State and land

The government now has the right to step into almost any significant transaction involving the sale of land. Could the new law mean a country-wide re-nationalization? How will it impact the real estate market

By Beata Socha

Since May 1, 2016, a new law on land sale has been in place, according to which almost any sale of agricultural land will be closely monitored by the Agricultural Property Agency (ANR). The Agency will be allowed to step in and exercise its preemption rights if it chooses to do so. The only sales of land exceeding 0.3 hectares without ANR supervision will be between two farmers living in the same or neighboring municipalities. Proving you’re a farmer will not be easy, either. Not only will a farmer need to have the appropriate education, he or she will have to have lived and worked in the same place for five years. “Many of the lifelong farmers in Poland will not meet the criteria,” commented Emil Domeracki, senior associate, and land acquisition senior specialist at Colliers International.

Poking holes

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Recently, law experts have pointed out some loopholes in the law that will in fact allow investors to bypass the Agricultural Property Agency. The new law’s goal “is to limit land purchases by foreigners, by people speculating on its prices, and entities that would like to use the land for purposes other than agriculture,” said Anna Woźniakowska-Dębiec, attorney at Gardocki i Partnerzy law firm. The law gives the ANR preemption rights in deals involving shares of companies that own agricultural land and span across all types of deals, including unilateral legal acts (such as donations), and successions. The legislators, however, failed to proof the law against creative-thinking lawyers. The law “gives the Agency preemption rights only in cases of transactions involving the shares of companies that own agricultural property. It doesn’t cover shares of companies that are shareholders in companies that own agricultural properties,” Woźniakowska-Dębiec explained. Those who managed to create such an “envelope” by the end of April, will now be able to trade their properties freely, with out the pesky preemption rights from the ANR. That is, until parliament decides to plug the hole.

Back to state

There remains an unanswered question, and a particularly valid one given the fact that Poland’s ruling party has always been big on “the national interest,” whether the new law, besides making the lives of developers and farmers difficult, will lead to a perceptible country-wide nationalization of land. It seems plausible. Firstly, the Agricultural Property Agency will be able to preempt most large land sales, buying off farmland across the country. Secondly, given the strict criteria for people qualified to buy farmland, the pool of potential buyers may simply dry up. “It may turn out that a farmer will choose to sell his land to the ANR if he cannot find any buyers eligible to buy his property,” said Piotr Woźniak, associate, legal counsel, at EY. Determined buyers who fail to meet the criteria will be able to apply for a special individual permit. “If the president of the ANR grants such a permit, the person will be allowed to buy the land. But if he declines, the ANR will be obliged to buy this land. This means that a person determined to sell land will succeed, even though sometimes at a lower price, but this chain of events may lead to something we could call ‘nationalization,’” Woźniak explained. One could also ponder the implications of putting the go/no-go decision in the hands of a single official, regardless of anyone’s best intentions. “If the decision-making criteria are open and based on subjective assessment, we could see situations that will not be conducive to making such decisions. The person making such decisions will be carefully watched, and may therefore become excessively cautious,” Woźniak added.

Planning ahead

Developers have long been preparing for the new law and have created considerable land reserves for the

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coming years, according to Domeracki. “Earlier, warehouse developers would buy land only if they had a potential client,” he said and added that, “speculative purchases of land plots for warehouse developments reached abstract high levels in 2015, particularly towards the end of the year.” Land purchases in the residential segment have also been climbing, on the back of record apartment sales in 2015 (over 2,100 units sold). For the past few years, the market has been additionally fueled by the government subsidy program (called MdM). “Even expanding the MdM program to cover the second-hand market did not spoil developers’ results,” commented Domeracki. According to his forecasts, 2016 will see even more purchases of plots zoned for residential development. He expects that the limitations on land sales may also lead to an increase in prices for such land. “Developers are increasingly open to buying even difficult plots, like postindustrial areas – plots they had previously rejected.” In Warsaw, there is also very little land remaining for residential development within the city, and prices are steep. However, appetite for land is even greater. “Last year we advised on the sale of the confectionery factory ‘Mieszko’ in Warsaw’s Praga district. The land had no zoning plan, no individual planning permit [the so-called ‘W-Z’ in Polish] and development would involve costly demolition. Still, the deal was closed within two months and paid in cash,” Domeracki said. The scarcity of zoned development land will be most acutely felt in Silesia. “In the Silesia agglomeration, most of the investment land is classified as arable land. That will have a great impact on the residential market,” he added.

Urban control

The shortage of zoned land in cities will be felt by all market players. “In the long run, zoned lands will become much rarer and more valuable, and their prices will probably rise. In about two years, the depleted supply of such properties will be felt by end buyers as there will be fewer inexpensive units located farther away from city centers,” said Kazimierz Kirejczyk, managing partner at residential real estate consultancy REAS. According to Kirejczyk, the law will have adverse effects on small developers, which are active on the outskirts of cities, and usually invest in greenfield development. On the other hand, it will strengthen the position of market leaders, who can afford to buy zoned parcels in the city. The law could also prove to be highly lucrative for local authorities. “If, on top of that, the law on municipal government were changed, municipalities would be able to buy agricultural land without any restraints or competition from developers – hence at lower prices than at the moment. Municipalities could then adopt zoning regulations, re-parcel plots and sell them to developers in public tenders,” Kirejczyk said. On the plus side, that could make construction of roads and other public projects easier and cheaper, as well as preventing urban sprawl. Provided that municipalities don’t get greedy. “Drawing on the example of Warsaw, we can point to many agricultural land plots located in municipalities neighboring big cities, where local authorities adopted plans with multifamily housing zoning,” Kirejczyk concluded. There is no doubt that the new law on agricultural land means a shift in power between municipalities and developers. However, it remains unclear how it will play out and who will come out on top.