IT MAY not have the cachet of the Czech Republic or the coast of Croatia, but Poland is being tipped as a better bet for the canny property investor. With a fast-growing economy, huge inward investment from private sources and the EU, and a booming tourism sector, Poland has been billed as one of the best locations on earth to make money from property.

A recent ranking by the Channel 4 property programme A Place in the Sun claimed that Poland was second only to Romania as an attractive investment destination, with £100,000 invested today likely to be worth a little under £500,000 within a decade.

Whether or not you agree with that optimism about the Polish property market, it certainly has plenty to recommend it. For a start, the economic indicators are good. With a population of 40 million, Poland is the largest market in Central and Eastern Europe.

Growth is strong, forecast this year to be just above 4 per cent, while inflation is low. Unemployment is high, at almost 17 per cent, but jobs are being created, thanks mainly to growth of the financial services sector, as well as direct investment from the likes of Tesco, Toyota and GlaxoSmithKline. Moreover, under the new EU budget, Poland is set to replace Spain as the largest beneficiary of EU funding in the next eight years.

More importantly from the investor’s viewpoint, Poland is becoming popular with tourists. The number of visitors to Krakow, for example, doubled to three million last year. The Baltic Sea has several resorts, and the Tatra mountains in the south have good skiing. As a weekend destination, Krakow is ideal: three hours’ flight from the UK, architecturally and historically rich, and small enough to cover in a weekend.

Nicholas Scott is one Englishman who has succumbed to the city’s appeal. “I moved out to Poland a few years ago, and I was planning to spend just a couple of months in Krakow,” he says. He fell in love with the city and decided to buy an apartment off-plan for €100,000 (£67,000). The one-bedroom flat in a 19th-century building is in the heart of Kasimierz, the old Jewish quarter of Kra kow, and is let to tourists for €560 (£380) a week in the peak summer season. “There are no problems renting it out,” Scott says. “There are a lot of tourists coming to Krakow. It’s become very popular for stag nights — especially the higher-end stag dos — there are lots of City boys coming over here.”

David Nicholls, of the foreign exchange specialist Moneycorp, says more tourists should translate into higher yields for canny investors. “The boom in tourism prompted by the growth in the number of low-cost flights direct to Poland from many European cities means that short-term lets in cities such as Krakow and Warsaw are in demand, which provides an attractive income stream for investors.”

Having said that, investors should not expect very high yields; in city centres they average about 5 to 6 per cent.

Capital growth is likely to be very strong, however. Bogomir Rutkowski, manager of Knight Frank’s residential agency in Warsaw, says that prices in the most attractive locations grew by about 30 per cent last year, while less desirable locales grew by between 10 and 20 per cent. Based on the first half of this year, 2006 is likely to be at least as strong for the Polish property market. “The growth we are seeing in the Polish property market is not artificial,” Mr Rutkowski insists. “It is driven by local demand.”

Nick Dare, managing director of Dare Property, which specialises in investment in Central European property, says it is well worth looking beyond the largest Polish cities for the best returns. “Poznan is a growing commercial and university city in west Poland,” he says. “Prices there have been growing off a lower base, and are currently moving at a faster rate than any major city in Poland.” Prices in Poznan are a bout £650 a square metre against £1,000 in Warsaw, and the city is now on the cheap flight circuit, along with towns such as Lodz and Gdansk.

Buyers looking for holiday homes in the countryside will have to do a little more legwork. “Holiday homes are harder to find, although there are opportunities,” Mr Dare says. “Some of the rural resorts, such as Zakopane in the Tatra mountains, which is Poland’s ‘winter capital’, offer off-plan developments that are easy for foreigners to invest in.” But he adds that you should have a reliable local contact.

If you know where to look, there are countryside bargains to be found. In addition to his Krakow apartment, Scott is renovating a large farmhouse near Jelenia Gora, in the south-west. “Eventually I hope to turn it into a hotel,” he says. Although it cost just £26,000, it is large enough for 15 bedrooms.

Transactions

How to buy The process in Poland is relatively simple. Buyer and seller often negotiate directly and face to face when agreeing a price. They usually use the same notary, who will record the property sale as legally binding. It is a good idea, however, to hire an English-speaking solicitor to go through any legal documents you are not sure about, unless you have fluent Polish.

The costs These are relatively modest. Buyer and seller pay estate agency fees of up to 3 per cent, and legal fees are 0.1 per cent of the property’s value plus VAT. You pay 5 per cent of the sale price in tax, and there is a 2 per cent registration fee. Capital gains tax is at 10 per cent, but only if you sell within five years and fail to reinvest the proceeds in another Polish

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