The rental and investment market in Poland may develop faster thanks to the introduction of REITs, say experts from law firm Baker McKenzie. Key drivers of the rapid development of REITs in Poland will be the stability of the law, a transparent form of taxation and the reduction of barriers to entry.
According to Baker McKenzie’s lawyers, the sanctioning of REITs (Real Estate Investment Trusts), i.e. companies investing in real estate leases, is a long-awaited change that can positively affect the Polish market and strengthen the position of Polish investors – both individual and institutional.
“The two most important benefits of introducing REITs into the Polish legal system are that they enable individual players to invest without having to buy property and that they make the rental market more dynamic,” says Weronika Guerquin-Koryzma, partner heading the real estate practice in Baker McKenzie’s Warsaw office.
Rents paid in zloty are an important factor hampering the development of residential construction for rent. This is because the commercial property market is dominated by foreign investors, who prefer to invest their funds in assets that guarantee income in euros – such as offices or logistics centres. These, in turn, were almost inaccessible to the individual investor. The emergence of REITs may, according to Baker McKenzie experts, completely change the image of the Polish commercial real estate market.
“Thanks to REITs and the increased presence of PLN investors, the market can gain the stable cash inflow needed to build a large portfolio of dividend-generating properties, such as rental flats, for example,” adds Weronika Guerquin-Koryzma. “On the other hand, the individual investor will gain the opportunity to invest in asset classes such as offices, warehouses, wind farms or data centres.”
Lawyers at Baker McKenzie also point out that the REIT market will be open to investment by institutions operating Employee Equity Plans (IEPs), which currently do not have the possibility of investing in real estate directly. This means that individual investors will also indirectly participate in the trading of shares in companies operating on the rental market.
The government is currently working on a law introducing REITs into Polish law. According to the latest information provided by the Ministry of Development and Technology, REITs are to be joint-stock companies based in Poland. Trading in their shares will take place on the stock exchange. In Polish law, they will function under the name SINN – companies investing in real estate leasing.
“From the point of view of investors, the operation of a SINN on the public, the regulated market is very good news,” says Katarzyna Kopczewska, partner and co-head of the tax practice in the Warsaw office of Baker McKenzie. “It allows for investment liquidity and guarantees security resulting from access to information made available in connection with the reporting obligations imposed on public companies.”
Work currently underway at the Ministry of Development and Technology and the Ministry of Finance on the law includes the determination of minimum share capital and the applicable form of taxation. Both of these issues will be important for the future development of SINNs in Poland, according to Baker McKenzie experts.
“Undoubtedly, a favourable, simple and transparent way of taxation would support the development of SINNs in Poland, but the most important thing will be the quality and stability of regulations,” adds Katarzyna Kopczewska. “When investing with a horizon of five years or more, the investor expects that during this period there will be no change in the law – especially tax law – affecting the assumed rate of return.”
Lawyers at Baker McKenzie point out that investments in REITs should be long-term in nature. Frequent regulatory changes may have a destabilising effect on the market in the future.
