The Nascent Polish Real Estate Market

Article excerpt

Abstract

During the past ten years, Poland's economy and real estate market have been undergoing the transform-nation from a centralized, state-controlled system to a free market economy with some vestiges remaining of state ownership. Information about

the Polish real estate market is very limited because its infrastructure is not well developed. This article presents an overview of the emerging Polish real estate market drawing on available, albeit limited information. In general, the volume of transactions has increased since 1991 and real estate prices remain below Western European levels.

Introduction

Private ownership of real property was fairly widespread during the era of the Communist government in Poland (1945-1989), particularly in rural areas. However, modem mechanisms common in Western European real estate markets were not utilized and a reasonably efficient market did not exist. In recent years following the demise of Communism, Poland has gradually become a market economy and an emerging real estate market has begun.

During the Communist era, land was allocated and developed by centralized bureaucratic decrees, not by highest and best use. The officials responsible for land use decisions did not consider cost of capital and they assumed that land was a free good. Additionally, early economic development policies emphasized heavy industrial development, undoubtedly at the urging of the leadership of the former Soviet Union, and as a result, a significant amount of land was expropriated for heavy industrial projects that are today very uneconomical. Thus, it appears that land resources were overallocated to the inefficient heavy industrial and farming sectors and underallocated to the light industrial and housing sectors.

Poland's economy has experienced substantial growth since it was freed from the yoke of Communism and central planning. In recent years, Poland's GDP has grown at 5%-6% annually, one of the highest economic growth rates in central Europe. This pace of economic growth exceeds that of most western European countries with the exception of Ireland and it is a record of economic progress that is diametrically the opposite of Poland's former occupier and boss, Russia. Poland's stock market, as measured by the WIG Index of the Warsaw Stock Exchange, had a very strong upward price performance from 1992 until 1997, rising approximately 700% in dollar terms. It was impacted by the recent August-October, 1998, correction in most emerging markets, however, but it has strongly recovered in 1999.

Unlike the equities market, Poland's real estate market is very difficult to measure and study because records and data are very primitive compared with markets in western Europe or the United States. Sophisticated empirical studies of Poland's real estate market are currently impossible because the data simply do not exist in accessible form. In this study, what limited information that is currently available is presented.

History and Current Over-view

After several centuries as part of Prussia, Czarist Russia and the Astro-Hungarian Empire, Poland regained its independence following World War 1. Under the regime of Marshall Pilsudski, Poland was essentially a market economy. Then, disaster struck as Germany invaded Poland in 1939 and World War 11 officially began. During the war, Poland was constantly under German occupation. In 1939, the RibbentropMolotov agreement divided Poland into two zones of influence: Russian and German. Poland's population and infrastructure was devastated during World War 11. Approximately 20% of the population perished during the war, including almost its entire Jewish population. That minority had been a significant portion of the country's prewar entrepreneurial class. Additionally, many educated citizens were persecuted and killed by both Nazi and Soviet occupiers and a significant number of the landed gentry, officers in the Polish Army, were either killed in battle or massacred while prisoners of war. …