary to some market observers expectations, there was no downturn of the trend and no decline in home prices. Moreover, the activity of market participants, after a short break, returned to the level close to the pre-pandemic level, and even, in case of developers, clearly exceeded it. At the same time, however, situation on the residential rental market developed differently. Restrictions and changes introduced as a consequence of the pandemic resulted in reductions of rent rates that had not been recorded for a long time. The upward trend changed already in the second quarter of this year, but at that time we witnessed only slight adjustments. The average rent in Wroclaw decreased by 1.50% compared to the first quarter of 2020, while in Warsaw and Cracow by approx. 1% In Gdansk, Poznan, Lodz and in Katowice, quarterly changes were minimal and did not exceed 0.5%. In the third quarter, however, the reductions definitely accelerated in all major Polish cities. The deepest drops were recorded on two largest markets – Warsaw and Cracow. The average rent rate for a flat in Warsaw in the third quarter of 2020 amounted to PLN 1 714 and was lower than quarter earlier by 8.43%. Even deeper decline was recorded in Cracow, where the average rent rate in the third quarter of this year amounted to PLN 1 324, which was 9.56% less comparing to the previous quarter. In Wroclaw, the average rent rate recorded in the third quarter was lower by 6.88%. Much lower drops of rent rates were recorded in Poznan and Gdansk – by 1.63% and 1.91%, respectively. In other cities, there were drops not exceeding 2.5%.

CHART 1. AVERAGE MONTHLY RENT RATES OF A HOUSING UNIT IN SELECTED CITIES

source: AMRON-SARFiN Report 3/2020

Recorded changes of the average rent rates, very significant in some locations, do not result only from simple rent reductions. The demand for flats for rent reacted in a very dynamic way to changes in the market environment, clearly changing its structure. Basic phenomena in the market environment and factors of structural changes in the demand for flats for rent were:

• Decision to conduct remote classes at universities in the winter semester. Its natural effect was the reduction or total lack of demand for flats and rooms for rent from students.
• A clear reduction of number of foreigners working in Poland in the second quarter of this year. According to NBP estimations (from March to September this year), the number of Ukrainians working in Poland decreased by approx. 200 000 as a result of the pandemic. However, Social Insurance Institution (ZUS) data shows that foreigners working in Poland returned to work as soon as it was possible, probably already in July. Therefore, it can be concluded that expected significant impact of the reduction in number of foreign employees on rental market has actually materialized to a limited extent.
• Restrictions in tourist traffic and reduction of demand for short-term rental, resulting in transfer of a significant part of apartments from this segment to the long-term rental market.
• Introduction of remote work system by a significant number of companies.
• Decline in social confidence associated with the sense of threat related to the epidemic and, consequently, a decline in demand for rooms for rent.

Considering the possible development of the situation on individual rental market, the durability of changes that have recently occurred should primarily be analysed. The question about students returning to universities seems to be the simplest and the most obvious to answer. Return to full-time studies seems indisputable and most desirable, and in the light of the epidemiologists opinions and decisions taken by universities’ authorities, it is likely that stationary studies will be possible already in the summer semester of the current academic year. Therefore, it seems quite possible that already in January we will observe an increased demand for apartments for rent and its obvious impact on the level of rent rates.

It is slightly more difficult to answer the question about the prospects of demand for flats from foreign workers. Extrapolating from the data of the Social Insurance Institution (ZUS), which confirmed registration of the previously unlisted number of 689 thousand of foreigners at the end of September, it can be optimistically assumed that the interest in working and renting flats in Poland among foreigners at least does not decrease. However, the question remains as to what are the prospects of the Polish economy and its demand for foreigners’ work. For now, it must be emphasized that economic forecasts both for Poland and entire European Union assume a solid rebound next year and further growth in the following years. Additionally, despite the pandemic and the consequent recession, Central Statistical Office data shows no significant deterioration in the labour market. The unemployment rate in Poland increased only slightly – from 6% in the second to 6.1% in the third quarter. Thus, as in case of students, the prospects for maintaining demand for flats for rent from foreign workers are quite optimistic.

However, the prospects for the short-term rental segment may be much more pessimistic. The pace of the tourist traffic reconstruction will depend not only on the epidemiological situation and economic opportunities, but also on the level of consumer optimism. Experts’ opinions on this issue are divided. More pessimistic forecasts assume a very slow, several-year-long process of returning to normality understood as the pre-pandemic reality, in addition, started in 2021 from a very low level of approx. 50% of tourist traffic in 2019. There are, admittedly, more optimistic forecasts referring to tourism as one of the main ways of psychological recovery after the pandemic, but the key factor for the continued existence and development of this market segment, apart from the scale of the demand itself, will be the future regulations, which should be expected after September CJEU ruling. At the moment, we do not know the details of the solutions that can be adopted, however, knowing objections raised by both the government and local authorities towards short-term rental, it can be expected that they will significantly limit the scale of this market segment. As a consequence, apartments previously rented per days will probably remain on the long-term rental market.

It also seems that the demand for rental rooms will remain at a reduced level for at least as long as the fear of the coronavirus persists. In view of reduced rental rates, it should rather be expected a flow of demand from this market segment to the segment of one-room apartments, guaranteeing some independence from using the “common areas”.

The most interesting phenomenon, that is currently taking place on the rental market, mainly as a result of switching to remote work, is the change in weights of rent-forming features, including the most significant of them, affecting the rent rate amount. One of the basic and the most important factors, determining attractiveness of the real estate location – transport accessibility, understood as commuting time, seems to lose its importance to some extent. In our new reality, it turns out that tenants are able to give up locations previously considered the best or the most advantageous, if in other, sometimes peripheral and previously not even considered, they can meet their housing needs better for the same or even less money. At the same time, larger flat area, extra space for work, a terrace, garden or balcony or proximity of green areas seem to gain in importance. Durability of these changes will depend on the decisions of managers in individual companies, and therefore is difficult to assess. However, it can already be said today that after nine months of experience, remote (or partially remote) work on a really large scale is becoming our new normality and many companies will definitely stick to this solution permanently. Moreover, for some employees it also opens up the possibility to work in their place of residence, with no need to relocate and rent an apartment. This is a completely new situation with great potential for social and economic changes, the possible consequences of which extend far beyond the real estate market.

Year 2020 is a time of extremely dynamic changes in the real estate market environment, including in particular the residential rental market. Forecasting the development of the market situation in such a volatile environment is obviously a risky task with an increased risk of a mistake. However, if we assume that there are no further factors in the market environment that could contribute to its further deterioration, we can conclude that the perspective of the most important segments of the private rental market are moderately optimistic.

Jerzy Ptaszyński
Research and Market Service Director

When investing on the real estate market or buying a property for own use, it should be remembered that the purchaser becomes the owner of the rights to the property. However, before signing a contract it is worth checking what rights and restrictions are imposed on the subject of the transaction. All necessary information can be found in the land and mortgage register of a property, available at the district court competent for the given area. Special attention should be paid to limited rights in rem, which include usufruct, servitude, pledge, cooperative ownership right to premises and mortgage. Among the servitudes stand out: the land servitude, the transmission servitude and the personal servitude, which is the subject of analysis in this article. In addition to the servitude, it is worth considering a life agreement. What could be a better form of security for the seller: a personal servitude or a life agreement?

Personal servitude

According to Article 296 of the Civil Code ‘(...) real estate may be encumbered in favour of a designated natural person by law, the content of which corresponds to the content of the land servitude (personal servitude)’. It follows that the essence of personal servitude is the possibility of encumbering the property in favour of a particular individual, which involves three possible cases:

• the person entitled to personal servitude may use the encumbered property to a specified extent,
• the owner of the encumbered property is restricted in his ability to carry out certain activities in relation to it,
• the owner of the encumbered real estate is not allowed to enforce certain rights which he is entitled to with respect to the proprietary real estate (that is, the one for whom the servitude is established), on the basis of the provisions on the content and is enforce of ownership.

The basis for establishing a personal servitude is a contract between the parties. The parties that can be distinguished by the use of the right on personal servitude are:

• entitled by virtue of personal servitude (a specific, named, natural person, not an owner),
• each owner of a property encumbered with personal servitude.

The law on personal servitude often refers to the law on land servitude. The main difference is that in case of a personal servitude, the person who is entitled is a particular individual, and not every owner of the property in charge, as in case of a land servitude. This means that a personal servitude is inalienable, non-transferable, not subject to inheritance and expires at the latest upon the death of the right-holder (it is a right of due date). Personal servitude cannot be acquired by positive prescription.

The most common type of personal servitude is residential servitude. Suppose Mrs. Sophie sells the apartment to her daughter. She wants to secure her own future, so the condition for her daughter to acquire the property is to establish a personal servitude for Mrs. Sophie. The contract clearly states that Mrs. Sophie can use all the rooms in the apartment, all the equipment and will contribute to the charges for the used utilities. Such a scenario is quite common, but a person not related to the owner may also be entitled to the servitude.

A person entitled to residential servitude may take a spouse and minor children who may remain in the apartment even after their majority. The entitled person may also take other persons, but only if they are maintained by him or if they are necessary for running the household. As mentioned earlier, personal servitude is not subject to inheritance, however, according to the Civil Code, it can be agreed that after the death of the person entitled to the servitude, his children, parents and spouse will be entitled to the residential servitude.

Another important aspect is the possibility of changing a personal servitude into a pension. This is possible when the right holder commits gross misuse in the is enforcement of his right. A personal servitude cannot be completely abolished because of its nature as maintenance, as it would have the effect of worsening the life of the person entitled, but the rules on land servitude apply here.

Life agreement

According to the provisions of the Civil Code, a life agreement, like a personal servitude, is intended to provide a place of residence for the person selling the property. The main difference is that the subject matter of a life agreement is not only the right to live in apartment but also the assurance of life support. In practice, this means that the purchaser should accept the seller as a lodger, provide him with food, clothing, accommodation, access to the necessary utilities, as well as take care of his illness and cover funeral expenses.

The basis for the establishment of the life agreement is a contract between the parties. The parties are:

• the seller of the property (entitled), who may also reserve right to live in apartment for the benefit of a close person, e. g. spouse,
• the buyer of the property.

As with personal servitude, it is possible to convert the life agreement into a life annuity. This can be done when the relationship between the parties does not allow close contact with each other. In exceptional cases, at the request of the seller or the buyer, the life agreement may be terminated by the court.

Summary

Both the personal servitude and the life agreement are intended to ensure that the seller can live in the property that is the subject of the transaction. The fundamental difference remains the way this right is enforcement. In case of a personal servitude, the entitled person may live and use the facilities in the encumbered property, but he covers the costs of his maintenance. The right to live in sold apartment (life agreement), on the other hand, is extended to ensure the entitled with a maintenance and proper care.

Daria Łaskowska
Junior Maintenance and Development Specialist

There are as many reasons for investing in real estate, as investors, who decided to do so. Most of all real estate is a physical asset that can be seen, touched or felt. That physical aspect is particularly important in periods of financial turmoil, when decreasing exchange quotations lead some investors to hasty and ill-considered decisions. Secondly, investment in real estate protects the capital from inflation, which is mostly due to decrease in value of fiduciary money, much easier to print than actual increase of housing stock. Thirdly, real estate can generate constant and regular revenue, which for most of investors is the key argument for investing. Finally, investing in real estate may be financed by relatively cheap mortgage loan.

But are the above arguments still valid? Is investing in real estate right now, at the pandemic situation, still possible and profitable? Is it still true that purchase of a flat for rent will secure our money and ensure peace of mind?

The most important decision to take when investing in a dwelling for rent is choosing the right property. But what is ‘the right property’? From the owner’s perspective, the crucial issue to be handled is to ensure a maximum occupancy. Problems with finding a tenant are currently related to flats located in city centres, which were prepared for short-term rent, mostly for tourists. Owners of those flats dealt with lack of tenants already in spring, during the first COVID-19 wave. Most of them made their dwellings available for a longer period of time, hoping for an income high enough to pay at least part of fixed costs (administrative fees, mortgage installments etc.) and believing to return to a short-term rent business soon. However, it is already known that even if pandemic stops at the end of the year, tourism industry will be recovering during next few years. Additionally, it is worth remembering about possible new legal regulations concerning short-term rent principals to be developed as a consequence of the Court of Justice of the European Union (CJEU) judgement as of September 22, 2020. Taking all the aforementioned arguments into account, it seems that the short term rental may not be as profitable as it used to be just before the pandemic. What is important, the problem concerns dwellings in the best locations and therefore much more expensive compared to the average flats on the market, which makes the profitability issue even more critical for the owners.

The owners of flats rented per rooms are in a similarly problematic situation. Their tenants are mainly students, who, due to distance-learning, did not return to the academic cities in crowds. Obviously, there are some exceptions in that group, so the situation of owners of flats rented per rooms is not the worst, but still they have to take into account lower demand and, in consequence, reductions in rent rates and high fluctuation of tenants. Beside students, the other group of room tenants are foreign employees, mostly from Ukraine, but the current pandemic situation significantly decreased their number in Poland and therefore the demand for rent from that group of tenants is presently very limited.

In conclusion, what type of dwelling should be considered when investing in flat for rent? Standard one, which means easy to rent at any time and easy to sell in the future. Studios and two-room flats, preferably with separated kitchen, are the best option, as they will always be the most popular among both tenants and purchasers.

Time of uncertainty and economic imbalance is usually conductive to so-called ‘market opportunities’. Some owners, due to bad financial condition, may be forced to the emergency sale of the property. Others, even if not forced, may be concerned about the possibility of concluding a transaction in difficult market conditions and therefore may be eager to negotiate the price in purpose to finalize the transaction and end the feeling of insecurity.

Increased number of enforcement proceedings and consumer bankruptcies may be expected as a consequence of the post-pandemic crisis. However, properties sold under the enforced debt collection procedures will appear on the market at the earliest in mid-2021 because of the standard duration of such procedures, additionally prolonged by the slowed courts performance during the pandemic. Although the system of e-bailiff auctions of the National Bailiff Council was already launched, there is hardly any housing auction available there.

In case the investor plans to take out a mortgage loan to finance the transaction in lesser or greater part, it would be reasonable to verify current mortgage lending conditions and check the. Coronavirus pandemic and a lock-down of several sectors of the economy forced banks to change their lending policies. And as long as rules related to the properties as collaterals remained unchanged, rules concerning creditworthiness have changed significantly. Such economy sectors, as tourism, transportation, hospitality industry or gastronomy, are currently rated more risky, as well as all types of civil law contracts and self-employment. That is why it is important to find out in advance whether a mortgage loan is even accessible.

Some banks increased their requirements related to the down-payment. At the same time, due to the Monetary Policy Council’s decisions, WIBOR 3M and WIBOR 6M decreased to 0.22% and 0.25% respectively. According to Bankier.pl, the average mortgage margin of a loan with a 10% down-payment in Q2 2020 accounted for 2.63% and it was higher by 0.4% comparing to the average margin recorded in the same period last year. It means that at the current level of interest rates, repayment of such a loan should not be a problem, but it must be noted that presently mortgage loans are the highest-priced in the last two years. If interest rates start to increase, the amount of the installment may significantly influence the profitability of the investment and in such case refinancing will be the only reasonable solution.

When concluding the purchase transaction during the pandemic, particular attention should be paid to a detailed schedule of preparing the necessary documents. It is a good idea to choose a notary in advance and specify a list of documents indispensable for the transaction. It should be considered that the time necessary for obtaining a document is presently longer than usual, due to delays related with rotational work, e-appointments and necessary prearrangements related to the visit in the administration offices. At present, it takes approximately a month to collect all necessary documents, which should be taken into account when defining a date of a transaction in preliminary agreement.

In a pandemic situation, lessors will have to accept a decrease in profitability of rent in the nearest future, both due to smaller number of potential tenants, as well as predicted recession and economic disturbances. Reduced profitability will affect not only real estate, but all forms of investments. That phenomena is observable for a long time on the example of bank deposits, the interest rates of which oscillates between 0.01% and 2%, as well as 10-years state treasury bonds with current rate of return at the level of 1.7% in the firs interest period and 1% + inflation with annual capitalization of interests.

The shortage of flats in Poland is still huge – according to different estimations it amounts from 640 thousand to over 3.2 million of housing units, and therefore the demand for flats for rent will not suddenly disappear because of the pandemic or the economic crisis. When investing in real estate, the profitability should be calculated in a few-years perspective. And the analyses of the prices on real estate market allow to believe that the real estate may be a vehicle to transfer current savings into the future with no loss and moreover, to bring regular income in uncertain times.

Jakub Kaczor
Platform of Mortgage Borrowers Support Coordinator

On September 19, another amendment to the construction law entered into force. Changes introduced by the Act amending the construction law as of February 13, 2020 have a very wide scope and their purpose is not only to simplify and accelerate the investment process, but also to organize several important areas of regulations related to the construction and use of buildings. There are such important issues among them, as legalization of unauthorized construction, facilitating the access to infrastructure networks or the requirements for obtaining building permits and notifying construction works.

One of the most far-reaching changes, which is intended to reduce the number of documents needed at the stage of submitting a building permit application or notification, is the division of the construction design. According to the new regulations, the construction design will consist of three parts: plot or land development design, architectural and construction design and technical design. In the new mode, at the stage of issuing a building permit or notifying the intention to start an investment, the administrative body will accept the plot or land development plan and the architectural and construction design, while the technical design will be submitted by the investor only at the stage of the use permit procedure. The designer will be responsible for compliance with all three parts of the design documentation.

The Act also introduces unified catalogues of facilities and works that do not require a building permit and can be performed either on the basis of a notification, or even without it. The latter include, among others, parcel lockers and devices for sale up to a height of 3 meters, including ATMs and ticket machines. However, a building permit will be required for all construction works performed at a facility entered in the register of monuments, and construction works in the area entered in the register of monuments may be carried out on the basis of a notification.

Changes have also been introduced with regard to the rules for granting consent to derogate from the provisions of the technical conditions to be met by construction objects and their location, and technical conditions for construction objects use. Until now, such a possibility existed only prior to the issuance of the building permit. The act amending the construction law act introduced possibility to obtain the consent for derogations also before the change of the building permit decision. In addition, the new regulations exclude the possibility of obtaining a consent for a derogation in case of an ongoing procedure of legalization of unauthorized construction.

The amendment to the construction law also introduces new solutions in the field of procedures for connecting new investments to gas, electricity, heating, water and sewage networks. Introduction of deadlines for issuing conditions for connection to the water supply and sewage network is to guarantee their improvement. In case of a single-family residential building, the binding deadline for issuing connection conditions will be 14 days, while in case of other investments – 30 days. If these deadlines are exceeded, the water and sewage company will be subject to financial penalties. The water and sewage company will also not be able to refuse to accept a connection made in accordance with the issued terms and conditions, or to charge the investor for acceptance and inclusion of water and sewage connections. The ban on charging fees will also apply to issuing, changing, updating or transferring the conditions for connection to the water and sewage network to another entity. The terms of connection will be valid for two years. Verification of the possibility of connecting the investment to the heating network will be the responsibility of the designer.

The improvements provided for by the new regulations also include procedures for legalizing unauthorized construction. The new, simplified procedure applies to those facilities, the construction of which was completed at least 20 years ago. It assumes that the legalization of unauthorized construction is free of charge, and its basic requirement is to provide a declaration of the right to use the property for construction purposes, a declaration of the construction completion date, as-built inventory and technical expertise of the facility. The procedure does not apply to those facilities, for which a demolition order had been issued prior to the entry into force of the new regulations. The new law also introduced a new procedure for inspection and construction supervision in the event of illegal use of a building structure, along with the determination of the amount of penalties that may be imposed in such a case.

The act amending the Construction Law also introduced new solutions as regards to the possibility of invalidating the decision on the building permit and use permit. The regulations in force so far made it possible to declare these decisions invalid without any time limits. At present, it will no longer be possible if 5 years have passed from the date of delivery or announcement in case of the building permit or the date, on which the occupancy permit became final.

The above-mentioned changes to the construction law are the most important part of the amendment to the regulations that recently came into force. Apart from them, the Act removes the need to use a template of the building permit, introduces new requirements for the fire safety of buildings in the event of a change in their use, or defines a significant deviation from the approved plot or land development design or architectural and construction design or other building permit conditions.

The new regulations will not only streamline and accelerate the investment process, but should also allow for unification of some of its procedures on a national scale and will make them much more readable and thus – make the investors’ life easier.

Jerzy Ptaszyński
Research and Market Service Director