EU a challenge to property industry
By : Jeffrey Sparshott
For many international investors, the European Union's (EU) real estate market already extends to Poland's eastern frontier.
The long-term view toward accession is gradually changing the market, driving prices, bringing better financing and attracting more stable institutions, according to industry analysts.
"It's a process that's already begun," said Wojtek Szczerba, chief executive officer of Megaplex, an entertainment and retail development in Katowice. Serious investors are not waiting for the ink to dry on EU paperwork," he said. "And the prospect of membership is already raising Poland's profile."
While EU membership is important, agents and developers said it is only one of many market influences, the health of the economy being the most important factor.
Also, if Poland does join the EU in 2003, regulations on foreign investments won't be up to EU standards immediately as Polish negotiators try to wring more concessions from Brussels which they deem necessary. The government is asking for a five-year transition period before Poland comes into line with the EU's regulations on real estate acquisition for investment, and an 18-year transition period for agricultural and woodland property.
The precautions are a result of government concerns that companies based in the EU could use their financial strength to outmuscle Poland's citizens in the real estate market. There is also an unspoken fear that pre-World War II German landowners will want the return of their property, now in western Poland. So an amended 1920 law on real estate acquisition by foreigners now governs property purchases, delaying acquisition by forcing foreign companies to request Interior Ministry permission for the right to acquire or use land. The application process can take as long as six months.
"It is something they have to reform ... because now it is an absolute nightmare," said Sven von der Heyden, president of Von der Heyden Group, a Warsaw-based property developer. Sensitivity toward foreign investment is understandable, he said, but the investment and the money it brings is beneficial to Poland.
The government, however, is moving cautiously. "The legislation is not a major obstacle to the acquisition of land, it is a precautionary measure," said Leszek Jesien, an adviser to the prime minister, who is working with Jan Kulakowski, Poland's chief negotiator on EU accession. While he did not want to speculate on the outcome of negotiations, he said Sweden, Finland and Austria, which became EU members in 1995, received a five-year transition on property acquisition.
The EU has not officially staked out a position on Poland's request for a transition period. "For the moment, the European Commission (EC) is looking at all the transition periods to determine which demands are acceptable, negotiable and unacceptable," said Bruno Dethomas, head of the EC's delegation in Poland. The two sides hope to wrap up talks sometime next year.
Regardless of the unresolved status on some negotiating points, Poland's presumed entrance into the European club is already improving the national market.
"Poland is going to be a member of the EU. So people are already making strategic decisions based on this assumption," said Christopher Grzesik, managing partner of King Sturge property consultants in Poland. He said the process is ongoing and will be gradual.
"There is not going to be an overnight change. The effect on the investment market here is that Poland will no longer be perceived as an emerging, high-risk country with quick, high-yield returns," he said. A less risky environment with lower returns will attract larger institutional investors and make it easier to find financing, he said.
And while negotiators talk, investors are not sitting idle.
"By the time accession comes, a lot of the markets will have matured and there will be less opportunity for new investors," said Brian Burgess, managing director of CB Richard Ellis in Poland. He said the time leading to Poland's membership could be even busier than the post-accession market. U.S. and Asian firms, especially, might look to position themselves in the market prior to Brussels imposing its rules.
Von der Heyden said that in Spain a surge in investment led up to that country's accession to the EU, and the same could happen in Poland.
"There will be a flood of investment," he said. "However, this flood will happen before the accession. The boom will really happen on good news. People will position themselves well before (joining the EU)."
The last time developing economies came into the EU was Spain and Portugal's 1986 accession, after the demise of right-wing dictatorships. While it is difficult to make a comparison between that wave and the next wave of entrants, the Spanish example offers some insight.
"Since 1986 Spain entered into a more stable political and economic environment, with lower inflation and interest rates than those historically achieved," said Eusebi Carles Pastor, a global research and consulting director with CB Richard Ellis in Barcelona. "These factors powered the economy into a more healthy climate and demand grew a lot during the period between 1986 and 1992."
Rental values rose almost five-fold in those six years and investment activity witnessed a "golden era" with many foreign companies investing and developing offices, he said.
Von der Heyden, who has developed property in Spain, said there was an upturn in the market around the time of accession, leading to overbuilding in some areas. Control by foreigners is fairly extensive, he said, but the reaction in Spain is not as emotional as in Poland. "No one cares," he added.
