Data from PKO BP 2021 shows that nearly 1/3 of real estate transactions in the market of large cities have an investment purpose. Investing in property is still one of the more popular and secure ways to invest capital and protect it from galloping inflation. Whether you decide to invest in real estate for rent, the increasingly popular house flipping or simply as a capital investment, the key here is to choose the right property. Warsaw is a market that will meet all your investment needs.
Property prices are rising in Warsaw
Let’s start with a small introduction. As the largest city in Poland, Warsaw is also the largest real estate market. It is also a very developed and mature market in terms of both primary and secondary markets. For example, in 2020, developers sold more than 19,000 flats in Warsaw, which at the same time meant that one in four newly built flats in Poland was sold in Warsaw. The prices of Warsaw flats are on a steady upward trajectory. According to a report by the National Bank of Poland, transaction prices on the primary market in Q2 2022 increased by 15.6% compared to the same period last year, while those on the secondary market recorded an increase of 5.2%. As experts forecast, this trend will continue in the near future. So if you are considering buying a property in Warsaw for investment, now could be the right time. History shows that long-term investors can count on housing prices rising higher than inflation.
Investing in real estate for rent in Warsaw
The situation on our eastern border and the related influx of Ukrainian citizens into Poland, as well as the decline in the creditworthiness of Poles, has caused a stir on the Warsaw rental market. Admittedly, the peak of this situation is (probably) behind us, but experts predict that the increased interest in renting will continue for a long time to come. If we add to this the students looking for flats, as well as so-called business tourism, a picture emerges of Warsaw as an ideal destination for investing in real estate for rent. Both short-term and long-term. Let’s take a closer look.
A heated long-term rental market Anyone who has tried to rent a flat in Warsaw recently has noticed a significant rise in prices. It is estimated that rental prices for Warsaw studio flats have risen by 33% over the year. In the ranking of large cities, Warsaw is overtaken only by Gdańsk, which recorded a 40% increase. This is not a trend that applies only to studios. Slightly less spectacular increases were also recorded by flats with larger floor areas. What influences this? The aforementioned influx of the Ukrainian population, inflation, which property owners argue the need for increases, as well as the rise in interest rates and the decline in the creditworthiness of Poles. We are now facing a situation where the cost of renting has approached the cost of credit. According to a report by Expander and rentier.io, the average cost of renting a 50 sqm flat in Warsaw is just over PLN 3,400 pln, while the corresponding cost of a loan is PLN 5,000 pln (assuming a 10% own contribution and a 35-year loan). It is in Warsaw that these proportions are the most unfavourable in the country. All of the above factors have led to an increased demand for rental flats, as well as an increase in rental prices. As a property owner in Warsaw, you therefore have a good chance of renting it out in the long term and thus earning a stable passive income. What kind of return can you count on? According to a report by the Warsaw Association of Real Estate Agents, it is 4% on average, the Expander and rentier.io report says 5.9% for small flats.
Business tourism in Warsaw is doing well, i.e. Warsaw’s short term rentals
Warsaw is the largest and most important scientific and business meeting place in Poland. It is also here that the political, economic and scientific interests of the entire Central and Eastern European region come together. A minimum of several thousand business events take place in Warsaw every year, making the city the undisputed leader of the meetings industry in the country. As the ‘Meetings and Events Industry in Poland’ report shows, 7,523 meetings and events with more than 50 participants each took place here in 2019. Let’s also remember about tourists. In 2018, the number of visitors to Warsaw exceeded 10 million for the first time, and although the pandemic initiated a decline, experts forecast a return to normality. Add to this the trend of increased popularity of tourist flat rentals at the expense of hotels. This presents unquestionable opportunities for property owners in Warsaw who rely on short-term rentals. Bear in mind that this is a rental model that is more susceptible to a Covid-19 type of random event, and thus carries more risk, but may also be the most profitable.
Flip in the Warsaw way
According to the report ‘The phenomenon of flipping on the Polish housing market’ (studiabas.sejmgov.pl), house flipping is a relatively new practice in Poland, which only started to become widespread between 2016 and 2017. What is a flip? “To flip” in English means to turn, and “house flipping” is simply a property bought at a low price with the aim of possibly renovating it and selling it quickly at a much higher price. What kind of profit can be hoped for? According to the flippers themselves, it is usually 15-20% per year, and this is confirmed by the aforementioned report, estimating the profit per flipping transaction at around 20% per year.
Why is Warsaw a good market for this type of transaction? There are several factors. First of all, it is the largest property market in Poland, abounding in both primary market properties and, preferred by flippers, those from the secondary market. It is therefore easier to find bargain offers and such gems as pre-war villas to renovate. Attractive location, convenient access to public transport or services is very important here, and these are not difficult to find in Warsaw. Flippers very often look for properties located e.g. close to city centres, in order to encourage buyers with the investment potential of the flat, which is high in Warsaw, even if only due to the hot rental market. Let us also remember that flipping is possible not only on the secondary market, but also on the primary market, and here Warsaw has a lot to offer. How to do it? For example, by buying flats from developers in pre-sales or at the initial stage of an investment. It is also possible to buy back developer’s premises considered unattractive due to their poor condition, arrangement or inadequate room layout, and to remodel them with the help of architects.