Market situation by the end of 2022
The average price per square meter of an apartment in a new building in Montenegro in the third quarter of last year was 1,446 euros, which is 20 percent higher than in the same period in 2021, and 30 percent higher than the average in the 2020 crisis. The reasons for the increase in prices were a large jump in prices for building materials and energy throughout the European market, an increase in demand due to the arrival of a large number of buyers from Russia and Ukraine, as well as increased interest from domestic buyers due to increased wages and approved housing loans.
During the period from January to October last year, foreign citizens and companies invested 369 million euros in the purchase of real estate, which is significantly more compared to the pre-crisis 2019, when they invested 178 million euros in Montenegrin real estate. Most of these real estate investments by foreigners were made under the economic citizenship program, which is not included in the average apartment prices calculated by Monstat, but there has also been an increased interest of foreigners in buying and renting apartments outside of this program. From December 31, 2022, the government has suspended further acceptance of applications for economic citizenship due to the requirements and conditions of the European Union.
Significant growth in home loans
According to the Central Bank, banks approved housing loans in the amount of 106 million euros for the period from January to November last year. (for comparison: the amount for the same period in 2019 was 76 million euros). This means that lending for the purchase of apartments had an increase of 40%. The average effective interest rate on home loans in November was 5.59%, while in the same month of 2019 it was 4.84%.
Mile Guic, Chairman of the Construction Committee of the Chamber of Commerce and Industry, predicts that the growth in real estate prices will slow down: “In the future, I do not expect such a large influx of wealthy Russians and Ukrainians who came to Montenegro in spring and summer. Economic growth, the winter and summer tourist season and energy prices and a number of other factors – the credit policy of banks and inflation, as well as the political situation affect the movement of this market.
Prices will slow down but not recover
After a sharp increase in prices in the previous period, one could expect the market to stabilize, i.e. already in the last period of 2022, stabilization took place. If we take into account the trend towards stabilization in prices for building materials and the fact that there has already been an outflow of investments, next year we expect that they will rather remain at the current level, and we cannot expect them to return to the level of early 2022.
However, in recent months there has been a drop in energy prices (primarily oil) and some building materials – wood and iron.
Today, the selling price of processed iron in warehouses in Montenegro is below 1,000 euros per ton including VAT, and at the “peak” in March, the price was about 1,500 euros per ton including tax. Prices for other construction products have remained at about the same level in recent months, cement – 160 euros per ton with tax, and before the crisis – about 100 euros per ton. It is difficult to say whether the fall in prices for building materials will affect the fall in prices for apartments. Demand and supply in the real estate market will have a decisive influence on the price of finished apartments, and the logic of the market is such that once prices rise, it will be difficult to go back.
Prices for materials fall, but the demand for apartments and prices are raised by foreigners
In the past period of 2022, there was a slight drop in prices for building materials, and at the beginning of 2023 there may be a more significant drop due to the stabilization of the price of container transportation of goods, primarily from China, the Celebich company said.
They state that the global trend of rising prices for materials, as well as rising inflation, led to an increase in apartment prices in the previous year, and also to the fact that, due to rising inflation and a decrease in the value of money, real estate investment has again become the dominant way of investing.
“We can definitely say that the increase in the number of foreigners in Montenegro, primarily Russians and Ukrainians, has led to disruptions in the real estate market and an increase in prices for apartments when buying or renting. This is especially noticeable in Podgorica and along the coast. This is a reflection of the current situation caused by events in the world, and there is a tendency for apartment prices to rise, especially in the capitals of the region,” Celebich noted.
Wage increases also pushed up prices and increased demand, but based on our observations, they were much smaller than expected.
Price forecasts for Montenegrin real estate in 2023
If we carefully consider the situation in the real estate market that has developed at the beginning of 2023, prices have reached a level after which we do not expect further growth. A slight rise in prices is possible, but it will be caused by inflation rather than demand.
The most likely next situation is when rising interest rates, inflation, recession and general uncertainty will affect a slight decrease in purchasing power. On the other hand, it is likely that after a difficult and expensive winter, mainly due to a sharp increase in energy prices in Europe, there will be an increase in interest in moving to a country with a favorable climate, lower living and business costs, which could somewhat mitigate the impact global recession on our real estate market.
If you are thinking about buying property in Montenegro, our real estate specialists will be able to help you with the choice and accompany the purchase and sale transaction. Please call the numbers listed in the Contacts section.
