High inflation, combined with strong demand for residential rentals in recent years, has led individual investors in Poland to invest their capital in residential real estate wholesale. Invariably, they are seen in this country as simple and easy-to-understand investment assets that gain rather than lose value over the long term and, unlike securities, will never lose it to zero. According to consulting agency CBRE, citing data from the National Bank of Poland, in 2022, 70% of apartments in Poland were bought for investment purposes.

The high popularity of apartments among individual investors is also due to another fact - they don't have an alternative when it comes to investing capital in the real estate market. This is because Poland still does not have a legal framework for REITs (Real Estate Investment Trusts), listed companies or funds that invest in real estate and pay their shareholders - which could be, for example, large groups of small individual investors - with profits from rent. This form of investment has been present for years in Western European countries and Scandinavia, but not only - in the Czech Republic, REITs based on local capital account for 60% of commercial real estate investment. By comparison - in the Polish market, dominated by German and American entities, the share of domestic capital is only 2%.

REITs, in the long term, can cause an inflow of domestic capital, increasing the stability and liquidity of the real estate sector, making it less dependent on foreign capital, and building domestic demand. At the same time, participation in REITs can be an excellent retirement product, as a relatively safe instrument for long-term investment of savings, especially in periods of economic crisis, to which the stock market is particularly vulnerable, as well as in the face of low interest rates. Analysts and economists have been pointing out for years that Poland's pyramid-like pension system does not allow its participants to invest in domestic, income-generating real estate, and instead makes German or Swedish pensioners rich, for example.

Is the new government a new opening?

After years of neglect and disputes at the top, however, there is a glimmer of hope for a change in this state of affairs. In recent days, the Tax Council of the Lewiatan Confederation, Poland's most influential business organization, representing the interests of employers in Poland in the European Union, issued an appeal to the new government to resume work on the REITs law. In its motion, KL argues that the introduction of these regulations will have a positive impact on the development of the real estate market in Poland, stimulate the construction industry and ensure long-term economic growth.

Why are there still no REITs in Poland? Recall - the first work on the draft law on the operation of such structures in Poland was undertaken by the Ministry of Finance in 2016. Initially, Polish REITs were to invest in commercial real estate. Still, after a critical opinion of the National Bank of Poland, it was decided that only apartments would be the investment object. According to NBP experts, Polish capital crawling in the commercial real estate market would not stand much of a chance against the German or US funds "dug in" here, which would easily outbid Polish REITs in the fight for the best assets. For domestic capital, only inferior, sub-standard real estate, not guaranteeing long-term profits, would be left - so with loud protests from industry experts, it was decided to focus only on residential real estate, which at the time still did not arouse much interest among outsiders.

The next major milestone was reflected in the July 17th, 2018 draft of the Law on Real Estate Rental Investment Companies (then called "FINs" for short). The bill's premise was that REITs/FINs were to be joint-stock companies, listed on the WSE, acquiring and leasing residential real estate to derive a fixed rental income for their shareholders. REITs were to be required to pay regular dividends, at a rate of at least 90% of profits, and contribute to the state budget with tax revenues from dividends paid. REITs were to benefit from deferral of income tax on profits earned until they were distributed to investors.

In the second half of 2020, work on REITs resumed, this time at the Ministry of Development. A team was formed, composed of competent representatives of institutions and ministries, as well as prominent experts, led at the time by the Deputy Minister of Development, to develop strategic assumptions for the draft law. The Ministry declared its intention to expand the asset class in which REITs invest to include commercial real estate.

The draft FIN law was to serve as material for work on drafting a new one. The government's then-intensive work on a major tax reform within the framework of the so-called Polish Deal, introduced starting in 2022, and the subsequent fiasco and attempt to correct legislative mistakes with subsequent versions of the Polish Deal, resulted in numerous personnel changes in key ministries, including the Ministry of Development. Work on the Polish REIT was transferred to the Finance Ministry and eventually abandoned.

A new ministry will also be needed

Will the new government grant the Lewiatan Confederation's request? Andrzej Domański of the Civic Coalition, co-author of the party`s economic program, has already stressed many times during the election campaign that the creation of REITs is necessary to introduce proper investment diversification and financial security for Polish pensioners. So there is a good chance that Poland will finally see structures of this type, provided, of course, that the law passed will have someone to enforce it later. According to Dr. Adam Czerniak, an economist at the Warsaw School of Economics, it will also be necessary to create a separate Ministry of Housing. If housing continues to be the responsibility of only one department of the development super-ministry, it will be a bit too little to get the REIT legislation off the ground, for example. It will also be crucial to allow REITs to invest in commercial real estate - if they were to focus solely on housing, they could contribute to even higher price increases, which have been as high as 14-20% in the last year, depending on location.