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Is this a blip? Macedonia's house prices have risen sharply
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.
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.
Economy to grow strongly this year, supported by government subsidiesMacedonia 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.