Poland property Q4 2021 news and 2022 outlook
The fourth quarter of 2021 was a time of increased activity on the residential market, especially for sales. Traditionally the last few months of the year is a time when the last few contracts are finalised and transactions completed. In 2021 these dynamics were additionally stimulated by rising interest rates as well as changing rules of taxation on rental income.
The base rate of the National Bank of Poland increased to 0.5% in October 2021 and then to 1.75% at the end of the year. In January 2022 we had another increase to 2.25% and because of the high inflation we should expect this trend to continue. Buyers, who were buying for their own residential purposes wanted in Q4 2021 to buy in time before the base rate increased further, which would affect their mortgage ability. Increasing base rate means also increasing mortgage costs for those who already have mortgages in Polish zloty, including investors.
Investors also had to take into account that all properties bought in 2021 would be still subject to depreciation write-offs next year. Under new regulations that came into force on 1st January 2022 such tax deductions are no longer possible.
The rental market on the other hand was calm when it comes to rentals itself, which is also a seasonal and characteristic for this time of the year, but was not peaceful and quiet. The last minute government announcement of new tax regulation and forecasted rise in price for gas and electricity was quite a food for thought for property owners.
The change of rental income taxation for individual investors is significant as they no longer would be allowed to pay on a sliding scale and deduct costs. Since 2023 all individual investors would be forced to pay rental income tax at reduced rate (8.5% for income up to 120 000 PLN and 12% above 120 000PLN). For those who settle rents as part of business activity, costs deductions remains, but the above-mentioned possibility of making depreciation write-offs, which had a significant impact on the tax due, disappears.
For individual investors 2022 would be for sure under question – should I stay with reduced rate or shall I switch to business? With these calculations, one must remember about the growing costs of running a business, mainly due to the growing costs of social contributions, including health insurance, which not only will not be deducted from the tax from the new year, but will also be calculated depending on the gross income (9%).
Another issue that will affect the rental market is the increase in prices for gas and electricity. The owners who have passed these costs on to the tenant can rest easy. Those who have these costs included in the rent or the tenant pays a fixed amount for utilities, as is often the case in renting rooms, will be forced to carefully re-calculate the fees charged in order not to lose the profitability of the investment. Let us hope that the government-announced cuts in VAT on heat and gas (from 23% to 8% in January and 0% from February) and sustain low VAT on electricity (5% till 31st July 2022) as part of the anti-inflationary shield will help us survive this difficult months ahead of us.
It looks like that 2022 would be a year when we would be forced to calculate and re-calculate a lot. Rising utility bills, rising mortgage payment and huge tax changes would force us to change our cashflow forecasts, verify our budgets, investments performance, etc. For sure it would be more expensive.