Increasingly common currency

Across the world there might be some time before it makes a big impact, but in Poland the Euro is muscling in on the dollar. We've been looking at why this is

In contrast to its Prague and Budapest counterparts, the Polish real estate market has until now always conducted its transactions and paid and collected rent in US dollars. To say that the Euro has pushed out the American currency would be an overstatement, but a race is now on between the two currencies.

"I have here a list of thirty office buildings in Warsaw and only ten of them continue to show their prices in US dollars," says Marcin Gudz, an analyst at King Sturge. "Only a few months ago this would have been unheard of. Now though, we even come across office buildings which quote part of their rents in USD and the rest in Euro."
Alan Colquhoun of DTZ reminds us however, that there has always been the odd building, such as Nadpol in Ursynów near Warsaw, which has not been quoted in US dollars. "Some rents were originally quoted in Deutschmarks and converted to Euro in January 2002 as soon as it replaced the DEM. Since then, some other rents have been denominated in Euro."

Forward with the Euro
"The gradual increase in the use of the Euro is due in part to developers funding in the currency because it was cheaper for a while. European developers and investors often prefer it because there is less currency risk at home," says Colquhoun.
According to Ryszard Mróz Director of Raiffeisen Bank, the former 'dollarization' of Warsaw's real estate market, was because of the widespread American participation in new projects. "These days, even when developers are of American origin, they carry out their investments in Europe via their UK or Dutch-registered firms, which might explain the Euro's popularity," says Mróz.

Finance above all
Katarzyna Szewczuk of the Austrian investment fund Europolis Invest confirms this. She adds that the currencies rents are declared in depend on those used in investment finance. It is clearly far more convenient to collect rents in Euro when investments are financed in that currency. "If rents are quoted partly in Euro and partly in US dollars, it's possible to configure re-financing in a way that will correspond to the total in each currency. But this is where we're faced with a reverse scenario, which is that rents determine refinancing, and not the other way round." Evidently, the more investments are financed in Euro the greater its popularity.
"As far as financing development investments is concerned, the sizes of loans we've granted in Euro and USD have evened out. For the last two years the Euro has been catching up with the dollar and I can see it overtaking the American currency soon enough," says Mróz. "The Euro has been the dominant currency in the west of Poland for some time now, whereas the southern and eastern regions have preferred the dollar." To demonstrate this tendency Mróz gives the example of a development investment in a warehouse complex. Its first two stages were financed in dollars and the third stage, which is to begin soon, will be financed in Euro. Mróz presumes that the developer wants to switch to the European currency after getting vibes from his tenants, who are more comfortable with it than the dollar.

Whither the zloty?
Will the Polish zloty ever become common currency on the real estate market? Theoretically it is possible provided it remains stable and interest rates continue to be lowered. Some rents in Prague are priced in CZK for precisely those two reasons. In practice however this scenario seems unlikely as the zloty is generally regarded as overvalued and volatile. What's more, with Polish accession to the EU so close, the Euro should replace the PLN in 2007 anyway -a shorter time away than a five-year lease agreement.