Smaller quotas

Though the first companies offering property leasing appeared in Poland all of a decade ago, the market is neither mature nor developed. Real estate accounts for a bare 10 percent of all leased properties, while the West European figure is almost twice as large. Leasing firm managers explain that weakness in various ways.

Continuous downward slide

Property leasing should rival loans as a competitive form of investment financing. But the distance between these two financial services is widening instead of narrowing. Several leasing companies have, in practice, retreated from the real estate sector. That is true of the BRE Leasing company which last year leased properties worth barely 12 million zlotys, whereas the value two years ago was 226 million zlotys! Second in the market, ING Lease Polska, has reduced its turnover by around 40 percent. Krzysztof Bielecki, ING Lease president ensures, however, that it is a coincidence, since it would suffice to sign only one of the presently negotiated contracts to change the situation entirely.

The law and mentality

In the opinion of Marek Kowalski, head of the real estate group in Raiffeisen Leasing, the aversion for such forms of investment financing may stem from mental inhibitions among Polish businessmen. Some of them think that though the computer hardware or motorcar used by a firm does not have to be its property, it always prefers to be the owner of a used piece of real estate, suggests Marek Kowalski. Robert Mandżunowski, Member of the Board of LHI Polska, the leader of the real estate leasing market in Poland, explains that the reason why only two percent of real estate investments are implemented by leasing, compared with Germany's 10 percent, is the outcome, inter alia, of differences in taxation and accounting regulations, the maturity of the two markets and the level of services proposed by the companies concerned.

High thresholds to cross

It seems that part of the responsibility for slumping turnover in the leasing industry must be carried by the companies themselves which set enormously rigorous requirements on real estate earmarked for leasing. Real estate leasing is much more complex than leasing most other assets and requires much greater efforts to lead to the finalising of such transactions. And that means leasing companies much prefer to finance buildings of great value. Marek Kowalski of Raiffeisen Leasing informed that most firms refuse to finance real estate worth less than 10 to 15 million zlotys. He added: "We are just entering the market which is why we decided to service also smaller transactions starting from 3 million zlotys". On his part Robert Mandżunowski of LHI explains: "When LHI Leasing appeared in Poland nine years ago, we recognised the transaction profitability threshold to be around 10 million German marks. But today we are ready to lease individual properties of a minimum value of around 3.5 to 4 million euros. In transactions concerning a real estate portfolio, the price of each property can even begin from around 2 million euros". Companies linked to banks boasting a large retail sales network surely can and are attempting to render leasing services for properties of even smaller value. It seems leasing companies have come to realise that the transaction values which interest them are insurmountable thresholds for many small and medium companies. That is beginning to cause a lowering of thresholds, one firm informing that it is starting to lease properties of value from 300,000 zlotys. But Robert Mandżunowski of LHI has doubts whether that is a rational threshold and in his opinion is, indeed, below profitability.

Welcoming in a May daybreak

Leasing company representatives stress that any long-term business decisions must rest on the contingency and stability of the law. Some legislation amendments connected with Poland's access to the European Union will bring positive effects to this industry, but not all - unfortunately. Krzysztof Bielecki of ING Lease Polska is counting on the market to enliven once the duty to display the value of real estate in a firm's financial statement is introduced. That may lead to confusion in some companies but will also encourage them to lease real estate - he supposes. Marek Kowalski of Raiffesen Leasing is worried that - while liberalisation in the purchasing of real estate by foreigners and eliminating the need of Interior Affairs Ministry permits will affect the industry positively, the recently approved VAT Act is going to cause a lot of hard feelings among lessors. Harmful amendments have been introduced as regards financial leasing connected with advance payment of VAT on the sum of leasing fees. It is not clear when the company using the leasing system will have to settle its VAT. Luckily operational leasing has remained "untouched". More optimism is evident in what Robert Mandżunowski of LHI had to say: "We offer mainly operational leasing, which means the amended VAT Act concerning financial leasing will have no great influence on our activities. I do not think VAT on land sales will be a problem. What is needed is just to finance and settle that tax in a competent and skilful manner".