Montenegro's house prices falling as Russians sell, but outlook very positive
Lalaine C. Delmendo | December 10, 2018
The average price of new residential dwellings in Montenegro fell by 1.91% to €1,081 per square metre (sq. m) during the year to Q2 2018, according to the Statistical Office of Montenegro - in contrast with a y-o-y rise of 4.95% during this period last year. When adjusted for inflation, new residential prices actually fell 5.18% y-o-y in Q2 2018. And during the latest quarter (Q2 2018) the average price of dwellings fell by 6.97% (-7.5% inflation-adjusted).
An increasing number of Russian homeowners are now selling their holiday homes, according to a news article from N1.
“Our agency has noticed an 80% drop in demand by Russian clients looking to buy or invest in the Montenegrin seaside. On the other hand there has been an 80% increase in properties for sale,” said Dušan Ranković of real estate agency Kamin.
Russian nationals bought about 100,000 real estate properties in Montenegro between 2005 to 2010, according to estimates. Leading Russian daily Novaya Gazeta previously claimed that more than 40% of Montenegro properties are owned by Russians! However in recent years, the number and the value of properties being bought by Russians has dropped significantly.
During the first half of 2018, the number of dwelling permits plummeted 34.7% to 1,076 units from the same period last year, after an annual increase of 47.7% in 2017, 0.4%, according to the Statistical Office of Montenegro.
Tourism is booming
Despite this, some real estate analysts believe that the housing market will bounce quickly back, due to booming tourism and a strong economy, coupled with the country's recent NATO membership. Montenegro became the 29th member of North Atlantic Treaty Organization (NATO) on 5 June 2017. It is also currently seeking EU membership.
In 2017, tourist arrivals rose by 18.1% y-o-y to 955,499 people, according to the Statistical Office of Montenegro. Then during the first three quarters of 2018, tourist arrivals increased 12.4% to 926,741 people from the same period last year.
“We expect the growth of Montenegro's tourism and resort industry to have a very positive impact on property prices,” said Milo Radmilovic of IM Property Group.
“Montenegro property offers an excellent investment opportunity,” says Glenda Lazare of overseas investment specialist company, Key Universal. “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.”
The economy grew by a healthy 4.4% last year, up from average growth of 2.9% in 2013 to 2016, according to the European Commission (EC), buoyed by large infrastructure projects such as the construction of the Bar-Coljare highway. The economy is expected to expand by 3.9% this year and by another 2.8% in 2019, according to the EC.
There are no restrictions on foreigners buying property, except for land, which can only be purchased by foreigners through a company. After a building is constructed, ownership can be transferred to individuals through a simple procedure.
In 2015, the federal government passed a law allowing foreign homebuyers to obtain a residency permit in Montenegro upon purchase of a property, regardless of its value, according to Ivana Vukicevic of property firm Montenegro Prospects.
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.
Robust economic growth, falling unemploymentThe economy’s major growth driver is tourism. From 2011 to 2017, tourism grew by an average of 7.2% annually. In 2017, tourist arrivals rose by 18.1% y-o-y to 955,499 people, according to the Statistical Office of Montenegro.
Then during the first three quarters of 2018, tourist arrivals increased 12.4% to 926,741 people from the same period last year
The economy grew by a healthy 4.4% last year, according to the European Commission, buoyed by surging tourism and large infrastructure projects such as the construction of the Bar-Coljare highway.
However, large infrastructure projects are now putting pressure on Montenegro’s fiscal balance and public debt. The government balance is expected to continue posting a shortfall equivalent to 3.2% of GDP this year from about 3.7% of GDP in 2017. Likewise, the government’s gross debt is also projected to increase to 74.2% of GDP this year, from 67.2% of GDP in 2017 and 66.4% of GDP in 2016, according to the International Monetary Fund (IMF).
As such, the government adopted a set of fiscal measures to help reduce the public debt starting 2019. Effective 1 January 2018, Montenegro’s value added tax (VAT) was raised from 19% to 21%. The government also plans to cut officials’ salaries, freeze public sector employment, and scrap benefits to many social categories.
The country’s inflation stood at 1.9% in October 2018, unchanged from the previous year but down from 2.3% in October 2017. Unemployment fell to 14.4% in Q2 2018, down from 16.1% in the previous quarter and 15.1% in the same period last year, according to the Statistical Office of Montenegro.