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Is this a blip? Macedonia’s house prices have risen sharply

Last Updated: May 15, 2018

Macedonia house price changeMacedonia's housing market now is improving substantially, amidst a strong economic outlook and improving political conditions.

The nationwide house price index surged 7.15% (6.09% inflation-adjusted) during the year to Q1 2018, the biggest rise for almost nine years, according to the National Bank of the Republic of Macedonia. Quarter-on-quarter, house prices increased 0.81% (1.61% inflation-adjusted) during the latest quarter.

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 MKD 3.12 million (USD 60,700), the government will pay a total of MKD 937,331 (USD 18,236) through subsidies.

By European standards Macedonia is a poor country, with a total population of about 2.1 million people and a GDP per capita of US$ 5,474 in 2017. Corruption is rife, with ruling party cronies controlling most businesses. There is much emigration. A large proportion of the population lives in poverty, especially ethnic Albanians who are simultaneously derided as "lazy" and discriminated against.

After house price rises of 10.8% (11.8% inflation-adjusted) in 2007 and 25.3% (18.4% inflation-adjusted) in 2008, Macedonia's housing market has been sluggish since, mainly due to the global financial meltdown, the problems in neighboring Greece, and its own extended political crisis.

House price changes:

  • 2009: - 7.8% (+0.6% adjusted for inflation)
  • 2010: + 5.6% (+ 3.1% inflation-adjusted)
  • 2011: - 1.4% (- 3.4% inflation-adjusted)
  • 2012: - 3.7% (-3.1% inflation-adjusted)
  • 2013: - 3.5% (-1.7% inflation-adjusted)
  • 2014: - 0.8% (+ 1.1% inflation-adjusted)
  • 2015: + 1% (+ 0.8% inflation-adjusted)
  • 2016: - 0.8% (-0.9% inflation-adjusted)
  • 2017: + 3.4% (0.8% inflation-adjusted)

Although there is no reliable public data on the number of dwellings sold, local property experts claim demand for houses, especially in Skopje (home to a third of the country's population) is increasing strongly, with a surge in housing loans.

In March 2018, loans for house purchases increased 15.4% y-o-y to MKD 40.9 billion (USD 796 million), according to the National Bank of Macedonia. Over the same period, denar-denominated housing loans rose by 14.3% y-o-y while euro-denominated loans soared 22% y-o-y.

However, residential construction remains weak. During 2017, dwelling permits issued rose only 1.3% y-o-y to 7,939 units, according to the State Statistical Office. During the first two months of 2018, dwelling permits in Macedonia fell by more than 30% to just 843 units.

Macedonia posted zero economic growth in 2017, down from GDP growth of 2.9% in 2016, 3.9% in 2015, 3.6% in 2014 and 2.9% in 2013, according to the International Monetary Fund (IMF).

The economy is expected to improve substantially this year, buoyed by increased government spending and subsidies and improving political situation in the country. The economy is projected to expand by 3.1% this year and by another 3.3% in 2019, according to the European Commission (EC).

After several years of continuous political crisis, a new government was finally formed in May 2017, with centre-left Social Democratic Union's leader Zoran Zaev as the country's new prime minister. However, the new PM faces the daunting task of boosting the ailing economy, addressing the political divisions and tense relations between ethnic Macedonians and ethnic Albanians in the country, and resolving Macedonia's dispute with Greece over its name.

Foreign individuals can freely buy apartments and buildings, subject to the reciprocity rule and approval from the Ministry of Justice.

Foreign citizens and companies can directly own land for construction in Macedonia, under the Law on Construction Land adopted in 2008. Under the law, the construction land is sold through a public tender procedure. Also, foreign individuals and companies can lease land for up to 99 years through a public bidding process.

House price variations

Macedonia average price new dwellings

During 2017, average dwelling prices in Macedonia was MKD 41,822 (USD 815) per square metre (sq. m.), according to the State Statistical Office.

Over the same period:

  • In Skopje, the average price of dwellings was MKD 43,710 (USD 851) per sq. m. in 2017.
  • House prices in other parts of Macedonia was more than 23% lower than the national average, at MKD 32,000 (USD 623) per sq. m. in 2017.

Residential construction activity remains weak

Macedonia building permits

During 2017, the number of dwellings for which permits were issued in Macedonia increased 1.3% y-o-y to 7,939 units, according to the State Statistical Office.

The East registered the biggest rise in dwelling permits of 233% during 2017, followed by Vardar (137%), Polog (72.6%), Northeast (16.3%) and Southwest (15.2%). But these increases were partly offset by declines in Skopje (-16.2%), Southeast (-37%), and Pelagonija (-11.5%).

During the first two months of 2018, dwelling permits in Macedonia fell by more than 30% to just 843 units compared to the same period last year.

Interest rates falling

Macedonia mortgage insterest rates

The National Bank of Macedonia's key interest rate was at a record low of 3% in April 2018, after a reduction of 25 basis points in March 2018.

In March 2018, average interest rates for new denar-denominated housing loans was 3.6%, down from 3.86% last year, according to the central bank.

  • Floating rate, or up to 1 year initial rate fixation (IRF): 3.82% (down from 4.68% a year earlier)
  • 1-5 years IRF: 3.57% (down from 3.8% a year earlier)
  • 5-10 years IRF: 3.78% (down from 4.37% a year ago)
  • Over 10 years IRF: 3.44% (down from 4.14% a year earlier)

On the other hand, the average interest rate for new euro-denominated housing loans increased slightly to 3.55% in March 2018, from 3.5% in the previous year.

  • Floating rate or up to 1 year IRF: 4.05%, up from 3.45% a year earlier
  • 1-5 years IRF: 3.41%, slightly down from 3.47% a year earlier
  • 5-10 years IRF: 4%, down from 4.34% in the previous year
  • Over 10 years IRF: 5.5%, up from 4.2% a year earlier

Mortgage market growing strongly

Macedonia housing loans

Loans for house purchases increased 15.4% y-o-y in March 2018 to MKD 40.9 billion (USD 796 million), according to the National Bank of Macedonia. About 85% were denominated in domestic currency while the remaining 15% were in foreign currency.

  • Denar-denominated housing loans rose by 14.3% y-o-y to MKD 34.9 billion (USD 680 million) in March 2018
  • Euro-denominated housing loans soared 22% y-o-y to MKD 5.96 billion (USD 116 million) in March 2018

In 2017, the size of the mortgage market was about 6.4% of GDP, up from 5.8% during the prior year.

Rental yields are moderate

Gross rental yields on apartments range from 5% to 5.6%, according to Global Property Guide research. Smaller apartments have better yields than bigger counterparts. Apartments can be rented out for around USD 5.28 to USD 5.79 per sq.m.

Economy to grow strongly this year, supported by government subsidies

Macedonia gdp inflation

Macedonia posted zero economic growth in 2017, due in part to the country's extended political crisis. This was in contrast with GDP growth rates of 2.9% in 2016, 3.9% in 2015, 3.6% in 2014 and 2.9% in 2013, according to the International Monetary Fund (IMF). However the economy is expected to improve substantially this year, buoyed by increased government spending and subsidies and the improving political situation.

The economy is projected to expand by 3.1% this year and by another 3.3% in 2019, according to the European Commission (EC).

Gross capital formation is expected to increase sharply by 6.2% this year and by 6.3% in 2019, from a growth rate of just 0.8% in 2017.

"With private investors regaining confidence, and the government providing some 32 million euro investment support in its 2018 budget, with an additional 16 million euro budgeted by other public sector bodies, gross fixed capital formation may add to GDP growth in 2018 and 2019," said the EC.

Unemployment continues to fall, although very high by international standards. In 2017, nationwide unemployment fell to a record low of 22.5%, from 23.8% in 2016, 26% in 2015, 28% in 2014, 29% in 2013 and 31% in 2012, according to the IMF.

Macedonia's jobless rate is expected to fall further to 22.3% this year.

Consumer prices increased 1.4% in 2017. Inflation is expected to accelerate to 1.8% this year and 1.9% in 2019, according to the IMF.

Political instability and the formation of new government

In recent years the country has been in a state of continuous crisis, after then Macedonian opposition leader, Zoran Zaev, released what he has called information "bombs" against the government. Zaev accused the former government of systematically wiretapping all important people in the country, and released a series of allegedly wiretapped conversations of the then-prime minister, Nikola Gruevski, the head of the secret service and other senior officials, in which they apparently discussed interference in the judiciary, media and urban-planning process.

Zaev claimed that the elections of April 2014, in which the ruling conservative VMRO-DPMNE party of Gruevski defeated Zaev's ex-communist Social Democrats (SDSM), were fraudulent and has accused Gruevski of operating a dictatorship. Zaev's party tends to represent ethnic Albanians.

Gruevski, who had been prime minister since 2006, resigned in January 2016 to pave the way for early elections, initially scheduled for February before being postponed until June 5, and finally to December 2016. A highly controversial presidential amnesty for 56 of those subject of investigations into the alleged wiretappings was issued by president Gjorge Ivanov, with the obvious intention of aborting the judicial investigations and hiding any evidence.

Mass protests erupted in Skopje. Zaev and 10 other politicians who have received amnesties have refused them, and foreign institutions have condemned them.

The December 2016 general elections failed to produce an outright winner and months of tension over the formation of a new government ensued.

Finally in May 2017, a new government was finally formed, with Zoran Zaev as the country's new prime minister. However, the new PM faces the daunting task of boosting the ailing economy, addressing the political divisions and tense relations between ethnic Macedonians and ethnic Albanians in the country, and resolving Macedonia's dispute with Greece over its name.

A dispute with Greece over Macedonia's name had blocked the country's accession to European Union (EU) and North Atlantic Treaty Organization (NATO). In June 2016, The National Bank of the Republic of Macedonia announced the imposition of temporary limits on the outflow of capital to Greece and ordered its banks to withdraw deposits and loans from Greek banks.

However, Macedonia's recent change of government has changed the picture. PM Zaev has indicated his willingness to compromise on the issue of its name. In fact, PM Zaev announced recently that Skopje's airport will no longer bear the name Alexander the Great nor will the motorway leading to Greece, which now be called as Friendship Highway.

"The fact that our government has decided to rename the airport and the highway demonstrates that we are committed," said Defence Minister Radmila Sekerinska. "It's not a show. We want to allow this country to free itself from an enormous burden that has taken a very high toll."

Athens has responded positively and talks between the two countries are now ongoing.

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