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The Warsaw Voice » Real Estate » March 5, 2008
The Real Estate Voice
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Polish Law Investor-Friendly?
March 5, 2008   
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One natural consequence of Poland joining the European Union in May 2004 was the growing interest of foreign companies in investing in this country. One of the main targets of such investment has been the real estate market, and the reasons for such a choice include low land prices and high demand for office, warehouse and residential space, allowing developers to generate substantial profits. Rapid growth in sale prices for usable space encouraged investment in Poland. Opinions were even voiced that it was a vendors' market and that they were the main players dictating the terms.

There has been a degree of price level stabilization in recent months, especially with regard to residential space-prices for new housing have stopped growing and developers are increasingly forced to devise extra incentives for prospective buyers, for instance by offering free parking space.

Due to stabilizing prices, developers looking to invest in Poland attach growing importance to in-depth real estate market analyses and determining the risks involved in any planned investment. Investors assess not only the business environment of a project but also its social and legal aspects.

Analyzing legal regulations, the most important issues are those of ownership rights and local spatial development plans, or rather a lack thereof. Despite legal requirements to have these in place, about 80 percent of communes in Poland still do not have a binding spatial development plan. The main reason is a shortage of funds in communes, coupled with their unwillingness to tie their own hands with the binding provisions of a spatial development plan. Unfortunately this means a vicious circle for many communes, because the lack of a plan discourages investors who could otherwise be providing a financial injection to commune budgets.

Investors are also worried about real estate ownership problems, in particular the possibility of reprivatization claims from former owners. Land and Mortgage Registers and information held by city administrations play an important role. If a given property's real estate register makes no mention of third-party claims and the local administration does not have any such information, a land purchase is made in good faith and the buyer need not have any fears about the former owners appearing. If, however, the administration does know something about any claim, a detailed study of the property's legal status needs to be commissioned.

Despite various difficulties and legal provisions typical of Poland that may come as a surprise to investors, such as perpetual usufruct rights, foreign investors have a positive image of Polish law, ensuring that investments planned in Poland are considered safe. Among other things, developers value the lack of an obligation to sell a specified percentage of homes at regulated prices, which is a requirement in some other European countries. Investing in Poland is also made more attractive by the lower tax on civil law actions-2 percent in Poland, compared with 7 percent in Spain, for example.

Foreign entrepreneurs' positive attitude about investing in Poland could be a strong driving force for the development of many regions or individual towns and communes. To fully take advantage of the opportunity offered by Poland being perceived as an attractive location for foreign investment, the barriers facing prospective investors need to be dealt with effectively, and an important role in this could be played by finally adopting local spatial development plans.

Magdalena WrońskaAttorney-at-Law, Partner

LENGIEWICZ WROŃSKA BEREZOWSKA I WSPÓLNICY Kancelaria Prawnicza s.c. l tel. (+48-22) 826 30 33, 828 14 73; e-mail: lwb@lwb.com.pl
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