Polish Real Estate: Foreign capital flows and trapped domestic wealth

Poland's real estate market, while attracting significant international attention, faces a critical domestic challenge in stimulating its vast pool of local capital to invest in institutional real estate products.

Recent discussions among senior industry leaders at GRI Institute’s Polish Real Estate 2025 forum, co-hosted by Baker McKenzie, highlighted a stark contrast between Poland's potential and its current investment landscape.

The consensus is clear: while foreign money continues to flow, a combination of restrictive regulations, a lack of appropriate investment vehicles, and persistent public mistrust are holding back a massive potential source of domestic liquidity.

The Domestic Capital Conundrum

A significant amount of Poland’s wealth remains in bank deposits, estimated to be around PLN 450 billion at the end of 2024, a figure far exceeding the annual commercial real estate transaction volumes. Despite this capital being available, Poles overwhelmingly prefer to invest their money in individual buy-to-let apartments for private lease.

This preference is driven by several factors:

• Familiarity and Control: Individuals know the residential market and prefer to self-manage their assets.
• Tax Incentives: Private leasing benefits from a significantly lower tax rate (8.5% on annual income up to PLN 100,000, 12.5% on the surplus) and a tax exemption on capital gains after a five-year holding period. In contrast, institutional products, such as dividends or capital gains from investment funds, are taxed at 19%. This creates no incentive to invest institutionally.
• High Entry Barriers: Existing Polish regulations set a prohibitively high entry barrier for retail investors, requiring a minimum investment of EUR 40,000 for a closed-ended fund focused on real estate, essentially excluding the average person from participating.
• Public Mistrust: There is considerable public mistrust due to a history of "bad examples" and mis-investments, with real estate investments often involved in large-scale frauds.
• Marketing Restrictions: Polish law effectively forbids the wide advertising and promotion of investment funds, as the Polish Financial Supervision Authority (KNF) views individuals as being "not aware of the risk of investing".

Comparing Poland and the Czech Republic

The success of the Czech real estate investment market offers a clear blueprint for Poland, and the two markets are frequently contrasted. The massive flow of Czech money into Polish real estate is a direct result of structures Poland currently lacks. The core problem in Poland is a combination of over-regulation and a lack of appropriate vehicles.

The differences are stark. Unlike Poland, which has closed-ended funds but is missing real estate investment trusts (REITs), the Czech Republic successfully uses REIT-like structures that are open for everybody, featuring very low entry barriers.

Furthermore, Poland restricts access to closed-ended funds to qualified or high-net-worth individuals (HNWIs) due to the EUR 40,000 minimum , whereas the Czech model is open to everyone, enabling savings plans and attracting capital monthly.

Another advantage in the Czech Republic is the highly tax-efficient system, which offers exemptions after five years for private individuals buying investment fund certificates, steering money away from residential and towards commercial real estate. In Poland, there is no tax incentive compared to private leases.

Culturally, Poland's market is considered 20 years behind the Czech Republic in institutional knowledge and education. Moreover, Polish banks are seen as actively protecting capital to prevent it from entering REITs. In contrast, Czech banks in the early 90s actively promoted real estate investing as an alternative to bank deposits.

The Global Appeal of Polish Real Estate

Poland remains a highly attractive market for foreign and international investors despite the domestic barriers, supported by strong fundamentals and the biggest capital market in Central and Eastern Europe. This appeal is evidenced by the fact that nearly every international client across the region has an active strategy in Poland, a development not as common five years ago.

While international money flows in, Polish capital, primarily from entrepreneurs with cash from other businesses, is also showing increasing local activity in the commercial real estate market, beginning to chase larger, “trophy” assets.

Within this context, living assets are experiencing strong growth: the Private Rented Sector (PRS) market is at an early but rapidly developing stage, with a recent benchmark transaction generating huge interest from Western investors, while student housing and self-storage are also considered highly attractive and rapidly growing segments.

However, a key concern for international investors, particularly German pension funds, is the liquidity risk at exit, considering the lack of local capital due to the inadequate domestic investment structures.

The Path Forward: Legislation and Stability

The solution for unlocking domestic capital is not a complex, traditional REIT structure, but rather a lighter, regulated, REIT-like structure with significant tax incentives.

Key steps include:

• Lowering Entry Barriers: Removing the EUR 40,000 minimum investment requirement to allow for the rapid building of scale and liquidity necessary for redemption.
• Introducing Tax Incentives: Creating a more tax-efficient institutional investment product that can genuinely compete with the private lease market.
• Stability in Regulation: Establishing and maintaining stability and predictability in the legislative, regulatory, and tax environment for long-term real estate investments.
• Education and Trust: Starting an education campaign at a school and university level, and working to build public trust following years of bad investment examples.

Ultimately, for Poland to fulfil its economic potential and gain the long-term capital stability it requires, it needs to separate politics from business and provide the stable, attractive structure that will encourage local capital to move from bank deposits into the institutional real estate market.
 

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Thank you to our co-host Baker McKenzie, as well as Adrian Karczewicz (Skanska Commercial Development Europe), Guenther Artner (Erste Group Bank AG), Hubert Michalak (Hillwood), Jacek Wachowicz (Catella - Poland), Katarzyna Kopczewska (Baker McKenzie), Maciej Madejak (MDC2), Marta Rayss (IPOPEMA TFI), Matas Mockeliunas (1 Asset Management), Monika Murawska (Periskop Poland), Peter Noack (Zeitgeist Asset Management), Redlicki Bartosz (Santander), Tomasz Kosieradzki (Griffin Capital Partners), Waldemar Wasiluk (Victoria Dom), Weronika Guerquin-Koryzma (Baker McKenzie), and Zdena Noack (ZEITRAUM) for their valuable contributions to the discussion at Polish Real Estate 2025.