Positive outlook for North Macedonia's housing market
Lalaine C. Delmendo | May 17, 2019
“The Republic of North Macedonia will have huge economic benefits from the deal that I believe will be seen in every area of the economy,” said Prime Minister Zoran Zaev. “Big companies with billions in annual revenues are coming.”
The housing market, which has been sluggish since the global crisis, is expected to be one of the major beneficiaries.
After house price rises of 10.9% (11.8% inflation-adjusted) in 2007 and 25.2% (18.2% inflation-adjusted) in 2008, Macedonia's housing market has shown unimpressive performance since, mainly due to the global financial meltdown, the problems with neighboring Greece, and its own extended political crisis exacerbating the situation. In 2018, house prices remained 10% down from the peak levels seen in 2008.
During the year to Q1 2019, the nationwide house price index fell by 0.84% (-0.65% inflation-adjusted), according to the National Bank of the Republic of North Macedonia, the country's central bank. Quarter-on-quarter, house prices increased 1.9% (1.4% inflation-adjusted) during the latest quarter.
By European standards North Macedonia is a poor country, with a total population of about 2.1 million people and a GDP per capita of US$ 6,100 in 2018. 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.
In an effort to increase homeownership, the government has raised 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 (US$ 56,516), the government will pay a total of MKD 937,331 (US$ 16,980) through subsidies.
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.
North Macedonia's economy expanded by a modest 2.7% in 2018, a sharp improvement from 2017's almost zero growth but at par with the annual average growth rate of 2.6% from 2010 to 2016, thanks to strong consumption and net exports, as well as recovering investment. The economy is expected to strengthen further this year, with a GDP growth rate of 3%, according to the International Monetary Fund (IMF).
After several years of continuous political crisis, the country's situation has improved remarkably, after 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.
Zaev promised to boost the economy, address political divisions and tense relations between ethnic Macedonians and ethnic Albanians in the country, and finally resolve the country's dispute with Greece over its name – a vital step for Euro-Atlantic integration. As a result, a new agreement with Greece on the issue of its name was reached in June 2018, paving the way for the country to start accession talks with NATO and the EU.
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.
Landlord and Tenant Law in North Macedonia
Landlord and Tenant Law in North Macedonia is classified by us as moderately pro-landlord, given that Landlord and Tenant have complete freedom of contract and freedom to agree rents. The reason we do not class the North Macedonian situation as "strongly" pro-landlord is the practical difficulty and cost of evicting a tenant.
Modest economic performance; falling unemploymentNorth Macedonia expanded by a modest 2.7% in 2018. The economy is expected to strengthen further this year, with projected GDP growth rate of 3%, according to the International Monetary Fund (IMF).
Unemployment continues to fall, although it is very high by international standards.
In 2018, unemployment fell to a record low of 19.4%, from 22.4% in 2017, 23.8% in 2016, 26% in 2015, 28% in 2014, 29% in 2013 and 31% in 2012, according to the IMF. Most of the new jobs created last year were in manufacturing, wholesale and retail trade, and industries closely related to tourism.
Macedonia’s jobless rate is expected to fall further to 18.9% this year.
Inflation stood at 1.4% in March 2019, up from 1.1% in February and 1.2%, according to the State Statistical Office. Inflation is expected to accelerate to 1.8% this year and 2% in 2020, up from 1.5% in 2018, according to the IMF.
Political climate improving; EU and NATO accession underway
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 formed, with Zoran Zaev as the country’s new prime minister. Zaev promised to boost the economy, address political divisions and tense relations between ethnic Macedonians and ethnic Albanians in the country, and finally resolve the country’s dispute with Greece over its name – a vital step for Euro-Atlantic integration.
A dispute with Greece over Macedonia’s name had blocked the country’s accession to European Union (EU) and North Atlantic Treaty Organization (NATO). However the change of government has changed the picture, with PM Zaev indicating Macedonia's willingness to compromise to resolve the issue. Last year, PM Zaev announced 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.
Then in June 2018, the government decided to enter into a new agreement with Greece – officially changing its name from “Macedonia” to “North Macedonia” to resolve the decades-long name dispute, paving the way for the country to start accession talks with NATO and the EU.