Comment: Belgrade Real Estate Prices Under Pressure

Belgrade

Real estate agents, only four months ago, were adamant that residential property in central Belgrade could not drop in value.

By Ian Mihajlovic

Real estate agents, only four months ago, were adamant that residential property in central Belgrade could not drop in value, but recently released Q1 results for 2009 show a 15-25 per cent drop in apartment prices, and Colliers International, a real estate agency, is predicting a further 10-15 per cent drop by the end of 2009 due to changes in how tax is calculated and ongoing market uncertainty.

Against a backdrop of eight registered purchasers for every apartment coming on the market, agents, at the beginning of 2009, were upbeat on central Belgrade real estate prices, despite the global economic uncertainty that was beginning to cast its shadow on Serbia. A deluge of cash buyers and Serbia’s ratio of dwellings per 1,000 inhabitants - at least 30 per cent lower than the Southeast European (SEE) region average - contributed to the positive outlook.

Since February, concerns about prices and belt-tightening measures have pressured the government to suspend its subsidised housing loan programme, which offered lower interest rates and low-interest loans to cover the mortgage deposit requirements of low-income applicants. Meanwhile, global credit market turmoil reduced the supply of home loans indexed to foreign currency and buyers reined in new apartment purchases. The market, however, may already be turning. The government announced this month that the subsidised home loan programme will resume within seven months, and some banks, driven by a €3 billion IMF loan agreement for Serbia, and increased confidence in the strength of the Serbian Dinar, have reintroduced cross-border mortgages denominated in both Euros and Swiss Francs. Pireaus Bank, a bank that already offers competitive interest rates, even announced this week drops of up to 1.75 in the annual interest rate for new home loans.

Nevertheless, price pressures on residential real estate will remain. The confidence of banks will not return quickly, neither will buyers’ confidence in real estate prices that reached €4000-€4500m2 at the end of 2008, but which have since dropped in some areas to around  €3,000. Moreover, the methodology for calculating property tax, and increasing enforcement, is likely to change the landscape going forward. Annual property tax in 2009 will be 20-30 per cent higher than it was in 2008, as the tax rate will be applied to revised property valuations, which are closer to reality. Last year the tax authority used €900 per square metre as a valuation benchmark for apartments in central Belgrade, a far cry from actual market value.

The increase in property tax and the new buyer environment will increase efficiency on the market, which, despite much mortgage-free housing stock, may force owners to  accept lower offers leading to better utilisation of available housing stock, before a healthy consumer real estate appetite returns.

Ian Mihajlovic is an M&A  Advisor working in Belgrade.