Montenegro’s boom obvious to everyone - except the official statistics
Last Updated: September 10, 2014
Montenegro’s house prices - as recorded in the official statistics - are falling. But the reality is that there is strong property demand, a healthy construction sector, and (especially) booming tourism and foreign luxury property demand, which in turn is making some locals very rich.
In the second quarter of 2014, the average price of new residential dwellings in Montenegro fell by 6.5% from a year earlier, to €1,147 per square metre (sq. m.), according to the Statistical Office of Montenegro. On a quarterly basis, the average price of dwellings dropped 0.7% during the latest quarter.
Yet there's obviously strong demand. Indicators for residential construction activity are soaring. The total number of dwellings sold in new residential buildings rose by 16.6% to 196 units in Q2 2014 from the previous quarter, based on figures from the selfsame Statistical Office of Montenegro. About 80% of all total sales during the quarter took place in Podgorica, the country's capital.
In the first quarter of 2014, the total number of building permits rose by 31% y-o-y to 227 units. Likewise, the number of dwelling permits issued surged 49% y-o-y to 873 units in Q1 2014. Over the same period, the total floor area of building permits also soared by 43% to 63,918 sq. m.
What gives? Well, it is a case of parallel markets.
Montenegro isn't a rich country. But foreign investors are being drawn in droves to the Adriatic coastal areas, particularly the islet of Sveti Stefan and the coastal town of Budva, now key resorts for the Russian new rich to show off their money.
Its a scene of glitz and glam, not subtle, but in your face.
Budva is a charming coastal resort and Venetian port-city, with sandy beaches and a diverse nightlife, and is the centre of tourism, accepting well over half a million visitors annually. The larger Budva area had the most expensive housing in Montenegro, at an average price of €1,890 per sq. m. in Q2 2014.
The marvellously beautiful adjoining village of Stefi Stefan was a famous resort between the 1960s and 1980s, visited by celebrities like Orson Welles, Elizabeth Taylor, Sophia Loren, Princess Margaret, Carlo Ponti, Ingemar Stenmark and Kirk Douglas. Now after the war it is back, with an Aman resort.
The major foreign property buyers in Montenegro include Russians and British buyers.
In terms of price, Budva's average price of €1,890 per sq. m. in Q2 2014 is way ahead of Podgorica, the country’s capital, with an average dwelling price of €1,098 per sq. m., and Bar (€1,024 per sq. m.), Ostalo (€789 per sq. m.) and Niksic (€600 per sq. m.).
“The rugged beauty of Montenegro continues to attract high-profile visitors, including Michael Douglas, Catherine Zeta Jones, Madonna and The Rolling Stones,” says Glenda Lazare of overseas investment specialist company, Key Universal. “It is being tipped as the next Monte Carlo.”
Some of the residential projects which are currently under construction include Belvedere Residence (71 apartments), Poseidon Apartments (174 apartments), Harmonia building (120 apartments), Obilaznica (148 apartments), Gradnja Promet Ljubovic (165 apartments), Gradnja Promet Zabjelo (115 apartments), Block 6 Zetagradnja (180 apartments), and City Quarter (120 apartments), according to CBRE Montenegro.
Foreign property demand is expected to rise further these coming years with Ryanaid launching several new flights from across Europe (such as from Brussels, Milan, Barcelona, London, Oslo and Stockholm) to Montenegro.
“Montenegro property offers an excellent investment opportunity,” adds Lazare. “The country has a burgeoning tourist industry, bolstered by the government’s Tourism Masterplan 2007-2020, which aims to develop high-end hotels, golf courses and other luxury facilities in order to attract affluent tourists.”
In 2013, the total number of tourist arrivals in the country was up by 3.6% y-o-y to 1,492,000, based on figures from the Statistical Office of Montenegro.
Montenegro’s economy is expected to expand by 2.8% this year and by another 2.9% in 2015, down from a 3.4% growth rate in 2013 but far better than the 2.5% contraction seen in 2012, according to the International Monetary Fund (IMF).
There are no restrictions on foreigners buying property, except for land, which can only purchased by foreigners through a company. After a building is constructed, ownership can be transferred to individuals through a simple procedure.
High prices in Montenegro
Prices in Montenegro are quite high, although they seem to have fallen over the past year. Buying prices for coastal houses average around €2,870 per square metre, or around €266 per square foot.
We are unable to give yields figures, because lets tend to be seasonal, and there is no basis for long-term yields calculations.
Taxes are moderate in Montenegro
Rental Income: Rental income is taxed at a flat rate of 9%, with an optional lump-sum deduction of 40% in lieu of actual costs.
Capital Gains: Capital gains realized from sale of real property in Montenegro are taxed at a flat rate of 9%.
Inheritance: Inheritance of first degree relatives (spouses and direct descendants) is not taxed. Other heirs are liable to pay 3% tax on their share of the estate.
Residents: Residents are taxed on their worldwide income at a flat rate of 9%.
Buying costs are low in Montenegro
Roundtrip transaction costs, i.e., the total cost of buying and selling a property, are around 6.57% to 24.02% of the property value. The buyer pays the transfer tax of about 3%. The agent’s commission ranges from 3% to 5%, usually paid by the seller.
The transaction cost on newly built property is much higher because 19% VAT is levied instead of the transfer tax.
Research is ongoing.
High hopes after independenceMontenegro (pop. 623,000 in 2013) became independent in 2006, after 55% of voters opted for the dissolution of the Union of Serbia and Montenegro in a referendum. This followed a long but peaceful struggle.
Pro-independence Prime Minister Milo Djukanovic argued that association with Serbia hindered Montenegro from achieving its full potential. He hopes that his country will succeed in joining the EU before Serbia and Macedonia. Montenegro adopted the Euro as the official currency well before independence.
Djukanovic’s party won the first post-independence election, held in September 2006. He decided to retire in October that year after being president or prime minister since 1991. He became prime minister again from February 2008 to December 2010 after his successor resigned. After Igor Lukšić, Djukanovic took the prime minister position for the fourth time in December 2012.
The country officially applied to join the EU in December 2008. However, formal EU accession talks only began in June 2012. By end-2009, Montenegrin citizens were granted the right to visa-free travel within the Schengen zone. Montenegro became a member of the World Trade Organisation in April 2012.
Montenegro’s economic growth has been erratic since 2009, amidst the global economic and financial crisis. In 2013, the economy expanded by 3.35%, after a contraction of 2.5% in 2012, growth rates of 3.2% in 2011 and 2.5% in 2010 and a decline of 5.7% in 2009, according to the IMF.
Montenegro’s tourism industry is thriving. In 2013, the total number of tourist arrivals in the country was up by 3.6% y-o-y to 1,492,000, based on figures from the Statistical Office of Montenegro. Montenegro’s coastal areas accounted for about 90.4% of all tourist arrivals last year.
The economy is expected to expand by 2.8% this year and by another 2.9% in 2015.
However, high unemployment remains a problem. In the first quarter of 2014, the country’s overall unemployment rate stood at 19.1%, slightly down from 19.5% in 2013 and 19.7% in 2012, according to the Statistical Office of Montenegro.
Corruption, organized crime and the huge black market are other major issues that must be resolved.
In July 2014, the country saw a deflation rate of 1.2% from a year earlier, in contrast with annual inflation rates of 2.2% in 2013, 3.6% in 2012, and 3.1% in 2011. The decline in consumer prices was mainly attributed to a decrease in the prices of vegetables, fruits, garments, shoes and other footwear, according to the Statistical Office of Montenegro.