Regulatory pressure is increasing in the real estate market. Changes in the law are pending – both taking into account the implementation of EU regulations and national plans to change the provisions on the planning fee. Will real estate capital investment become less attractive?
The collapse of the housing loan market affects not only banks, but also the entire economy. The era of cheap money has already ended some time ago, and anyone who was under the illusion that the intervention of central banks in Europe would stop rampant inflation, must verify their analyzes today.
The real estate market for investors is attractive because it is quite resistant to the earthquake we are dealing with. Real estate prices are not falling, and investors see both real estate and land as a good capital investment.
“Inflation is not becoming a problem for the real estate market today. The real problem is the prolonged and very long waiting time for building permits, disturbed supply chains or problems with the solvency of many subcontractors. For this, a lot of significant changes in the law are being prepared, which will not be indifferent to the real estate market,” notes Radosław Jodko, RRJ Group investment expert.
As he emphasizes, it concerns both the changes related to the new CSRD directive (Corporate Sustainability Reporting Directive), which clarifies and expands the catalog of companies obliged to act for sustainable development, and the amendment to the act on spatial planning planned by the Polish government.
The amendment to the land development and planning act is at the stage of giving opinions, but the government does not hide that it wants the changes to take effect in the first quarter of 2023.
What does the new planning fee mean:
“The amendment to the law on spatial planning introduces fundamental changes in the case of the planning fee, which will be like a “Belka tax”, but on land. This means that the cost of building a property will increase, already much higher now due to rising prices and disrupted supply chains. Some believe that it will also reduce the attractiveness of land purchased as an investment,” points out Jodko.
The expert reminds that the planning fee is also in force today. It is collected by the commune for an increase in the value of the land due to a change in land use. However, it was often omitted, because the fee was only paid when the land was sold within five years from the date of the Local Development Plan. If the owner of the plot waited 5 years to sell the property, he did not have to pay the planning fee.
“The new regulations apply to all real estates that have gained in value both as a result of the adoption or amendment of the zoning plan, and as a result of the issuance of zoning decisions by officials. Importantly, the planning fee will be charged regardless of when the property is sold. In addition, the amount of the planning fee is to be fixed and amount to 30 percent of the increase in the value of a given property. The construction cost is also growing because the planning fee will have to be paid in advance, i.e. when the commune office obtains information about the issuance of a building permit on the basis of a decision on development conditions,” explains Radosław Jodko.
It also pays attention to deadlines. According to the proposed amendment, the planning fee will only be allowed if the value of the property increases as a result of a decision on development conditions issued under the procedure commenced after January 1, 2026. This gives some time to apply for a decision regarding development conditions.
“It’s worth it to hurry. Because taking into account that historically land prices are growing at a pace similar to inflation, the new planning fee appears as an additional inflation tax. From an investment point of view, it will also be difficult to properly estimate – and verify – the increase in the value of land carried out by municipal officials. I expect many landlords to complain about the planning fee rates calculated. I also see difficulties in forecasting construction costs, the increase of which is directly influenced by the fee,” believes Radosław Jodko.
New EU regulations
According to the expert, the real estate market, from the investment point of view, will certainly also be changed by the new EU regulations, which significantly expand the range of companies covered by ESG. This is clear from the currently working text of the CSRD (Corporate Sustainability Reporting Directive), which was published on June 30, 2022 as agreed jointly by the European Council and the European Parliament.
According to this directive, from 2024, the catalog of companies that will have to report what they do for sustainable development is expanding to several thousand. Let us remind you that EU regulations from 2023 impose the obligation of non-financial reporting related to ESG on all companies employing over 250 people.
“Regulatory pressure and it is large, because I would like to remind you that the real estate market belongs to one of those industries without which it will not be possible to achieve the total climate neutrality assumed by the EU. The data of the European Commission are absolute and show that buildings are responsible for 36 percent. CO2 emissions and 40 percent. energy consumption in Europe. Construction is also one of the most material-consuming sectors of the economy. The largest developers have easily adapted their business strategies to the requirements of sustainable development, because – as it turned out – this is what investors expect. But the supply chains do not look too sustainable, and this will have to change,” forecasts Jodko.
“For many companies in the industry, the greatest challenge will be to ensure more sustainable supply chains. This is not an easy task considering that the vast majority of companies in supply chains operate under high cost pressure, with fierce competition and rather low margins. However, I have no doubts that the direction of changes for companies also in the SME sector, which has not been too concerned with sustainable development so far, is dictated by regulatory pressure – for example in the form of requirements in tender procedures. There is still a lot to do here,” sums up Radosław Jodko, investment expert from RRJ Group.
Will the attractiveness of capital investment in the real estate market decrease?
“For investors, it will simply become a more complicated field to estimate and hedge risks. However, land is still an attractive capital investment. Provided that we do not invest all our savings in it. And that we can deal with forecasting and searching for attractive locations,” says Jodko.
