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More than 10 times larger marker than Lithuania, which yields high returns on buy-to-let projects

Gustas Germanavičius
More than 10 times larger marker than Lithuania, which yields high returns on buy-to-let projects
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This article was posted on delfi.lt

InRento, the Lithuanian crowdfunding start-up that successfully entered the Polish market earlier this year, continues to expand its operations in this country with great opportunities. But what makes Poland, with a population of almost 38 million, attractive to investors, and what are the key differences and similarities compared to Lithuania?

Strong focus on infrastructure

Gustas Germanavičius, the founder and CEO of InRento, a platform that unites more than 17,000 investors, was asked what prompted him to expand his activities to neighbouring Poland (until now, InRento has been working on projects in Lithuania and Spain), he said that the Polish market has a similar average rental yields to Lithuania, with even the largest cities in the country generating an average annual rental yield of 5-7%, and demand for rental housing has been growing steadily in recent years.

However, to understand why Poland is an attractive investment destination, he said, it is worth comparing it with Lithuania. One of the main and almost obvious differences between Poland and Lithuania is the size of the two countries, which dictates very different investment opportunities.

"We all know that Poland is bigger, but we rarely think about how much bigger it is. As an example, Bialystok, the 10th most populous city in the country, is practically the same size as Kaunas (2nd largest Lithuanian city), while Warsaw has a population of 1.8 million people, which is more than half the population of Lithuania. Therefore, when we talk about the dynamics of the Polish market, economy and real estate development, we naturally see much greater opportunities for investment in buy-to-let projects", - says G. Germanavičius.

According to him, this industrialised country is investing hundreds of millions of euros not only in the improvement of infrastructure in major cities, but also in regional infrastructure.

"In a way, Poland is the China of Europe: it produces a lot of simple things. Like the Chinese, the Poles have long understood that if you are a manufacturing country, infrastructure is your priority - you need good roads, railways, etc.

The infrastructure in Poland's 10 largest cities is of a very high standard, but the country's untapped potential lies in the regions where, unlike Lithuania, Poland is investing a huge amount of money to make them more attractive, attracting investors, businesses and tourists," says the CEO of InRento.

Attractive conditions on the rental market 

Similarly to Lithuania, but on a much larger scale, Poland is also experiencing a migration of its population to smaller towns. The effects of the pandemic and the desire to live in nature, away from the hustle and bustle of the big cities, are attracting people to regions where businesses are being established, projects are being developed and the quality of life is improving. According to Mr Germanavičius, the growing immigration in Poland is also contributing to the growth of regions in the country.

"Since the start of the war in Ukraine, around 100 000 people have officially immigrated to Lithuania, compared to around a million in Poland, but the unemployment rate has remained low - there are enough jobs for everyone and the economy is growing. The growing number of migrants is also affecting the rental market, with rising demand making renting more expensive. As the number of migrants in Poland is ten times higher than in Lithuania, the demand for rental housing has also increased significantly, making it more difficult to rent property in both smaller and larger cities," he says.

For this reason, attractive conditions for the development of buy-to-let projects on the principle of conversion are emerging, when older buildings or administrative buildings are converted into modern residential housing. 

"The conversion segment across Europe has been growing very strongly recently. First of all, it is often cheaper to buy a property than to build it, which allows people to rent or buy the end product at a lower price. However, there are also social and environmental considerations. The development of facilities is accompanied by the improvement of the environment and the infrastructure surrounding the facility, which provides better living conditions for the residents. Moreover, conversion is a much more sustainable process than building from scratch, requiring fewer materials and fewer logistical processes.

Our company's mission is to address one of the biggest challenges of the 21st century - housing affordability. We contribute to this problem by choosing to finance projects where the final product is significantly more price competitive for the prospective tenant and buyer," says Germanavičius.

He says that it is not entirely correct to say that investment in real estate rental projects in Poland has become popular only recently. The rental market has been attractive in the past, but so far potential investors have been deterred from investing in rental property in Poland by the persistent currency risk.

"As in many EU countries, the euro is the currency in Lithuania, but Poland has the Zloty and its own monetary policy. This means that investors have to assess the exchange rate and take the risk if, for example, the exchange rate moves against the investor. However, currency risks can be managed in several ways. One is by fixing the exchange rate for a certain period of time for an additional fee. Another way, which InRento also uses, is to invest in euros, which means that the direct currency risk is not borne by the investor, but by the project owner," explains the expert.

A gem of Baltic coast

The first buy-to-let project in Poland in which InRento has offered to invest is a property of more than 2,700 sqm in Nowy Sącz, which will be converted into residential apartments once the conversion works are completed.

"This project was financed very quickly - the first stages were completed in just a few days after the launch, which shows that not only foreigners but also Lithuanians are interested in investing in the Polish real estate market. Currently, the conversion project has already completed the main engineering works, communications, partition walls and replacement windows. In the spring, the façade works will start and the project will move towards realisation", - says G. Germanavičius.

One example of Poland's targeted investment programme is the city of Świnoujście, where the Polish government has recently invested hundreds of millions of euros in Poland's most modern ferry terminal and in upgrading the city's infrastructure. This investment has not been in vain, as shortly afterwards global hotel chains Radisson and Hilton opened large 5-star hotels to fill the demand generated by German tourists.

It is no coincidence that the second project financed by InRento is located in this city, Poland's 9th largest city in terms of area, which is only 13 km from the German border. The project finances the acquisition of a German-style building of 2 022 sqm, which was formerly a bank.

"The same conversion will be used to turn the property into a residential building with 25-40 sqm of apartments for rent. In this project, the total loan amount will not exceed as much as 50% of the loan-to-value (LTV) ratio. This means that EUR 900 000 will be financed for the project, but the value of the property is already more than EUR 1.8 million today," says Mr Germanavičius.