Macedonia’s housing market remains weak
Last Updated: November 02, 2013
The price falls are concentrated in the capital city, Skopje:
- In Skopje, the average price of dwellings dropped by 0.5% (0.12% inflation-adjusted) to MKD58,687 (€939) per sq. m. in 2012 from the previous year.
- House prices in other parts of Macedonia actually rose by 4.9% (5.5% inflation-adjusted) y-o-y to MKD43,328 (€693) per sq. m. in 2012.
In June 2013, the total number of building permits issued dropped 27.7% to 180 from the same period last year. Likewise, the expected value of the constructions plunged by 83.1% y-o-y to MKD1.51 billion (€24.1 million) over the same period.
On the other hand, loans for house purchases increased 11.5% y-o-y to MKD20.83 billion (€333.4 million) in June 2013 from a year earlier. About 85% were denominated in domestic currency while the remaining 15% were in foreign currency. The size of the mortgage market is just 4.3% of GDP, slightly up from 3.6% of GDP in 2010.
In an effort to help the housing market, the government has increased its subsidies for homebuyers to 75% of the monthly bank mortgage (from an initial 50%) for new flats and houses costing under €900 per sq. m. for the first five years. This means that for a flat with an average price of MKD3.12 million (€50,000), the government will pay a total of MKD937,331 (€15,000) through subsidies.
The National Bank of the Republic of Macedonia (NBRM), the country’s central bank, cut its key interest rate by 25 basis points to 3.5% in Q1 2013, amidst reduced inflationary pressures and lacklustre economic growth. In addition, the government also plans to implement expansionary fiscal policies in the second half of 2013, which include additional low-cost debt funding for SMEs and capital investments.
In 2013, the Macedonian economy is projected to expand by 2.2% at most, driven by growth in export revenues and an increase in investment, according to NBRM. Real GDP declined by 0.3% in 2012, after expanding by 2.9% per year in 2010 and 2011.
A crucial issue is high unemployment. In 2012, the country's jobless rate stood at 31%, slightly down from 31.4% in 2011 and 32% in 2010, according to the State Statistical Office.
Foreigners from countries which grant reciprocal rights can buy residential property in Macedonia, subject to approval from the Ministry of Justice, but landed property is somewhat more complicated.
Macedonia: yields are moderate
Buying prices of apartments in Skopje, Macedonia, remain very reasonably price at around 1,100 Euros per square metre.
Due to moderate price rises since 2005 (all our figures are stated in Euro terms), there have been slight declines in yields. It seems to us that another reason is that rents have been falling, though we don't have official statistics to confirm this. Gross rental yields in Skopje are now moderate, with most apartments yielding around 5.0% to 5.5%.
Income taxes in Macedonia are moderate
Rental Income: Rental income is taxed at a flat rate of 10%. Income-generating expenses and depreciation costs are deductible when calculating taxable income.
Capital Gains: Capital gains are taxed as ordinary income at 10%, levied on 70% of computed gains after expenses are deducted.
Inheritance: Spouses and first degree relatives, or direct ascendants and descendants, are not liable to pay inheritance tax on their inheritance.
Residents: Residents are taxed on their worldwide income at a flat rate of 10%.
Buying costs are very low in Macedonia
Roundtrip transaction costs, i.e., the total cost of buying and selling a property, are around 4.30% to 7.60% of the property value. The 2% to 4% sales tax is the greatest cost, and is usually paid by the buyer. The seller pays for the agent’s commission of 2%. However, the first turnover of buildings and apartments is subject to 18% VAT, dramatically increasing the transaction cost.
Macedonian tenancy laws are pro-landlord
Rent: Rent and rent increases can be freely negotiated. The lease contract must clearly state the rent, type of rental payment, and the payment schedule.
Tenant Security: Lease agreements automatically terminate at expiration of the lease contract.
Macedonia: Modest economic growth; naming dispute still unresolvedThe Republic of Macedonia, sometimes called the former Yugoslav Republic (FYR) of Macedonia, is a landlocked country in the central Balkan Peninsula in Southeast Europe. It has a population of more than 2 million people with a GDP per capita of US$4,683 in 2012, according to the International Monetary Fund (IMF).
Although Macedonia was formed without bloodshed after Yugoslavia’s disintegration, it suffered a Greek economic embargo over a dispute about FYR Macedonia's constitutional name and flag. Then an inter-ethnic war broke out between Macedonian Slavs (Orthodox Christians) and ethnic Albanians (Sunni Muslims) in January 2001. This lasted for almost a year, and was resolved through the Ohrid Agreement, pledging improvement of the rights of the Albanian minority through revisions to the constitution in 2001. In 2004, legislation was approved redrawing local boundaries and giving ethnic Albanians greater local autonomy in their areas.
Macedonia enjoyed a robust economic growth of 4.7% from 2003 to 2008. However, the dispute with Greece blocked Macedonia’s NATO entry in 2008. It is also hindering accession to the EU, though the country was granted EU candidate status in 2005.
Macedonia decided to take the dispute to the International Court of Justice (ICJ) in the Hague in December 2008. Then in 2011, the ICJ ruled that Macedonia's entry to NATO had been unjustly blocked by Greece. However, the decision did not address the dispute over the country’s name. The name dispute remains unresolved and continues to hamper the country’s bid for full EU membership.
The economy contracted by 0.9% in 2009 due to the global financial meltdown. The economy bounced back quickly in 2010 with a real GDP growth rate of 2.9%, thanks to the increase in export revenues, gross capital formation and final consumption. However in 2012, real GDP declined again by 0.3%, after expanding by 2.9% in 2011, due to declines in industry (-8.3% y-o-y) and exports (-2.7% y-o-y). To boost the economy, the government implemented expansionary fiscal policies in the second half of 2013, which include additional low-cost debt funding for SMEs and capital investments.
In the second quarter of 2013, the economy grew by 3.9%, up from a growth rate of 2.9% in the previous quarter, based on figures released by the State Statistical Office.
“It is a pleasure to note that Macedonia has managed to register solid growth, when EU and Eurozone are still hit by crisis,” said Macedonian Prime Minister Nikola Gruevski.
The National Bank of the Republic of Macedonia (NBRM), the country’s central bank, cut its key interest rate by 25 basis points to 3.5% in Q1 2013, amidst reduced inflationary pressures and lacklustre economic growth.
Macedonia’s economy is projected to grow by a modest 2.2% this year, according to the latest NBRM forecast.
The budget deficit increased to 3.9% of GDP in 2012, up from 2.5% in 2011. The deficit is expected to fall slightly to 3.6% of GDP in 2013. The government set the budget deficit target at 3.5% of GDP in 2014.
A crucial issue facing the country is its very high unemployment rate. In 2012, the overall jobless rate in the country stood at 31%, slightly down from 31.4% in 2011 and 32% in 2010, according to the State Statistical Office. In the second quarter of 2013, the overall unemployment rate in Macedonia was 28.8%.
Youth unemployment in Macedonia recently reached 53%. The country is not creating adequate job opportunities to absorb new entrants into the labour force.
In Q1 2013, nominal net wages increased by 1.1% from the same period last year, according to the State Statistical Office. However, real wages actually fell by 2.3% over the same period.
In the third quarter of 2013, the country’s overall inflation rate stood at 1.6%, down from 4.2% and 3.1% in Q2 and Q1 2013, respectively, according to the National Bank of the Republic of Macedonia (NBRM).