BORROW EURO, BUY IN ZLOTY - IS NOW A GOOD TIME?
Team BigDoor24.pl - Tuesday, January 25, 2022 Tags: Buy Gdansk Gdynia General Information Investment Katowice Krakow Let Lodz Polish Economy Polish Mortgage Polish Property Poznan Rent Sell Warsaw Wroclaw
Hedging in a time of inflation
If you have been considering buying Polish property in 2022, you may be holding back to see how recent (and expected future) interest rate rises will affect apartment prices.
There is nothing wrong with this approach, apart from cash not being a great hedge against inflation, but there is another strategy that you might want to consider.
Right now, borrowing in Euro at say 1% fixed for 10 years and buying a Polish property yielding 5 or 6% p.a. may be worth a look.
At the time of writing, you can buy 4.58 zloty for every 1 euro. It was 4.53 a few weeks ago but despite recent rate hikes in Poland, Russian threats on the Ukrainian border have made investors nervous.
The European Central Bank (ECB) have adopted a transitory approach to inflation across the bloc. This means they believe that there will be little need for interest rate increases as inflation concerns should settle down in the short term as supply chains recover.
The Polish Central Bank (NBP) is between two stools with some adopting the transitory thinking and others on the rate setting council calling for further aggressive rate increases to battle the high inflation numbers evident before the pandemic began.
Rather than agree or disagree with either stance let's look at something a bit more probable - Interest rates in the euroland are highly unlikely to go down any further from here and Polish interest rates are highly likely to be increased further.
The problem with buying a Zloty asset with euro's will be obvious to anyone who has ever held or heard about the catastrophic results of the swiss franc (CHF) mortgages of recent years.
As a result of this "stupid" period of Polish banking (and we believed it to be stupid at the time and warned everyone we could), Polish banks will only give non-Zloty mortgages to those earning an income in the preferred foreign currency.
This is fair enough but if you are someone who either earns in Euro or has a property that can be refinanced in a euroland economy, you may have a once in a decade opportunity here to hedge against future inflation and earn a positive income.
The remaining question is your view of where the Polish Zloty will be in 10 years. You don't need to be exact but will it be at a price that will benefit you or harm you. Up or down from here. That's your main risk if you you lock in fixed rates on your borrowing.
We would love to hear what you think.
We believe it's a strategy worth considering but certainly requires professional consultation from those licensed and qualified to do so. For good order, we at BigDoor24.pl are in no way qualified to offer official financial advice.
Check out Property Fees - A Strategy to Reduce Costs When Buying Property in Poland
Happy hunting,
Team BigDoor24.pl - Just Easier