Montenegro's house prices plunging
Lalaine C. Delmendo | October 01, 2020
The average price of new residential dwellings in Montenegro plummeted by a huge 21.93% to €876 per square metre (sq. m) during the year to Q3 2020, according to the Statistical Office of Montenegro, much worse than the previous year's 2.43% y-o-y fall and the biggest decline on record. When adjusted for inflation, new residential prices actually fell 22% y-o-y in Q3 2020.
During the latest quarter, the average price of dwellings dropped 12.4% q-o-q (-12.73% inflation-adjusted).
Demand is plummeting, especially from foreign homebuyers. In the first three quarters of 2020, foreign direct investment in real estate plunged 44.1% y-o-y to just €72.4 million, according to the October 2020 central bank report.
Surprisingly, construction activity continues to rise. During the first three quarters of 2020, the number of dwelling permits rose by 9.8% to 1,131 units from the same period last year, according to the Statistical Office of Montenegro.
The housing market is expected to remain depressed in the medium-term, amidst struggling economy caused by depressed tourism and persistently low oil prices. Montenegro's housing market, as well as the wider economy, is strongly influenced by the tourism sector, which accounts for about 20% of GDP. During the first three quarters of 2020, arrivals in collective accommodation plunged almost 80% to just 240,395 people, from 1,079,186 people last year, due to the pandemic and the subsequent lockdowns and travel restrictions imposed worldwide.
As a result, the European Commission downgraded its 2020 economic forecast for Montenegro to a contraction of 14.3%, much worse than its earlier estimate of a 5.9% decline, after a much bigger and extended second wave of infections adversely impacted tourism and retail services, as well as trade and investment. The economy grew by an annual average of 3.6% from 2013 to 2019.
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.
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 IvanaVukicevic 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.
Montenegro’s tourism-reliant economy is strugglingThe economy’s major growth driver is tourism. From 2011 to 2019, tourism grew by an average of 9% annually. In 2019, tourist arrivals rose strongly by 20% y-o-y to 2,645,217 people, according to the Statistical Office of Montenegro. In collective accommodation (camping sites, tourist resorts, vacation facilities, boarding houses, motels, etc.), tourist arrivals increased 20.1% y-o-y to 1,293,189 people in 2019.
Thanks to booming tourism, the economy grew continuously by an annual average of 3.6% from 2013 to 2019, helped also by infrastructure projects such as construction of the Bar-Coljare highway.
However during the first three quarters of 2020 there was an 80% plunge in arrivals in collective accommodation to just 240,395 people, from 1,079,186 people last year, due to the pandemic. Tourism revenues are expected to have fallen to €650 million in 2020, from €1.3 billion last year.
The European Commission has downgraded its 2020 economic forecast for Montenegro to a contraction of 14.3%, much worse than its earlier estimate of a 5.9% decline. The country’s fiscal deficit is projected to reach 10% of GDP this year, from just 3.6% last year. Likewise, the government’s gross debt is also expected to increase to about 90% of GDP this year, from 76.5% of GDP in 2019.
The country’s inflation stood at -0.6% in October 2020, down from 0.5% a year earlier, according to the Statistical Office of Montenegro. Consumer prices are expected to fall by 0.1% this year, following an annual rise of 0.4% in 2019, based on IMF estimates.
In October 2020, nationwide unemployment surged to 19.3%, sharply up from its pre-pandemic level of just over 15%.