When 26-year-old Karol, a consultant working for an Austrian bank in Warsaw, decided to buy a home in the city center after years of renting, he made a choice typical of young Varsovian professionals.

   "Given the choice, people will buy," said Richard Quigley, vice-president of Reas Konsulting, a Warsaw-based firm advising residential developers. The reason for buying over renting is often a psychological one – the satisfaction of owning your own property, Quigley said. But these days there's also a dearth of good apartments for rent, combined with relatively high rentals compared to property sales prices.

   In many Western countries, the story is very different, according to property analysts. There, professionals often prefer long-term rentals for apartments close to work. But in Poland, most apartments available for rent are owned by landlords who eventually plan to move in themselves, or rent to relatives. As a result, apartments for rent are typically either low quality or available only for the short term. "Tenants have an enormous feeling of instability," said Jerzy Muszynski, chief analyst at the Warsaw-based property agency Unikat.

   The rental market in Poland is also better business for landlords than in the West. With rents coming in, landlords can pay their apartments off in as quickly as six years, compared to 10-12 years in developed markets, Muszynski said. The only exception is renting subsidized communal apartments, but those are "on the closed market" and out of reach of normal customers, he said. Communal housing is, in theory, available to all residents who meet certain criteria, but in practice it's very difficult to rent such an apartment, Muszynski said.

   It's not surprising, then, that property consultants are more likely to advise clients to buy rather than rent their apartments, Quigley said. In his model (see chart), households can buy residential property for the same amount per month that it would cost to rent, provided they can come up with the initial cash deposit – about 25% of the apartment's value. According to Quigley, if tenants directed their monthly rental fees to repay the loan taken out to buy property, they could own their apartment in 12 years.

   For example, a household earning $1,200 a month and paying $302 a month in rent for a 40-square-meter apartment could take out a loan, pay the same amount in monthly interest, and own their newly built, equally large apartment in 12 years, Quigley said. The only condition is that they have $16,185 in cash to invest – which could drop to $10,352 if the household qualifies for tax relief under a government scheme to support those buying newly built apartments. Under Polish law, first-time buyers can deduct up to 19% of the cost from their taxes.

   If the household rented their apartment for 12 years, they could invest their $10,352 elsewhere. Assuming the investment would have a rate of return of 5% in dollar terms annually, after 12 years the household would end up with $18,591 and no property, according to Quigley's model. That amount would equal about one third of the estimated value of a 40-square-meter apartment, which Quigley estimates to be $55,133 after 12 years, assuming that annual appreciation would be 5% in dollar terms.

   The same kind of calculations apply to higher income households (see chart.)

   Even if buying makes more sense than renting financially, profit is not the primary reason that people prefer to purchase rather than rent. "It's more a social and psychological decision about stability, roots and control over your family's immediate environment," Quigley said.

   Karol, who believes he could invest his money in a more profitable venture than property, said he wants his own space because "your own apartment feels more like home. It's about quality of life, not profits." Karol plans to pay for half of his zl. 160,000 apartment from his savings and finance the rest with a bank loan.

   While buying property seems a reasonable choice for people living here, expatriates coming to Poland for longer than three years also tend to buy, Quigley said.

   Quigley himself arrived in 1994 to establish Reas, and bought a 60 square-meter apartment in Mokotow two years later. He plans to expand his apartment by another 120 square meters next year.

   Brian Burgess, managing director with CB Richard Ellis, has been in Poland for four years and is renting. But he is considering buying. "It's always in the back of my mind," Burgess said. If he buys, he said he would be following in the footsteps of most of his British colleagues, who tend to stay for a long time. "The English are homeowners by culture," he said.

   But although renting here has yet to pay off, that could change soon. "I have no doubt that a rental market will arise," Unikat's Muszynski said. "Rents are falling, while apartment (purchase prices) are getting more expensive."

   "We are getting closer to the moment when (renting and buying) balance out," he said.

   Muszynski believes that the high supply of newly built apartments in the Warsaw area – believed to reach 40,000 homes in 2000 and 2001 – will make it difficult for many developers to find buyers, and will likely lead to a new supply of modern apartments on the rental market.

   The development of the rental market is also likely to be boosted by the growing mobility of some professions, Muszynski said.

   Renting could also become attractive in the medium term as rising interest rates increase the costs of mortgage loans and put such loans out of reach of potential homebuyers. Interest rates for mortgage loans average about 20%, up from about 16% a year ago.

   But in this last case, the appeal of rentals would last only as long as high interest rates do. "If they could afford it, average households would buy, not rent," Quigley said.