Will REITs prove to support the residential property market?
Ten post dostępny jest także w języku: polski
Work on the law on Polish REITs has resumed. According to developers, will this way of financing investments contribute to the development of the residential market? What are the pros and cons of such a solution? Are other forms of financing more interesting for companies? The poll was conducted by the real estate website dompress.pl.
Andrzej Oślizło, president of Develia S.A.
REIT type funds are very much needed on the Polish housing market. This type of solutions have been successfully functioning all over the world for many decades. They enable individual investors to benefit from financing projects which, due to their scale, were available only to large, institutional players. With the current record low interest rates for individuals, there are practically no more sensible investment alternatives than flats bought to rent or even just to protect savings against inflation. However, not everyone can immediately set aside PLN 400-500 thousand to become the owner of a separate flat. Similarly, not everyone has the time, inclination or qualifications necessary to properly manage such an investment. That is why we are impatiently waiting for the act and the establishment of the first Polish REITs.
Adrian Potoczek, Sales and Marketing Director at Wawel Service
In general, we believe it is a good way to finance investments and will support the development of the market, however everything depends on what the act will contain. Polish investors, both individual and institutional, still have very limited opportunities to invest and realize profits in the real estate market. This method is very popular abroad and we believe that this will also change in Poland. It is important how the government will approach tax issues, as REITs should certainly not be taxed twice. I think we need to wait for the details of the law and the final decisions to be able to assess its pros and cons.
Until now, investing in the lucrative real estate market for most small investors has meant buying premises, which is used, for example, to store capital value or to make money on rent. Of course, it is also possible to earn money by being a shareholder in a property development venture, and this can be as high as 12.5 percent per year. This is extremely attractive compared to investments in deposits, bonds or flats for rent. Few people know, however, that this is only a fraction of capital multiplication opportunities, because you can also get rich in other ways, and in the world, this is provided by specialized investment funds, the so-called REITs.
In our country, legislation is still lacking. It is estimated that Polish capital constitutes only from 2 to 5 percent of the investment volume in the commercial real estate market. The lack of legal regulations in our country has been blocking the real development of this segment and its accessibility for every investor for years.
Boaz Haim, President of Ronson Development
We watch all proposals of new regulations concerning the real estate market with great attention. Especially when similar solutions are successfully practiced in countries with developed economies. REITs, thanks to the form of mutual funds, provide an opportunity to invest even a small amount of capital in real estate, and thus, a new investor can enter the market. Moreover, it is possible to invest in the market without having to purchase a flat, invest in finishing works and take care of tenants. Global experience shows that REITs can provide a high rate of return in the long term, with relatively low risk. The disadvantage of any such solution, however, is the lack of clear and transparent legal regulations, so we will await the final project with curiosity.
Jarosław Kozak, President of the Management Board of Waryński S.A. Holding Group
We do not feel any lack of funds coming to the market, especially in the situation of low interest rates. Investments in real estate are perceived in our opinion as profitable and yielding high rates of return. Certainly, the inflow of funds from less wealthy clients investing through closed-end funds may further strengthen the demand situation observed in the market. At this stage the most popular means of financing are own funds and bank debt financing, less common are funds from securities. The cost at which a given capital is obtainable will be decisive. However, we are observing over-liquidity of funds on the financial markets, which bodes well for the future of our industry.
Małgorzata Ostrowska, Director of Marketing and Sales Division at J.W. Construction Holding S.A.
Despite the pandemic and the global lockdown, investments in real estate in Poland achieved record results in 2020, similar to those of previous years. However, the share of domestic capital has so far been only a few percent. Foreign investment funds, pension funds, insurance funds and REITs have dominated. Introducing the latter into the Polish legal system could change this situation, although it is difficult to imagine that they could achieve a sufficient scale for effective operation and diversification if they are limited only to private capital.
Poles’ savings could only supplement institutional forms of investment. Investments in real estate have a long-term character and are treated as a safe form of investing savings. However, to buy a flat on one’s own, one needs to have relatively large capital. Such an investment is not very liquid, which may be another limitation. REITs, which would operate on the same principle as other public companies, could be a good solution. If all the profit they generate is earmarked for dividends, it could be a way to save for retirement. Provided that, according to one concept, REITs only covered the housing market. This is because residential real estate is one of the safest assets in our country, providing an attractive rate of return. Therefore, foreign institutions are very eager to invest capital in them. Therefore, it would be good if these investments were also made by individual investors, so that they too could benefit from this market. This will help build up domestic capital and at the same time contribute to the development of the real estate market.
Zuzanna Należyta, Commercial Director at Eco Classic
The creation of mechanisms such as REITs strengthens the demand side, and given the current level of demand, problems with supply due to the extension of the investment process and the availability of land, this will unfortunately result in a further increase in housing prices. For developers’ financing, this is indifferent.
It is surprising, however, that work on the law on REITs, which are de facto investment products, has suddenly accelerated, while we hear nothing about plans to create a Guarantee Fund for investors in REITs. At the same time, due to the alleged numerous bankruptcies of developers (the statistics given concern construction companies), a Developer Guarantee Fund is being created.
The development industry is not against the existence of such a fund, but I would like to draw your attention to the discrepancy between the aim and execution. The purpose is to secure the buyer, so if the developer fulfils the agreement, builds and transfers ownership of the flat, he should get the money back. However, this will not happen, the funds will be lost, so it is a form of additional taxation, which by increasing the costs of investment implementation will result in further price increases. At the same time, a law on REITs is being processed, which for a year has been driving demand from funds building portfolios of properties and significantly contributing to the increase in prices of new flats. Where is the concern for the welfare of the average Kowalski in this?
Joanna Chojecka, sales and marketing director for Warsaw and Wrocław at Robyg SA.
The Act on REITs extends the possibilities of capital financing of development projects. It is customary in the West to finance commercial and retail development in this way. If it is extended to residential investments in Poland, it may bring some kind of strengthening to the development of this market and accelerate the construction of flats. However, it will be crucial for REITs to diversify their portfolios into various types of development projects that will ensure appropriate scale, i.e. investments from the office, warehouse and retail markets.
It should be remembered that this is first of all an addition to the market and not its basis, therefore the activity of key developers, including ours, will not change regardless of the introduction of REITs.
Mariola Żak, sales and marketing director, Aurec Home
Thanks to REITs, the stream of capital inflow will open up and, consequently, the developer market will develop even more strongly. We hope that thanks to this, Poles will be able to satisfy their housing needs more easily, but for the time being, REITs in Poland are rather an experiment with a difficult to foresee effect, because this solution is to concern mainly rental properties – unlike in the West.
Janusz Miller, Sales and Marketing Director of Home Invest
At the moment, it is difficult to give an unambiguous answer as to what extent this way of financing will support the development of the residential market, as we do not yet know the details of the act being prepared. Certainly, this type of solution will have its pros and cons. However, time will show whether it will be an interesting form of financing for developers and to what extent it will influence the residential market.
Tomasz Czubak, Director of Development Project Preparation at Jakon
Like any new solution, REITs also arouse extreme feelings. We do not expect them to significantly change the way investments are financed. Access to capital is a problem for Polish companies compared to companies with foreign capital. However, we do not foresee that the aforementioned act will measurably improve the situation. We will probably have to wait several years for effects.
Edyta Kołodziej, sales and marketing director at Nickel Development
The idea of creating a dedicated legal form for activities connected with the commercial purchase and subsequent lease of real estate can bring two benefits, which in turn have a chance to translate into the development of residential construction.
Firstly, it will help democratise investment. Buying shares in such a company will be less of a barrier than buying a flat yourself. This should attract people who cannot currently afford to invest in real estate, but have financial surpluses they would like to invest. This will create an attractive alternative for less wealthy investors. Another benefit, if there are enough such individual investors, will be an injection of financing for residential construction, which is invariably lacking in Poland.
Wojciech Chotkowski, President of the Management Board of Aria Development
REITs have existed in developed countries for many years and it is good that legislators in Poland have finally noticed their potential. Opening the commercial real estate market to individual investors may contribute to further development of the development market in Poland. Investments in real estate are long-term, therefore the legal environment should be transparent and stable, and the law must be well-written enough that there is no need to urgently modify it. Before the act comes into force, the legislator should conduct an educational campaign that will allow potential investors to understand the advantages and risks of investing in REITs.
Sebastian Barandziak, CEO of Dekpol Deweloper
The attractiveness of REITs will largely depend on the form and conditions under which they can be run in our country. Their undeniable advantage is offering fellow countrymen a new form of saving by investing funds in real estate. It should be available to both institutional entities and individual investors. The result will be a reduction of the housing deficit and, above all, a stimulation of the economy. However, as this will be a new form, there is uncertainty as to how, how much and whether REIT-related activity will develop in Poland. And, consequently, if and when their positive impact on the property development market and the economy will be visible.