The government intends to significantly reduce the participation fee paid by people entering Poland’s TBS/SIM housing system. Today, such a contribution can amount to, for example, PLN 80,000–100,000.
The need to have a large own contribution for a mortgage remains one of the biggest housing barriers for young Poles. This is especially true when, after paying rent, utility and maintenance costs, and other expenses such as food, only a small amount remains in the household budget each month. This is not a new problem. Since the mid-1990s, social housing associations, known in Poland as TBS, were intended to be a remedy for the country’s housing difficulties. Relatively recently, they were transformed into social housing initiatives, or SIM. However, the sharp increase in housing construction costs in recent years has highlighted a problem that had already been visible before: the participation fee paid by a new SIM/TBS tenant is relatively high. The government now intends to change this. Leszek Markiewicz, a Warsaw real estate agent, takes a closer look at the plans of the Ministry of Development and Technology. It is worth remembering that real estate agents also come into contact with the TBS system.
Article in brief
In current market conditions, the need to pay a participation fee of, for example, PLN 60,000–90,000 is no surprise. The tenant’s share in the cost of building the apartment has increased in nominal terms because construction costs have risen sharply compared with five or six years ago.
The government intends to significantly reduce the maximum level of tenant participation in construction costs for new TBS/SIM investments. This is likely to make the TBS system more accessible to people with lower incomes.
TBS and SIM schemes are part of social housing. Despite this, real estate agents sometimes deal with such housing solutions, partly because advertisements for the assignment of TBS participation rights appear on the market.
Real estate agent Leszek Markiewicz reveals the background of the TBS/SIM system, presenting several less obvious facts and conclusions.
Participation limit to fall from 30% to 10% of construction costs
At the outset, it is worth recalling that the level of participation, effectively the tenant’s own contribution, is set as a specific percentage of the apartment’s construction costs. At present, the maximum participation limit is 30%. In the case of new TBS and SIM investments, lower requirements can also be found, for example at the level of 15% or 20% of construction costs.
“A great deal in this context depends on what the preferential financing of a given TBS or SIM housing investment looks like,” explains Leszek Markiewicz, a real estate agent from Warsaw.
A significant reduction in the financial barrier related to participation fees could theoretically be achieved in two ways: by substantially cutting the cost of building social housing blocks, or by lowering the percentage threshold of participation. The first option is not very realistic if new projects are to maintain an appropriate standard of construction. That leaves the second solution, and this is the path the government now intends to take.
“Recently, a draft act on social housing resources and support for housing investments was entered into the list of legislative work of the Council of Ministers, under project number UA13,” says Leszek Markiewicz.
One of the main assumptions of the draft is to reduce the maximum level of participation from 30% of the apartment’s construction costs to 10%. In addition, a press release published on the website of the Ministry of Development and Technology indicates that, for a certain pool of apartments intended for people under the age of 35, such a payment will not be required at all.
“We will probably have to wait for the details until the draft act appears in the Government Legislation Centre,” comments Leszek Markiewicz.
High participation fees also apply to older apartments
The issue of reducing participation fees is also important in the context of what happens later to an apartment built by a TBS or SIM. Such a unit often changes tenants after several or more than a dozen years. What happens then?
The Act of 26 October 1995 on social forms of housing development states that:
after the lease ends and the apartment is vacated, the tenant receives a refund of the participation fee, indexed to reflect changes in construction costs;
the TBS or SIM may make the conclusion of a lease agreement for a vacant apartment conditional on the new tenant paying a participation fee equal to the amount paid out to the previous tenant after indexation.
It may be assumed that these rules will remain in place after the planned legal changes. If this happens, older TBS/SIM investments may become less attractive due to the high required level of participation from the next tenant.
“Of course, much will depend on how many newer TBS/SIM projects with a low required tenant contribution actually appear on the market,” says Leszek Markiewicz.
Real estate agents are more familiar with the TBS system than it may seem
By way of conclusion, it is worth pointing out that real estate agents do, contrary to appearances, have contact with the TBS/SIM system. It is not a standard part of the housing market, but advertisements concerning TBS apartments can nevertheless be found. These are listings related to offers to assign participation rights.
Such an assignment is also a way to become the new tenant of a social housing apartment, although the SIM or TBS must approve the transaction. This is a certain limitation, as is the fact that such an assignment often requires an amount of money that would allow the buyer to purchase a similar apartment on the secondary market with the help of a mortgage.
“In other words, the issue of high participation fees also exists many years after a social housing apartment has been built. The planned regulations may change this with regard to new investments,” concludes Leszek Markiewicz, a Warsaw real estate agent.
Source: Managerplus.pl
