Welcome to the regular quarterly update from Hamilton May Real Estate in Krakow.  

A general election was held in Poland on Sunday 9th October. As expected, the ruling Civic Platform (PO) government of Donald Tusk has retained power. This is the first time since the end of communism that a ruling party has been able to hold onto power at an election, and recognizes the general feeling amongst the Polish electorate that PO has done a good job during a difficult time (the Global Financial Crisis) and is considered a safe pair of hands to continue leading Poland.

The weakness in the Polish zloty during the last quarter has been on the minds of many owners and investors in Poland. The zloty has fallen against all major currencies recently (up to 10% or more against the EUR, GBP, USD), mainly due to the increasing global concerns over the debt situation in Europe, particularly in Greece. Whilst it is clear that global investors should have concerns over the future of the EUR currency and sell it accordingly, it is less clear why the zloty has fallen so much against the EUR. The fact is that smaller currencies such as the PLN are often more volatile and susceptible to speculative trading. Recently, many large European banks have issued ‘buy’ recommendations on the Polish zloty, believing it to be oversold at current levels.

GDP growth in Poland for 2011 has been in excess of 4% though it is expected to slow to between 2-3% in 2012, taking into account the worsening economic conditions in Europe as a whole. Standard & Poor's (S&P) believes the Polish economy has the potential to grow strongly in the future, provided the incumbent government can push through key structural reforms. The Polish economy benefits from a large internal market and relies less on export-led growth than some other countries in the region. “We forecast real GDP growth of between 3% and 4% over the medium term, based on solid private consumption and robust private and EU-funded investment “, S&P said in a recent report. Yet for Poland to realize its full growth potential, structural reforms  are needed to set its economic development on a more sustainable path. – Such structural reforms including pursuing fiscal consolidation, continuing with its privatization program, boosting spending on information and communications technology and further labor market deregulation.

Both foreign and Polish investors have shown in recent surveys that they are positive about the future prospects for the local economy. A recent survey of Polish entrepreneurs by Grant Thornton showed a level of 28% positive sentiment/optimism compared to just a 2% average for the Eurozone. Only German entrepreneurs were more optimistic at 56%. A poll of 194 foreign investors conducted for the Polish agency of Foreign Investment (PALiLZ) saw 61% of respondents assessing investment sentiment as good or very good. The reasons cited for this positive sentiment are stability, the strength of the financial sector, sound economic growth and improving administration.

Hamilton May continues to be busy in the local real estate market. On the sales market, we can see strong demand for smaller apartments on the secondary market in the centre of Krakow, with many recent transactions conducted in the range of 300 000 – 450 000 PLN. Buyers of larger luxury flats are still very discerning, looking for apartments with modern features such as underground parking, lifts, security, air-conditioning and large balconies and terraces. Whilst average headline prices in Krakow continue to remain stable, downward price pressure is still evident on both the primary and secondary market and buyers retain the upper hand in negotiating healthy purchase discounts.

On the rental market, Hamilton May experienced our best ever month in September in terms of the number of flats rented. The rental market remains fairly strong into November, though owners who missed out on the September rush are competing for a smaller group of active tenants. The corporate market remains healthy. Several international companies have either set up or expanded their presence in Krakow in 2011, with more planned for 2012, which should see corporate demand for high standard rental apartments and houses for executives remaining buoyant.