48 (143) 2021

REITs for Poland

REITs for Poland

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Poland’s commercial real-estate sector is highly unusual in that 97% of all transactions involve foreign capital - only 3-4% of the volume invested on average per year is domestic capital.

This compares with about 40%-50% participation of domestic capital across western Europe and a massive 77% in Hungary!
The shopping-malls, office blocks, factories and warehouses that have appeared in Poland since the 1990s earn solid revenues for foreign pension funds, property funds and banks – but not for Poles themselves.

The reason for such a glaring difference is the lack of legislation allowing investment vehicles (real estate investment trusts, or REITs) to be established in Poland. REITs giving investors (both retail and institutional) the chance to be taxed once on the dividends earned by the properties in which they invested, rather than twice (tax on corporate profit, and then as income tax).

The BPCC’s Real Estate and Construction Policy Group met on 28 April 2020 to discuss the current state of legislative work on REITs in Poland. The meeting began with presentation of research carried out by CBRE. The aim was to bring together participants in the market – finance, construction, development and real-estate agents, for an open discussion into the what is needed.

Joanna Mroczek, head of CEE research and marketing for CEE & Poland, set out the big picture, putting the Polish real-estate scene into a regional and European perspective, and outlining the past and current legislative efforts intended to introduce REITs to Poland. Daniel Bienias, head of CBRE in Poland, explained why a lack of domestic capital on the Polish commercial real estate has a negative effect on foreign capital coming into Poland, as the funds looking to exit the market only had other foreign funds to sell to. Polish REITs would bring more liquidity into the market, and would allow Polish retail investors the chance to profit from the solid yields generated by commercial property in Poland, he said.

Malgorzata Kosińska, who chairs REITs Polska, an industry association promoting the concept, explained the institutional and legislative barriers that stand in the way. These are mainly from the National Bank of Poland, wary of the possibility of ‘property bubbles’ that could destroy investors’ savings. Mr Bienias said “legislators should think in terms of cycles rather than bubbles.”

BPCC member Tony Repa, who has recently completed a one-year assignment as the finance minister’s plenipotentiary for capital markets, spoke of the realities of drafting and passing the required legislation through the ministries, and asked private-sector market participants to be forthcoming in what they expected to see in any REITs act.

Bożena Krawczyk, investment director at SEGRO, a UK-registered REIT active in Poland, spoke of the need to educate the decision-makers, to clear up misunderstanding, and to promote the sentiment that REITs would be good for the Polish economy – not only to invest in real estate in Poland, but also to invest in real estate projects in other countries, just like SEGRO’s investors are present in Poland.

Questions revolved around the need for fiscal incentives at a time of historically low interest rates, whether the vehicles set up as REITs needed to be listed on the Warsaw Stock Exchange, and indeed whether REITs were still relevant in an era of tokenisation and distributed-ledger technology.

The most important question is whether Polish REITs be allowed to invest in residential real estate? This is controversial, and a main reason why Polish regulators (the National Bank of Poland) has shown caution in this area. Looking at EU member states that have long had REITs, massive sums of investors’ money pumped up bubbles in countries like Spain, Ireland or Bulgaria that burst spectacularly after the 2008 financial crisis. By sticking to commercial real estate, which is less prone to boom-and-bust cycles, Poland could avoid such risk by limiting REITs investment to the commercial-property sector. In any case, with record low interest rates, Poles have been tending to invest cash their surplus in flats for rent rather than in bank deposits, shares or bonds.

Lack of REITs legislation leaves Polish citizens at a disadvantage: “Why can’t Polish pensioners benefit from the profits generated by Polish real estate in the same way that pensioners from Canada or Germany benefit from the profits generated by Polish real estate?” asked Marzena Richter, an international auditor experienced in property funds, practising as Staniszewski & Richter
The day before the BPCC held its event, the Council of Ministers announced that a working group is to be set up to lay out the principles under which REITs could operate in Poland (Monitor Polski, 27 April 2021, poz. 407). Looking at the text, there is concern that the working group would consist of representatives of ministries, regulators, the Warsaw Stock Exchange and the NBP, but not of private-sector firms (developers, builders, investors, banks and estate agents).

The BPCC will be watching how this progresses, and will report to the International Group of Chambers of Commerce to see whether the other 16 members of the group, representing foreign investors in Poland would like to take a common position on REITs.

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