Why invest in Poland?
Location
Poland’s central location between the East and the West of Europe, between Russia and Germany has historically been a disadvantage to the country. However its location now is undoubtedly an advantage, as a bridge between these two major economies and also East and West Europe as a whole.
Population and demographics
The population of Poland is about 38.6 million which is about 5% of the total population of Europe. This makes Poland the eighth largest country in Europe and the twenty-ninth largest in the world. In addition, 30 million of the population are under 35 years old, making it a very young and dynamic country.
Economy
The following table highlights some of the key economic indicators in Poland for 2004, 2005 and projections for 2006.
Source:Central Statistical Office, National Bank of Poland, Center for Social and Economic Research
Growth
Relative to the more stagnant economies of developed European Union (“EU”) countries, such as Germany and France, the Polish economy has been growing strongly and is expected to continue to grow by an average of 5% per annum for the next ten years.
Economic growth is a key driver of property price growth and will help create the emerging and more affluent middle class in Poland. This will generate domestic demand for property and continue to push prices up.
Unemployment/Labour force
The unemployment rate in Poland is approximately 18% (although significantly lower in urban areas). This is the highest in the EU and the fifth highest in Europe, and compares with a European weighted average of 9%. However, Poland’s labour force is highly educated, skilled, inexpensive and has a good work ethic. The average Polish wage (6,000 Euros or approximately 4,050 GBP per year) is about a quarter of the average EU wage (24,250 Euros or approximately 16,370 GBP).
Unemployment figures are predicted to fall to around 8% over the next five years while increases in gross wages slowly converge towards current EU levels. These factors should have a positive effect on property prices.
Inward investment and EU effect
Poland joined the EU in May 2004 and is expected to benefit from substantial inward investment over the next 5 years. The EU alone is expected to invest 40 billion Euros into Poland’s infrastructure out of a total of 91 billion Euros*.
Foreign investment is undoubtedly playing a progressively more important role in Polish economic growth. Between 2003 and 2004, foreign investment rose by 23% to 6.45 billion Euros and was even higher in 2005**. This figure is predicted to rise to approximately 8.5 billion Euros in 2006. In 2004, foreign investors created approximately 15,000 new jobs and around 20,000 in 2005. This figure is also likely to grow through 2006.
In terms of attractiveness to foreign investors within Europe, Poland continues to assert itself as a market leader. In a recent survey Poland came top of European countries in terms of investment potential***. The key reasons for this were availability of land for investment; low real estate costs; low labour cost; high potential for growth; high productivity and the impending harmonisation of national laws with EU’ regulations.
It is anticipated Poland will adopt the Euro as its official currency before 2010. Given all of the above, it seems clear that a positive inward investment climate in Poland is set to continue.
* Warsaw Voice (Andrzej Ratajczyk).
** PAIiIZ Statistical Office.
*** Ernst & Young global business survey.
Mortgage ratio
Currently only an estimated 14% of Poles have residential mortgages. This is likely to increase over the next 5 to 10 years, as the EU average is more than three times this figure. The total value of mortgage debt in Poland is 6% of GDP, compared to levels in other EU countries, such as Ireland or Portugal, where it is in excess of 50%*.
The increase in competition amongst the mortgage lenders following EU accession and reduced bureaucracy is also likely to increase the level of mortgage lending. Greater affluence will also increase the propensity to borrow.
This will make the property market more accessible to more people and increase demand. Indeed in the last year mortgage brokers, such as Open finance and Expander, have opened high street “shops” where customers are able to enquire about, and arrange mortgages.
* ING BSK analyst Bartosz Pawłow.
Persons per household
At the moment the average number of persons per household in Poland is significantly more than other EU countries. It is expected that over the next 10 years the average number of people per household in Poland will fall by 25%. Again this will contribute to increased demand for accommodation.
Polish workers returning from overseas
After joining the EU in 2004 there was a large migration of Poles (especially those aged 18 to 30 years old) to other Western economies within Europe (principally the UK, Ireland and Sweden). 230,000 Poles have officially registered to work in these countries, although the unofficial figure is likely to be much higher.
These workers have exported their products, skill and ethos of hard work, inflicting the biggest shake-up in some Western Europe labour markets for decades.
Anecdotal evidence suggests that the majority of short term migrants eventually return to their home country. The impact on the Polish economy when these workers return from overseas should not be underestimated. Not only will they return with significant savings to be invested in Poland, but they will also return with new skills, contacts and experience established in more developed working environments.
Urbanisation
Currently 62% of the Polish population live in urban areas compared to a weighted average of 74% in all of Europe. There is a current trend of people moving from the countryside into cities and by 2015, 69% of the population is predicted to live in urban areas. This amounts to an increase in the urban population in Poland of 2.16 million people. This will lead to increased demand for urban property.
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