Hi Alan

It's a shame that the follow up services are so poor as the majority of properties have been successful investments (Cyprus being the notable exception). So I would still consider PS investment opportunities but would beware of some of the hype which has crept in over the last year in particular. There's no doubt that with a bit of experience it's easier to judge what the more unrealistic statements and forecasts are.

Huw

Hi Ben,

Does this mean you no longer provide an excel spreadsheet with projected cashflows/yields etc?

Hi Faz

Not sure what you mean. Do you mean with every deal launch? If so, we don't as a matter of course, but as I understand it, it can be requested.

Hi Ben,

Yes I was referring to the cashflow spreadsheet that was provided with previous deal launches. To me this was an extremely important tool to use to make a decision on whether to invest or not.

It seems strange to have pulled the plug on it just because they were whown to be overly optimistic on the yield front. Surely a better solution would have been to improve it and make it more accurate/reliable!?

Bump

Trouble is, you need experience. Once you have it, if you got it using over-optimistic figures and over-egged promises, experience, headaches and empty pockets is all you may be left with! More seriously, bankruptcy. I think there are plenty of rooky investors heading this way.

Reading this very interesting thread, I thought members might like to hear my view as a Polish developer. We mainly operate in Krakow. I pick up on a few of the comments, and give the "developer" perspective which may assist.


Mike wrote:

1, Do you know how many POAs you will need - they go on forever.

Yes, Mike is right. If you delegate, you will need to provide several powers of attorney. They are actually quite cheap (one tenth the price they are in the Ukraine!), since the suggested notary scale charge is quite low. However, they can take up a lot of time at the notary, and you need an official translator. So try and make the power of attorney as wide as you can, subject to common sense, to avoid having too many.

2. Do you know the costs of setting up a bank account - I was lucky, just a POA and no trips to London or Poland.

You really do need to get out to Poland and to sort everything out whilst you are there. Bank accounts are quite cheap to run, but be careful with the charges levied on international transfers which can be rather high. I use Deutsche Bank for my personal banking and have found it pretty good and with internet facilities, but there are many other good banks.

3. Watch out for the mortgage costs 6 or 7% is normal- despite what PS say.

Yes, this is a major issue. Not only does it impact on the profitability of owning a flat, it also has a bearing on future property price movements. Until recently most borrowers, especially Polish borrowers, borrowed in Euros. Not only was it cheap, but also the exchange rates have very much moved in the borrower's favour. Borrowing in Euros is now less easy and probably less of a good bet from an exchange rate point of view. Zloty mortgages are more expensive. This is partly because the excellent Polish Central Bank has been conducting a tight monetary policy which I believe will ultimately be good for Poland and good for Polish property prices. But in the meantime, borrowing is far from cheap and this is impacting domestic borrowers whose appetite for debt is inevitably correspondingly curtailed. For all that, mortgage are still readily available, albeit the process is laboured and careful. Again, that means less bad quality loans which is good for the long term property market, but not so good short term or for foreign investors in a hurry.

4. Do not delay any stage payments - even if the delay is caused by your solicitors/ mortgage brokers, you will be heavilly charged.

Our lawyers, when setting up our contracts, were very careful to avoid penal clauses which can now apparently trigger significant penalties under recent legal provisions designed to prevent abuse. I can't provide too much more information on this, but do ask your lawyers. We were, from a developer point of view, very worried that we had no way to ensure stage payments were made on time. A buyer can abuse his or her position and create a cash flow problem for the developer. All we do, on advice, is charge a fair rate of interest for delays and in truth we feel we are rather vulnerable since we don't really want just interest, we need our stage payments on time! It may be the case that other developers have more unpleasant provisions but they may not be enforceable.

5. I guess you know that the solicitors costs are high, but did you know that they will charge you again to register the property, after the sale, - more POAs and heavy notary fees.

Legal fees in Poland are not too bad. They are much lower than in most of Western Europe. But, yes, there are fees to register a property just as in the UK. There are web sites that will calculate fees for you. You really need to know these right at the outset. Indeed, that almost goes without saying wherever you are investing.

5b. Because of delays by the developer, I may have to register the parking space separately after the flat - yet more costs.

That's an interesting twist which we haven't come across. Sometimes parking spaces, if away from the building a little, may be treated as commercial spaces and attract VAT at the full 22%, so do check that out. One thought does occur. If the parking space is registered separately you might then sell it separately. If there is limited parking space, that might one day be an advantage if an eventual buyer is not interested in the space. Separating the two if on one title would not be realistic.

6.You may find that the solicitors will dream up other ways of billing you - they charged me extra to sign the final agreement by proxy.

I don't think Polish lawyers are any better or worse than UK lawyers. (I speak as one myself). But I think I would expect a charge for using a proxy, since it's more work. In my view you are better getting out there yourself to sign if you can, because problems often arise at the time the contracts are signed which require immediately decisions. The process is much less of a formality than in the UK.

7. Don't expect to get the rent that is in the prospectus.

Polish rents are not that high, so this is probably very good advice. Indeed, I would apply the same advice to any project anywhere in the world where someone selling is providing figures to show how (well) a scheme will work.

8. Be prepared to to pay a very large proportion of the rent in management fees.

For some reason, there is very little in the way of property management available in Poland, but this is now changing. Fees are typically 20% plus VAT, compared with perhaps 12% in the UK. Competition is slowly improving things. You may be better to find a local estate agent who will do it for you on an ad hoc basis, especially now that they are facing hard times.

9. Your solicitor will charge you to act as a post box (the mortgage company demand a Polish address) - mine charges 200 euro per year.

You don't need to use a solicitor for this, but the problem arises when you are confronted with the problem at the last minute and the solicitor offers a timely "solution"! Plan ahead.

Claude wrote:

- Hi Mike You forgot to mention that paying someone to furnish the flat plus the cost of furniture cost an arm and a leg. C.

As a developer we thought long and hard about the merits of selling fully finished flats. Surely, we thought, Polish buyers would like to have the finished product and get a mortgage to cover it. Not true! The Poles almost universally want unfinished flats. We have a single show flat in one development fully fitted out and no Polish buyer wants it even though we are only adding on the actual costs to ourselves. I think the reason is that Poles firstly like to choose what they put in, secondly, they are on budgets and if it means a smaller flat they would rather have an bigger unfinished flat, and thirdly, most will find ways to do things more cheaply than a developer can.

Fitting out is quite expensive, so be warned. There is considerable cost and indeed hassle which you do need to factor in.

As for the furniture, that is the easier bit. I imagine you will do it more cheaply yourself by going to sales and the like. I don't think economies of scale particularly apply here.

Be aware that Poland is NOT cheap for furniture, kitchen fitments etc. Assume at least 25% MORE than in the UK. (But labour is somewhat cheaper of course).

Mouldy wrote:

- Do you know who is checking the build when the stage payments are requested? I have asked the solicitor, and they aren't doing it.

That's a good question. We found that our buyers went round the development and satisfied themselves. But if you are at a distance, it is not easy. Also, you don't want the developer taking stage payments too early, since that might indicate the developer has cash flow problems and also puts you at risk.

Bear in mind that if you have a mortgage your mortgage provider may want to check before releasing mortgage monies. This can be a major hassle for you, the buyer, since the provider may hold back through over-vigilance and then you are in breach of contract if you don't have the money yourself. Buying new by stage payments is not always best! There's a lot to be said for second hand apartments in good order.


Fax said:

As you have rightly mentioned there is a large yearly cashflow required. Do you think the capital growth over the next 5 years will give a good enough total return to compensate for the ~ -5% yield given the risk we have taken on or do you think the money would be better invested elsewhere, for a better return given the risk?

-That's a very difficult but good question. Our experience is that Krakow prices have fallen 15% from peak. We are selling, but only by being realistic in our pricing. Other developers are in considerable difficulty because they have overpaid for land at the top of the market. If, however, you drive hard bargains and get property at the right price, and so long as you take a medium term view, you should be OK. My personal view is that the fundamentals are quite strong for Poland and Krakow in particular. However, I don't expect significant growth for at least three years and who is to say it won't take much longer. There is considerable argument for not being involved in property anywhere in the world at the moment and investing in shares instead. But if you DO want to invest in property in Poland, and buy well, and take a minimum of a five year view, I would hope you would cover even -5% quite adequately and may be more than adequately.

As in all markets there are pockets that buck the trend a bit. It is worth searching those out. This is certainly true in Krakow.

My view is that the most valuable role Property Secrets can play is to source property more cheaply than an individual would, because of bulk purchase. Whether that really is the case I am not so sure, but at least it provides considerable convenience and some hand holding. The counter argument is that if there are too many other rental properties nearby, you have immediate competition for tenants. However, if the PS tranche is not too large a percentage (which I think it normally isn't), this is less of an issue.

I hope these thoughts may be of some use.

Stephen Barnes