Is there a Real Estate bubble in Krakow?

When I see prices for properties in Krakow now in June 2008 I am wondering if it is real.
Are all these agencies and developers selling ?
has the credit crunch come to Poland yet?
Some apartments are more expensive to buy than in a lot of capitals or main cities in Continental Europe like Spain which Real Estate recently crashed, Germany, France,Belgium...

Nie rozumiem!

no , nobody buy at this price now , the bubble will burst soon.
poles will understand , money are not growing on the trees after communism time.

There are a lot of very greedy people in Poland who don't have the experience to realise that they are fuking themselves.

Very greedy people in Poland? On a relative scale, not that many.

Krakow and Warsaw attract their fair share of snobs but, sorry, I'm from the oil capital of Europe and I know the mentality of these people. The Poles pale away in comparison. They are on a completely different level.

Come on Seanus. I can;t believe you dont see it. It;s got nothin g to do with snobery, it's out and out greed and they are busy fuking themselves - its riduculus

Well, granted, u may be better placed than me but I'm from the heart of GBC

I see craziness. What has happened in the real estate market over the past however long is a prime expample and I wont accept for a moment that it's been driven by foreign investors because quite frankly, in the market I have been buying in it hasn't.

What I am seeing happening in the rental market atm is doing damage to the wider community. I am seeing prime real estate sitting empty becaue the rent being demanded is higher than anyone running a legitimate and legal business could possibly afford to pay. Who does this benefit? Nobody. It's stupidity, selfishness and greed

OK. I am an American who lived in Poland for several years. I first came to Poland in 1995. The real estate market in Poland has always been this way. Around the rynek glowny there were always apartments sitting empty. They were for sale for say $500,000 (?) Some as little as $250,000? Even back then I asked myself..are these people crazy? And over the 6 years I was there, it remained the same. Empty apartments. Poland has always been this way. And with the EU membership, the real estate market went nuts. It will crash. Poles cannot buy apartments on $14,000 a year. The foreign speculators are the ones driving the prices up. I was there in 2006 and met speculators from Holland and Germany. I asked them, how does the average Pole afford an apartment here? The answer..the average Pole does not. We well to foreigners. The Poles drive the taxis. Poland is becoming a service country to foreign invaders. I am really sorry to see this happen to Poland. The real estate market will bust, the zloty will crash..what has happened in the US with the credit market and the mortage industry will happen in Poland...and across Europe everntually. Short term greeedy bastards are creating a problem for profit in the short term which Poles will have to deal with for a decade.

This really isnt the case as you point out in the first few lines of your post - even back then, before th market openned up, you were asking if these people are crazy. The short term greedy bastards you refer to are as much Polish as anyone else. Foreigners might be the ones who can afford these prices but it is locals who largely set them. As you say, the Polish real estate market has always been this way. Why blame the new comers just because the can afford to pay the extortionate prices?

Hello,
I find that the developers will have to pull out the finger and finish the builds, it is a **** take at the moment, buying a place and having to finish it yourself. I have recently seen two story houses being sold without stairs... greedy bastards. I think the prices will stay the same for the next while but you will get more for your money. A finished product is cheaper if the developer does it, (buy in bulk and negotiate a better price with the fitters on mass).
I also see a massive change in what is on the market, from small apartments in blocks to houses, seems to be the new trend and why wouldn't it be, 50 square metre flat 15 mins from Krakow or a 120 metre flat 15 mins in the other direction from Krakow costing the same, it is a nobrainer. Still these roads need to be renovated, which they are in the process of doing, so it might take a little while longer before people see the benefits.
I do not believe that foreigners pushed up the prices so much here either, other countries that had a false economy (foreigners pushing up the prices) are now really feeling the brunt of the burst bubble.
Something else to consider is all the money poured into Poland form Poles working abroad.

You say its a no brainer, and I agree, but it seems that a lot of locals are having problems working this out



They didnt. Its just another example of the blame deflection culture in Poland

I disagree that Foreign speculators are the only ones to blame for driving prices up but I agree that if the law in Poland had not been so speculators friendly , speculators would not have come to Poland like sharks.

In other countries in Europe, like in Germany, France, the Nederlands etc you cannot buy a property 'unless it is your main residence/ you keep it for 5 years )and resale it before 20 years without paying huge capital gains.
Buy a House in Provence or 25 apartments in Amsterdam and you will have to keep them for 20 years or pay big capital gains.
However in Poland from 2004 the government was trying to attract as many foreign investors as possible, as much Foreign currencies as possible and this allowed some people to buy 15 or 20 units /flats off plan at once and resale them within a year !Making huge profits and driving prices up.
So now we have this bubble , normal correction but if the Polish Government continues to attract speculation it will be worse.
The property price was at that time much cheaper than anywhere else in Western Europe attrating also big Multinationals like Google and others to Poland when plants and manufactures in Western Europe were beeing shut down.

Is the Pope Catholic ?

Yes, the Pope is Catholic. And? OH! I see. Ok. So there is a bubble. Sorry.

Why is real estate so expensive in Kraków?

It has always been so. Krakow rates as the second, sometimes third most expensive city in Poland, after Warsaw or Poznań. I can say it is snobbery - most Poles know Poland`s history and Krakow is considered a very attractive place. It sounds impressive when you say you live in Krakow. :):):) Besides, don`t forget multiple job opportunities, excellent schools, entertainment facilites ect.

Who can afford the houses/flats?

Firstly, the buyers are Poles. They have better jobs and earn more money every year, either in Poland or abroad. Of course they are not able to put the sufficient cash on the table, so they take bank loans. Banks are only too happy to give them, and before giving a loan, they make sure how to avoid losses. If a buyer can`t repay the loan, their property will be taken by the bank.

Secondly, another category of buyers are foreing investors. Yes, they had correctly predicted that after accessing EU in 2004, real property prices in Poland would rocket, just like it had happened in Spain and other countries before. They entered aggressively and bought a lot.

There are still more factors which make prices so high. The main problem is there are simply not enough flats, and it is a result of the lack of land. Cities linger with transforming arable land into construction areas. It is a matter of beaucratic regulations.

Guys, especially Vafunkoolo, stop talking about speculation. Let me remind you that Poland is a capitalist country and there is a free market. One can buy and sell whatever they want. Yes, there are certain restrictions, Lwowska mentioned 20 years` time, in Poland it is 5 years within which you can`t sell purchased property without paying profit tax.

But a free market means that the seller sets the price at the level which is attractive both for him and the buyer. Isn`t it so?

I wouldn`t count on the bubble to blow up, like in the States or elsewhere. Since January 2008, prices in Krakow went down by .....1%, and the experts say they will be stable for the next few years or will even go up a little higher.

I am sorry, guys.

But I am also quite satisfied because when I eventually decide to move from this noisy, crowded, polluted city, I will be able to swap my current flat for a decent house in the coutryside 50 km from Krakow.

Pawian, thanks for the useful and intelligent addition to this discussion

:):) Not at all, I certainly missed a lot of important issues.... :):):) E.g., the saying which became popular not long ago: cheap property has already finished - tanio już było. I also forgot to mention that specialists estimate there is a deficit of about 1.5 million flats in the country.

You have been living in Krakow for 4.5 years, recently you have worked as a mortgage and property consultant/specialist, correct? So you know the market and real estate situation at first hand. What can you add to everything what was said here?

Yes, correct.
I don't really know where to start! There are so many points I could raise here.

Is there a real estate bubble in Krakow? My opinion is no, there isn't.
Perhaps this time one year ago, you could have argued that there was. Thankfully, prices stopped rising and some common sense entered the market. Prices just couldn't keep rising at the pace they were.

One year down the line, what can we see?

The average price per m2 in Krakow is 7500 PLN per m2, not much different from this time last year and now 15% below Warsaw. In the suburbs this means you could get a newbuild apartment for less than 6000 PLN per m2 (in developer's standard of course) and in the centre you can pay up to 15000-20000 per m2.

There is a lot more supply than a year ago in Krakow. The lack of spatial planning in Polish cities (which Pawian mentioned) are still an issue, but there was a lot of new apartments approved to be built in 2006/7 and they are now coming to the market.
There is still pent-up demand from the Poles for new apartments.

The fact is, the majority of Poles still live in substandard accommodation (whether it be rundown kamienicas in the centre or in blocks from the 60s and 70s in the suburbs), and as wages rise, then they aspire to get something larger and newer.

The boom in Poland in recent years was partly driven by easier access to credit as the Polish mortgage/banking market competition increased. This has halted somewhat in the past year due to the credit crunch, though the Polish experience is nowhere near as bad as in the USA or some parts of Western Europe.

So right now, we have a situation where buyers have the upper hand. They still want to buy apartments, but they are holding off, seeing if the owners/developers will reduce their prices. Alternatively, buyers can just be more discerning, waiting for the apartment that ticks all the boxes. (Pavel, this is probably not an apartment on aleja Słowackiego).

The Polish economic situation is also worth mentioning. Unemployment continues to fall (now 10%) and wages continue to rise (around 10% per annum). Inflation has moved higher, but this is a worldwide problem, and at 4%, Poland's inflation is still well below most of it's central and Eastern neighbours. The central bank of Poland has also used it's monetary policy powers to raise local interest rates and try stem inflation, something which a lot of governments around the world have failed to do. Essentially, the Polish economy still looks good, GDP growth is still high (around 6%) and foreign funds continue to flow into the economy. There are still lots of EU structural funds to be spent, which will stimulate the economy further, though we will wait to see whether the new roads and other infrastructure improvements mooted over the next few years will actually materialise!

Poland is such a big market in the region (population almost 40m) that it's property market still warrants attention from investors. You will just have to take a longer term view if investing now. Expect the prices to remain fairly stable over the course of 2008 and 2009, but for steady price growth to kick back in from 2010 onwards. This is a commonly held view if you read research from the major players in the market (maybe they are biased, but aren't we all?)

Foreign investors piled into Poland between 2003-2007. The earlier you got into Poland, the more money you made. I can now see many of these investors looking for the exit door. Not only has the PLN value of their properties risen strongly (even 100-200%, but the zloty has appreciated against all major currencies, particularly in the past year, making the gains even higher.

The argument that foreigners were responsible for the boom in Poland is flawed. They have only made up a small part of a very big market, and perhaps only influenced prices in the premium end of the market, luxury apartments in city centres for example. Some foreign developers have also paid far too much for building land as well.

So, if you look at Poland now with a foreign eye, and convert the prices on offer back into GBP/EUR/USD, sure it looks expensive. But it's all relative. The story of Poland has a long way to go, and I really think we are only in the first stage of a really impressive growth story.

I could have touched on many other issues, but must get back to work.

This has been said repeatedly on the forum but there are still people insisting that the foreign investor is to blame.

Thank you for your valuable contributuion andy b - insightful and informative

Could that be because over 2 million people found employment elsewhere since their joining the EU? How would the figures look if all those that left returned?

that is true, so there are some government restriction on real estate speculators, and the real estate speculation is directly linked to capitalistic system, so I am not sure why some people are so offended by the practices going on in Poland, since all is happening reflects what has happend around the world in that deprtement. Look at Russia and Ukraine for example.

If I were a foreign investor, I would look for another market to make money - it only makes sense.

• How much is Capital Gains Tax (CGT) in Poland and how does it work?

The tax laws related to Capital Gains Tax (CGT) on the sale of real property were changed at the beginning of 2007.

Main points of old regime (for purchases completed before January 1st 2007):

- If you hold your property for 5 years you will not be subject to CGT. (It is calculated on a yearly basis, rather than monthly. For example, if you bought your property in May 2004, then the five year period starts from January 2005. No CGT is payable if you sell from January 2010 onwards.)

- If you sell within 5 years, then you are subject to CGT at 10% of the sales price. However, if within two weeks of selling the property, you declare your intention to reinvest the proceeds in Poland (contacting ministry and tax office), then you are not subject to the tax. The reinvestment must occur within a period of 2 years, otherwise you will have to pay the CGT.

Main points of new regime (for purchases completed after January 1st 2007):

- Five year rule abolished.

- Only sellers who have been resident (legally registered) in their own property for at least a year are eligible to sell a property without CGT.

- Other sellers are liable for CGT at 19% of the profit realized on the sale. The profit is calculated after all fees are taken into account, including notary costs and agency commissions.

Yes, if those goys hadn`t left, the figures would look different but not too much because since the access to the EU the Polish economy accelarated and a lot of new job positions were created.

The foreign investors fall into two categories “Retail investor" and " Developers" it is quite true that a number of foreign developers have received very bad advice from unscrupulous polish land brokers. A number of Spanish and Irish developers had bought plots in areas that are very difficult and have been plagued with problems from the local authorities (requiring gifts). The Spanish and Irish developers and driving the luxury end of the market more problems means higher prices per Sqm The rest of the market plays catch up. If you develop a building to the high end market at 20,000 plz per Sqm then pan wodek in the next building (post communist) convinces him that his pokey little apartment is worth the same and the game goes on.

Remember the polish saying “I do not care how wealthy I am as log as I have more than my neighbor"

Regarding apartments being empty for year’s real estate companies are in the business of buying real estate and in a bull market it is better to hold rather than sell because the name of the game is leveraging. That is the key to success if you are experienced in the game.

My spin on the Polish real estate market is quite simple “The tide is about to turn and those that have been swimming naked are about to be exposed”

So remember the winning formula: " Sell when everyone is buying and buy when everyone else is selling" If you are a cash king there will be profits to be made in Poland from Q3 2009 onwards.

Recently bought an appartment in Zielona Gora for 3156 pln per sq metre. I understand that the property now fully fitted out couls fetch 5,000 per sq metre, is that the case ?

So are you saying you think there will be bargains just before 2009 Q3?

Your property is worth as much as somebody is prepared to pay? having said that the people who would buy your property will not be a local pole it would be somebody from the UK or USA, with the current recession it is doubtful that people will be lining up to buy your apartment. but you may be lucky a sucker is born every minute.lol..