This article was posted on vz.lt
This year, InRento, a crowdfunding platform for investing in buy-to-let projects, opened up opportunities for Lithuanian and foreign investors to invest in Poland in the euro currency. The Polish government has weathered the market stagnation by pursuing an independent monetary policy and introducing an interest compensation programme. The Polish property market is now living in similar conditions as in 2021.
Poland has 13 times the population of Lithuania and has 2.8 times higher population density. Bialystok, Poland's tenth most populous city, is similar in size to Kaunas, while Warsaw and its suburbs are home to 3.1 million people - more than in whole Lithuania.
"When it comes to the dynamics of the Polish market, the economy and the development of real estate, we see favorable opportunities for financing rental projects," says Gustas Germanavičius, CEO of InRento, of the new market.
Similarities and differences
Poland has a good industrial and transport infrastructure - especially in the ten largest cities. Its untapped potential lies in its regions, where, unlike Lithuania, Poland is investing a lot of money to make them more attractive.
There are more differences between our countries. "For example, in Lithuania, the use of different property uses for housing and accommodation is highly politicized, so that commercial housing in Lithuania is up to 20% cheaper than residential housing," compares the CEO of InRento. - In Poland, it is not so exaggerated, so in this country the price difference is up to 5%."
In Lithuania, it is possible to buy properties from the state at auction for less than the cost of building and converting a similar object. However, this usually requires a large investment, as the buildings sold by the state are usually large in size. In Poland, according to Mr Germanavičius, the competition in such auctions is even more intense and it is much more difficult for property developers and administrators of accommodation businesses to acquire a property cheaper than it would cost to build it.
More active Polish market
The last year on the Polish real estate market has been quite different from that in Lithuania.
"We have noticed that in Lithuania the prices of apartment, hotel, office and dormitory buildings have returned closer to reality," notes the CEO of InRento. - The number of offers for office and residential buildings to be renovated at a more attractive price has increased, as the rise in EURIBOR has led more property owners to consider selling their property."
In Poland, the supply of properties in these segments, and especially of administrative properties used for accommodation, remained stable and prices did not change significantly.
The Polish real estate market is gaining momentum, with the volume of transactions in the second quarter of this year catching up with 2021 figures. The level of property prices is also supported by government initiatives.
"In Lithuania, the individual and detached houses market has started to stagnate as EURIBOR has risen. The situation is different in Poland, which has an independent monetary policy and therefore it is easier for it to influence the property market," comments Mr Germanavičius. This year, the Polish government approved a 2% "safe loans" programme, under which first-time buyers of homes up to EUR 138,000 (PLN 600,000) can receive a state subsidy on interest payments and pay only 2% fixed interest for 10 years. Under these conditions, the housing market has not only recovered, but has also started to grow. Already 40,000 newcomers have benefited from this programme and banks have received a total of 90,000 requests to finance home purchases under this programme.
Attractive conversion
According to the correspondent, Poland offers attractive conditions for the development of rental property projects on the basis of the conversion principle, in which older buildings or office buildings are converted into modern residential properties. Such converted projects can be targeted at buyers intending to benefit from the 2% "safe loans" programme.
"It often costs less to buy a building and convert it than to build a new one, so converting older buildings into hotels, guesthouses, co-living units, apartments can provide an attractive risk-return ratio for both renting and realizing of the property," notes Germanavičius. The first buy-to-let project in Poland in which InRento has offered to invest is a property of over 2,700 sqm in Nowy Sącz. Once the conversion works are completed, it will be converted into residential apartments for rent.
"This project was financed quickly - the first stages were completed in just a few days, which shows that not only foreigners, but also Lithuanians are interested in investing in the Polish real estate market," says G. Germanavičius. The price of one unit in such a property will vary between EUR 30,000 and EUR 70,000 depending on the area, which results in a high demand both among buyers with the 2% "safe loans" programme and among buy-to-let investors.
Conservative LTV
The risk of currency fluctuations in such properties is borne by the owner of the project, as the investors invest only in euros. This risk can be managed by purchasing currency hedging products. The cost of such insurance is determined by the difference between EURIBOR and WIBOR.
According to Mr Germanavičius, InRento will offer more projects on the Polish market next year, but quality rather than quantity is the most important factor in their selection.
InRento has carefully analysed more than 30 financing applications from abroad in 2023, but only two of them have the right risk/return ratio. According to Germanavičius, it is important to select projects carefully and to be disciplined - it is not easy, but experience shows that such approach pays off.
"We approach the Polish market with the same principles as in Lithuania. We calculate that the potential cash flow of rent would be higher than the payments of interest on the loan. In this case, the risk of insolvency remains low," notes the CEO of InRento. - In addition, the average loan-to-value (LTV) ratio among the projects offered in Poland currently remains very conservative at under 51%." The results recorded in Lithuania show that this strategy is working. Currently, InRento's total loan portfolio amounts to more than EUR 19 million, but there have been 0 late or defaulted projects, while the rental occupancy in financed properties remains high.
"We have a large database of accommodation projects, their locations and occupancy rates, we know how to select reliable projects, and we are guided by formulas and data rather than subjective opinion," says Germanavičius about the selection process. 88% of all InRento projects are in the accommodation and tourism niche.
Cash flow based risk appetite
"The InRento platform works with businesses that want to acquire real estate and rent it out and later realize it. In this way, the project owner receives a steady stream of rental payments, which in many cases is higher than the interest payment. This risk management tool helps to reduce the risk of insolvency of the project owner. Since its launch in 2020, there has not been a single late or defaulting project on the InRento platform and the average annual return on fully realized projects has been higher than forecast at the start of the financing.
10 November 2023 The Bank of Lithuania issued InRento with a European Crowdfunding (ECSP) licence. From now on, InRento will be able to reach out to the entire European Union market and actively solicit investors in local languages by means of marketing tools, after informing the local supervisory authorities of its plans.
