Reflection on the past ready for the future? Report CRIDO and CBRE

POLISH COMMERCIAL REAL ESTATE, 20 YEARS LATER... RE FLECTION ON THE PAST. RE ADY FOR THE FUTURE?

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PRS MARKET

PERPETUAL USUFRUCT

It also seems necessary to regulate the PRS market and clearly categorise such structures. Currently, there is no comprehensive legal regulation for these investments in Polish law.

Further growth of the real estate market in Poland remains constrained by the right of perpetual usufruct. It is a right to use land owned by the State Treasury or a local government unit.

This causes a number of significant challenges for investors, administrative bodies and users of these facilities due to existing legal loopholes that become apparent at the design, planning, and implementation stages of PRS projects. This effectively discourages some entities from investing in real estate intended for such investments. For instance, the construction of PRS facilities on lands designated for services is associated with difficulties in obtaining certificates of the independence of respective premises that are required to establish their separate ownership.

Moreover, payments in the PRS sector are predominantly made in PLN, which increases the financing costs of such investments. This is due to concerns that demanding payments in euros might be interpreted as shifting currency risk to tenants, which we believe is not entirely justified. However, we predict that the introduction of rent payments in euros in the PRS segment will become more widespread in the coming years, especially in structures primarily intended for foreign clients, such as students.

The owner of these properties grants their usufruct for a period of (usually) 99 years, subject to the obligation to pay an annual fee. Regardless of the fixed-term, nature of this right, investing in land granted in perpetual usufruct often implies difficulties at the planning and implementation stages. For example, investments implemented on such land must comply with the purpose of perpetual usufruct specified in the decision or the agreement establishing this right. Additionally, dividing such property generally requires the owner’s consent. Another problem is the owner ’s right to increase the annual fee rate for exercising the perpetual usufruct right. In recent years, significant amendments have

been introduced with an aim to eliminate perpetual usufruct of residential lands (conversion into ownership). Last year, regulations came into force granting perpetual usufructuaries (especially of commercial lands) the right to acquire ownership of the property granted to them in perpetual usufruct. However, due to numerous restrictions on the implementation of this option (e.g. it does not apply to undeveloped properties) and the fact that financial conditions for the purchase of land are not very favourable for most investors, the group of entities interested in acquiring such properties is small.