Will the slowdown of Serbia’s real estate market result in price drops?
After two years of robust growth, the volume of real estate transactions in Serbia has continued to decline for several consecutive quarters. Experts indicate that this trend signals an impending decrease in real estate prices, expected to materialize within 3 to 6 months. Despite the anticipation of price declines, numerous unforeseen variables make it challenging to estimate the extent of the expected downturn.
A decline in the number of signed contracts and trade volume on the real estate market
Data from the Republic Geodetic Authority reveals a stabilization and slowdown in real estate market activities during the third quarter of this year. The total expenditure on real estate purchases in this period amounted to 1.5 billion euros, marking a 10 percent decrease from the same quarter in 2022. However, compared to the third quarter of 2019 (pre-pandemic), this figure represents a significant 43 percent increase.
The total number of sales transactions in Serbia’s real estate market during the third quarter of 2023 stood at 29,248, marking a 7 percent increase compared to the same quarter in 2019, yet reflecting a 15.9 percent decline from the third quarter of 2022. In contrast, the average number of sales transactions during 2018 and 2019 hovered around 25,000 to 26,000 contracts per quarter. Post-pandemic, this number surged to an average of around 35,000 contracts per quarter, peaking at over 37,000 contracts in the fourth quarter of 2022. Although the number of contracts is evidently decreasing, it remains around 30,000 contracts, significantly exceeding pre-pandemic levels.
The sale of apartments continues to dominate the real estate market, constituting the largest share
Apartments accounted for 52 percent of the total traded value in the third quarter, marking a 4 percentage point decrease from the third quarter of 2022. Nine percent of the market’s total value relates to the sale and purchase of houses, 7 percent to construction land, 5 percent to business premises, and 4 percent to agricultural land.
In the third quarter of 2023, a total of 715.5 million euros were allocated for real estate in Belgrade, with 456 million euros specifically allocated for apartments, indicating a 21% decrease compared to the same period last year. Notably, the city recorded the highest number of sales contracts, totaling 6,316.
In Serbia, the total number of apartment sales contracts in October reached 1,144, marking a 6.3% increase from September this year but a substantial 34.4% decrease compared to October 2022. The total trade volume for apartments amounted to 148.95 million euros, reflecting a 4.3 percent decline from the previous month and a significant 37.5 percent drop from October 2022, as depicted in the chart below.
Chart 1: Fluctuation in the overall trade volume in apartments, (“resale” and “first sale” apartments).
Apartment Price Trends in Serbia’s Real Estate Market
The RGZ Apartment Price Index for the third quarter, published by the Republic Geodetic Authority, stands at 157.03, marking a 1.11 percent increase compared to the second quarter. Notably, the annual price growth rate remains high at 8.20 percent across the entire Republic of Serbia.
Belgrade, particularly at the Belgrade Waterfront location, recorded the highest apartment prices, reaching a peak of 9,475 euros per square meter. Moreover, the most expensive individual apartment sale was noted in Savski Venec, boasting a spacious area of 346 square meters and a price tag of 2,219,888 euros.
In the “resale” apartment segment, the year-on-year price surged by 9.26 percent, while the “first sale” apartments experienced a 6.26 percent increase. The price index during this period reached its pinnacle in the Vojvodina region and in the city of Belgrade.
October witnessed a slight decline in the square meter price of apartments in certain Serbian cities and municipalities. The average price for an apartment in a new building dipped to 159,787 euros, marking a decrease of 10.8% from September this year and 4.4% from October last year. Similarly, old building apartments averaged 166,430 euros, dropping by 4.8% compared to September this year and 5% compared to October last year. Both “resale” and “first sale” average prices have decreased concerning both September of this year and October of the previous year.
The chart below illustrates the movement of the average price per square meter, along with the dynamics of “resale” and “first sale” apartment prices. In most instances, the price per square meter declined, except for “resale” apartments, which exhibited a 7 percent growth compared to October 2022.
Chart 2: Movement of the average price per square meter (average, “resale” and “first sale” apartments) in October 2023.
Ivana Štrbac from the Republic Geodetic Authority of Serbia concludes: “…escalating at the previous pace from one quarter to the next. Presently, we observe a sense of stability and in some regions, a stagnation in prices. If these trends persist without significant market or global disruptions, we might anticipate mild corrections in the coming year. However, I don’t foresee any major shocks.”
What factors determine the price per square meter?
As always, fundamental economic principles of supply and demand play a key role. Currently, we’re witnessing fewer individuals opting to invest in real estate due to persisting unrealistic prices. While demand exists, buyers are reluctant to pay these elevated prices, awaiting opportunities for price reductions before making purchases. Inevitably, certain locations will experience a decline in real estate prices by that time. However, due to their popularity, other areas are likely to maintain high prices. Analysts anticipate no sharp declines in prices in the near term, considering that a shock like the pandemic only resulted in a 2-5% price drop, with market recovery occurring over a 9-12 month period.
The extent of the price drop hinges on global trends and worldwide economic policies. The general economic landscape in a country or region can significantly influence people’s purchasing power and their inclination to invest in real estate. Factors such as a recession or soaring interest rates could instigate a price decrease. In the third quarter, 6.6 percent of the total real estate trade volume was financed through loans, marking a decline of 3 percentage points compared to the previous year, likely triggered by the surge in interest rates. Notably, apartments were predominantly purchased using loans, accounting for 18%.
Interestingly, unforeseen events often halt real estate transactions worldwide; however, in Serbia, they tend to stimulate apartment purchases. A prime example was during the Ukrainian war in the second quarter of 2022, which led to a trade volume of 712 billion euros. While the rest of the world experienced a downturn in real estate market volume, Russian and Ukrainian citizens in Serbia prompted an increase in rental prices, consequently boosting trade volume. This might lead to a record drop in trade volume in the fourth quarter of this year, compared to the exceptionally high volume in the same quarter of the previous year.