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Montenegro’s house prices falling as Russians sell, but outlook very positive

Lalaine C. Delmendo | December 10, 2018

Montenegro house prices Montenegro’s house prices are now falling, mainly because Russian buyers have stayed away. After a surge last year, there´s also been a fall in residential construction.

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 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.

Local house price variations

Montenegro avg price dwellings

Residential property prices in Montenegro vary considerably, depending on location.

  • In Podgorica, Montenegro’s capital, the average dwelling price fell by 8.5% to €1,021 per sq. m. during the year to Q2 2018, according to Statistical Office of Montenegro.
  • In the coastal town of Budva, dwelling prices surged 27.7% y-o-y to an average of €1,212 per sq. m. in 2017.
  • The seaport and coastal town of Bar has one of the most expensive housing in the country. The average dwelling price fell by 26.3% y-o-y to €1,105 per sq. m. in 2017.
  • Niksic has the least expensive housing in Montenegro, with an average dwelling price of just €550 per sq. m. in 2017.

Residential construction falling rapidly

Montenegro dwellings permits

During the first half of 2018, the number of dwelling permits dropped 34.7% to 1,076 units from the same period last year, after annual increases of 47.7% in 2017, 0.4% in 2016 and 1.6% in 2015, and y-o-y declines of 10.6% in 2014 and 7.9% in 2013, according to the Statistical Office of Montenegro.

In H1 2018:

  • Residential buildings with one dwelling: permits plummeted by 68.8% y-o-y to just 35
  • Residential buildings with two dwellings: permits dropped 81% y-o-y to 16
  • Residential buildings with three or more dwellings: permits dropped 29.7% y-o-y to 991

What’s growing? The coast!

Despite weakening overall housing market, the coastal areas of Budva and Becici remain resilient. Coastal areas have seen significant developments in recent years with numerous apartment buildings and several large-scale projects, according to CBRE Montenegro.

In Q2 2018, the average price of dwellings in the coastal region stood at €1,433 per sq. m., according to the Statistical Office of Montenegro.

They are very attractive to tourists because of their beautiful sandy beaches and nightlife, so there are a lot of new projects:

  • Porto Montenegro is a large-scale development in the coastal town of Pivat, in the Bay of Kotor. Penthouses are priced from €250,000 to €5.5 million.
  • Dukley Gardens, a high-end project in Zavala peninsula, recently officially opened. Developed by Stratex Group, there are 36 villas and 202 houses.
  • DOMXXI is another high-end residential development in Budva, near Budva Old Town.
  • In the Boka Bay, high-end residential units are under construction - a luxury tourist destination, with extensive high-end amenities.
  • Lustica Bay, developed by Orascom Development Holdings, is a large-scale complex in the northwestern Traste Bay in Tivat. The entire development, when fully completed, will have more than 1,000 apartments, over 500 residential villas, 2 marinas, hotels, restaurants and shops, spa and wellness, and more. Apartments, townhouses and villas are priced from €2,700 to €6,500 per sq. m.
  • Portonovi, a new luxury resort in Kumbor being developed by Azmont, has high-end residences, a lavish One&One hotel, Henri Chenot’s wellness center and 2 marinas.
  • Porto Skadar Lake will have 30 private villas, a restaurant, hotel, marina, tennis courts, and eco-spa, among others.

Several residential projects are also being built in Podgorica. The City Quarter, located in the immediate vicinity of Delta City shopping center, is the largest mixed-use complex in the capital, according to CBRE Montenegro. Other residential projects include the New City Quarter (with 12 new residential buildings); Ljubovic (developed by Gradnja Promet consisting of around 170 apartments); two new residential developments at the Old Airport; a mixed-use development in Block X (developed by Normal Company consisting of 142 residential units); and a 420-unit residential building in Block VII, also developed by Normal Company.

Montenegro’s charm attracts foreign buyers

Montenegro tourists

To some extent, Montenegro’s coastal property market fluctuates with the fortunes of Russia’s economy - i.e., with the price of oil!

It’s a scene of glitz and glam, not subtle, but in your face.

Budva is a charming coastal resort and Venetian port-city, with sandy beaches and a diverse nightlife, and is the centre of tourism, accepting well over half a million visitors annually. The larger Budva area had the most expensive housing in Montenegro, at an average price of €1,212 per sq. m. in 2017, according to the Statistical Office of Montenegro.

The marvelously beautiful adjoining village of Stefi Stefan was a famous resort between the 1960s and 1980s, visited by celebrities like Orson Welles, Elizabeth Taylor, Sophia Loren, Princess Margaret, Carlo Ponti, Ingemar Stenmark and Kirk Douglas. Now after the war it is back, with an Aman resort.

The major foreign property buyers in Montenegro include Russians and British buyers.

"The rugged beauty of Montenegro continues to attract high-profile visitors, including Michael Douglas, Catherine Zeta Jones, Madonna and The Rolling Stones," says Glenda Lazare of overseas investment specialist company, Key Universal. "It is being tipped as the next Monte Carlo."

Interest rates continue to fall

Montenegro interest rates

In September 2018, the average mortgage rate stood at 5.24%, down from 5.49% during the same period last year and the lowest mortgage rate ever recorded by the central bank.

  • Up to 1 year: 4.75%, down from 5.95% a year earlier
  • Over 1 year: 5.24%, down from 5.49% a year earlier

Montenegro new housing loans

Despite this, the mortgage market remains in the doldrums. During the first nine months of 2018, the total amount of new housing loans drawn dropped 2.9% to €46.3 million from the same period last year.

Non-residents can get mortgages with a loan-to-value (LTV) ratio of 50% of the value of the real property, with maximum terms of up to 25 years, according to Dream Estates Montenegro.

HOUSING LOANS FOR FOREIGNERS

Erste Bank Montenegro Lovćen Bank First Bank Crnogorska Komercijalna Banka
Loan amount €10,000 - €400,000 €10,000 - €200,000 €5,000 - €100,000 €50,000 - €300,000
Payment period Up to 20 years Up to 10 years Up to 25 years Up to 25 years
Nominal interest rate From 3.99% +6M EURIBOR From 4.95% 7.99% to 11.49% 5.5% to 7%
Loan processing fees Up to 1% Up to 1.25% 1.5% to 2% Up to 1%
Payment method Monthly Monthly Monthly Montly
Source: Dream Estates Montenegro

Robust economic growth, falling unemployment

Montenegro gdp inflation

The 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 .

 

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