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Bank lending stays strong

Eurobuild CEE 05 February 2018
POLAND In 2017, real estate transactions hit a record-breaking volume of EUR 5 bln, up by nearly 10 pct y-o-y, according to figures from Cushman & Wakefield.

Bank financing for properties remained unchanged, averaging app. 60 pct of each property’s value. The volume of bank loans has risen over the last two years, fuelled by low borrowing costs and Poland’s strong economic fundamentals. C&W predicts that a gradual rise in interest rates is likely to slightly curb appetite for borrowing on the Polish market in the long-term. In addition to traditional financing of existing office, industrial and retail properties, banks are increasingly involved in development projects, including residential and hotel developments. Banks are beginning to offer financing for alternative investments, including apartments for rent, private residence halls, student homes and – to a limited extent - nursing homes run by specialised operators. With some older properties that were acquired prior to the global crisis, the debt ratio was relatively high and accounted for up to 90 pct of market values with a minimum repayment of about 1-2 pct annually. Nowadays, ten years later, the debt ratio for such properties, considering the proportion of the current outstanding debt to the current market value, often remains at more than 80 pct and refinancing at a similar debt ratio is now virtually impossible. In 2018, the Polish lending market will be impacted by an amendment to the Corporate Tax Income (CIT) act which came into force in early January. Under the new regulation, advance income tax payments must be paid monthly on commercial properties valued at more than PLN 10 mln, such payments to amount to 0.035 pct of their initial book value. The charge will be deductable from income tax so its impact will be neutral for assets generating sufficient income, but this will not be the case with companies that pay no income tax or pay income tax that is lower than the charge paid on the property value. Such companies will pay more in tax, leading to a decrease in available cash at hand and, consequently, to a lower debt service ratio. This change will mainly affect businesses owning office or retail buildings with low profitability.

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