Key from the perspective of the real estate market, are two laws: the Act of 17 September 2021 amending the Act – the Construction Law and the Act on Zoning, and the Act of 1 October 2021 on Guaranteed Housing Loans. The purpose of this article is to discuss this impact and to sketch out the basic changes affecting the Polish real estate market.
Houses without formalities
One of the ideas of the Polish Deal in the area of real estate is the possibility to build a single-family house of up to 70m2 using a special, simplified, procedure that does not require a building permit. Construction work can begin on the basis of a notification of construction (at least 21 days before the planned commencement of work) to the local district office (starostwo powiatowe). The notified house project must be consistent with the local zoning plan. If there is no such plan for a given area, the investor would still have to apply for a zoning permit; however, in this situation, the procedure would be simplified and the municipality would have 21 days to issue the permit.
The government refers to this solution as the so-called Houses without Formalities (Dom bez formalności) scheme. According to government publications, the administrative regulations in this respect have been reduced to a minimum: the obligation to apply for a building permit, the obligation to appoint a construction manager, and the obligation to maintain a construction log have all been lifted. There are, however, certain requirements: the person building the house will have to take responsibility for managing the construction and, under pain of criminal liability, declare that the planned construction has been designed to satisfy this person’s own personal housing needs (which means that said person will not be allowed to rent it out). Each house is also required to stand on a plot of land of no less than 500m2.
Houses without Formalities can be constructed with a maximum of two storeys. There is a restriction that the span of any structural elements in these objects cannot be greater than six metres, and the overhang of any supports will be limited to two metres. The Chief Office of Building Supervision has also announced a contest to select designs of houses of up to 70 m2. According to the Polish Deal, these designs would be free.
In the first few months since the introduction of these new regulations, there has, so far, been no observable interest in this solution. These houses may, however, be built some distance from urban areas. Land prices in cities do not necessary justify the construction of such small buildings on plots which have been designated for building development.
Housing without contributions
Another point of the Polish Deal concerning real estate is the programme assuming state assistance in purchasing one's own apartment. According to the assumptions, the programme is designated for people who have earnings that would allow them to repay a loan for an apartment, but who do not have funds for their own required contribution.
The basic idea of the programme is to introduce the possibility of a state guarantee for part of the mortgage loan taken out for the purpose of purchasing an apartment. The new regulations assume that the state-owned bank BGK will guarantee part of the loan which can constitute no less than 10% and no more than 20% of the expenses. The loan would be granted in złotys, for a minimum of 15 years, by banks that would conclude an agreement to that effect with BGK.
As stated on the website of the Ministry of Development and Technology: “Importantly, as the family grows, BGK will assist in repaying part of the guaranteed housing loan. This will be the so-called family repayment which will amount to 20,000 złotys in the case of the birth of a second child in the family, and 60,000 złotys after the birth of a third and any subsequent child.”
The Act also contains mechanisms that limit the risk of stimulating an increase in housing prices, such as a maximum limit on the price (including the construction contribution) per single square metre of usable floor area of the financed apartment.
Tax changes within the Polish Deal and their effect on the real estate market
The tax provisions of the Polish Deal also introduce far-reaching changes that are important for the real estate market. These are – more stringent taxation of property rental by private persons, and the exclusion of the possibility of any tax depreciation of residential property. These regulations are to enter into force as of 1 January 2023.
Currently, individuals can settle their rental income in two ways: the first is by following the general rules according to the 17% or 32% tax scale with the possibility to take into account expenses. The second is a fixed tax rate on registered income - the rates in this case are 8.5% on income below 100,000 złotys and 12.5% on any surplus over 100,000 złotys. The tax regulations of the Polish Deal assume that only the second option will remain.
This change will affect taxpayers who incur significant expenses related to the rental of property or who depreciate property at individual depreciation rates. They will no longer be able to account for these expenses which will affect the profitability of their investments. This is significant change, considering that up until now many owners of apartments for rent paid very limited tax on this activity, taking advantage of the opportunities offered in this respect by depreciation.
The second, no less important change is the exclusion of the possibility of a tax depreciation of a residential property. Currently, depreciation of residential buildings or apartments can be carried out by both PIT and CIT taxpayers. However, in accordance with the provisions of the Polish Deal, residential buildings and apartments will no longer be subject to tax depreciation. Any expenses incurred in order to acquire these properties will be recognised as tax deductible only at the time of disposal.
The Houses without Formalities programme might be convenient for those who wish to build a small house of up to 70m2, however, this does not mean that this will be problem-free. Not having to take on the services of a construction manager is convenient, but it is also a risk. One cannot exclude the possibility of potential construction accidents, for which the investor will be accountable. Not using a construction manager might reduce costs, but could also lead to insurance problems.
Experts agree that while the No-Contribution Housing programme should stimulate demand, it is not expected to have any significant impact on housing price growth.
The tax changes will hit not only landlords, but tenants as well. Landlords will not take the entire cost of the new taxes on themselves, but will inevitably pass part of the cost of these new taxes on to the tenants which will result in higher rents in the rented-housing market.