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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.

 

 

 

 

Sources:

Izveštaj RGZ o tržištu nekretnosti

CeneNekretnina.rs

Forbes: Trendovi na tržištu nekretnina u Beogradu

Blic: Isplativost kupovine nekretnina u Toskani naspram Beograda

Kyrgyzstan has canceled the visa run for foreigners

 

 

Kyrgyzstan authorities have announced the cancellation of the visa run for foreign citizens, a practice that allowed the extension of the stay in the country by crossing the border. The new visa-free regime will operate on a “60/120” principle, meaning a 60-day stay with a possible re-entry after 60 days from the exit. For those who can stay for 90 days, the “90/180” principle applies.

 

The cancellation of the visa run was explained by the authorities as an effort to manage migration flows more effectively and to enhance the country’s security. Incoming visitors were also advised to process the necessary permits in advance.

 

Following Kazakhstan’s visa run cancellation, Kyrgyzstan has followed suit, considering the increasing number of foreigners entering the country.

 

We wrote about what a Visa Run is and why it should be avoided in Serbia in our blog. You can find more information on that topic here.

New Trade Agreement between Serbia and China

 

Today in Beijing, four agreements were signed between Serbia and China. The most significant among them is the Free Trade Agreement, which encompasses an extensive list of goods, including 10,412 products from Serbia and 8,930 products from China.

 

In addition to the aforementioned agreement, the following documents were signed: a Memorandum on Exchange and Cooperation in the field of Economic Development Policy, a Memorandum on Joint Improvement of Industrial and Investment Cooperation, and a medium-term action plan for the “Belt and Road” initiative.

 

These agreements reflect the aspiration of both countries to strengthen their trade ties and deepen cooperation in various sectors. Undoubtedly, this contributes to fortifying friendly relations between Serbia and China. It is expected to further enhance economic relations and collaboration between the two nations in the coming years.

S&P affirms Serbia at BB+, outlook stable

October 2023 – Standard & Poor’s (S&P) said it has affirmed Serbia’s long- and short-term foreign and local currency sovereign credit rating at BB+, with a stable outlook.
Net foreign direct investment (FDI) flows overfund the current account deficit, bolstering the central’s banks foreign exchange reserve position, but euroisation of the financial sector remains elevated, the global ratings agency said in a statement last week.

 

 

Outlook

The stable outlook reflects the balance between challenges from weaker external demand in Serbia’s key trading partners in the EU, like Germany and Italy, its heavy dependence on Russian gas supplies, and, to a lesser degree, the economic uncertainties from the Russia-Ukraine war, against the country’s long-term growth prospects and prudent fiscal management.

 

The banking sector in Serbia is well capitalized, profitable, and liquid. In June, the system’s reported capital adequacy ratio was at a strong 22.3%, while the nonperforming loans ratio reached a historical low of 3.0%. However, given the present economic downturn and rising interest rates, we anticipate a short-term rise in the nonperforming loans ratio. Additionally, the issue of high euroization persists, with euro-denominated deposits and loans accounting for more than 50% of total stocks.”

Banks in Serbia Thrive Amid Crisis: Some Report up to 90% Earnings Increase

 

In the face of a 15.1% inflation rate last year, while Serbian citizens grappled with rising costs and diminishing salaries, banks and retail chains in the country prospered. Many financial institutions reported drastic profit increases, with some banks enhancing their earnings by up to 90%. This surge is attributed to various factors, including skyrocketing interest rates, which positioned Serbia as the regional leader.

 

The top five banks in Serbia, even amidst the crisis of 2022, recorded significant profits. As per the economic magazine ‘Biznis i finansije’, AIK Bank performed the best, noting a profit of around 222.8 million euros. This represents a 340% increase from 2021. However, this substantial rise mainly stems from AIK’s acquisition of the former Russian Sberbank, which resulted in significant one-time revenues for AIK, distorting its actual profit growth.

 

 

Other banks’ financial statements showed the following:

 

• OTP Bank’s net profit was about 92.6 million euros, an 88% increase from the previous year.
• Unicredit Bank’s 2022 net profit was approximately 71.4 million euros, marking a 42% rise from 2021.
• Raiffeisen Bank realized a net profit of around 82.6 million euros in 2022, 40% more than in 2021.
• Intesa Bank’s net profit for 2022 was 108.1 million euros, up by approximately 19,679,010 year-on-year, resulting in a 22% profit increase.

 

Despite these impressive figures, financial expert Vladimir Vasić highlighted that on average, 80% of a bank’s profit comes from interest rates. Dr. Zoran Grubišić from the Belgrade Banking Academy added that profits also depend on loan turnover and whether clients take on debt at all.

 

 

Serbian Interest Rates Highest in the Region

 

High interest rates are a significant contributor to the robust bank profits in Serbia. Especially when comparing housing loan rates, which are indexed in euros and thus linked to Euribor, Serbian clients are at a disadvantage. Fixed rates range from 7.55% to 9.92%, while variable rates are between 7.2% and 8%. In contrast, Montenegro, Bosnia and Herzegovina, and EU countries like Slovenia and Germany offer more favorable rates.

 

 

Banks Set to Continue Profit Uptrend

 

As of September 1st, an agreement between the National Bank of Serbia and commercial banks on freezing fees and commissions prices will end. Consequently, banks can now raise service prices, including online payments and account maintenance. Following this decision, Intesa introduced a new price list, implying that other banks could soon follow suit, potentially boosting their revenues from the payment services they offer to clients.

 

 

Sources: Nova S, Biznis i finansije

In recent times, the allocation of Serbian passports to foreign nationals has garnered significant attention. Among the countries showing interest, Russia has taken the lead, with an increasing number of citizens acquiring Serbian passports for various purposes, particularly sports and business ventures.

 

 

According to reports from N1 Info, the number of Serbian passports issued to Russian citizens has surged in recent years. This phenomenon has raised questions about the motives behind such a trend and the implications it might hold for both countries.

 

 

At the forefront of this surge are athletes and businesspeople. Russian sports figures have been observed obtaining Serbian citizenship, possibly aiming to benefit from the favorable sports environment in Serbia. This interest is not unfounded, as Serbia boasts a rich sporting tradition and offers excellent training facilities for athletes. Moreover, Serbian citizenship can potentially provide certain advantages in terms of international sports representation and participation.

 

 

Businesspeople from Russia have also been seeking Serbian citizenship, likely drawn by the country’s strategic location and promising economic prospects. Serbia’s efforts to strengthen its international business ties, coupled with its relatively simple procedures for obtaining citizenship, could be contributing factors to this growing trend.

 

While the influx of Russian citizens seeking Serbian passports can bring potential benefits, it also raises important questions. The motivations behind this trend could range from accessing sports opportunities to expanding business endeavors or even seeking geopolitical advantages. Additionally, the surge in passport allocations prompts discussions about the potential impact on Serbia’s society, culture, and economy.

 

 

In conclusion, the noticeable increase in Serbian passports being granted to Russians, particularly athletes and businesspeople, reflects the multifaceted appeal of Serbia for various purposes. As this trend continues, both countries need to maintain transparency and open dialogue to ensure that the growing cooperation benefits all parties involved while respecting each nation’s sovereignty and interests.

In a remarkable shift over just a year, the global landscape of millionaires has undergone a significant transformation, as reported by BizPortal. The ripple effects of the ongoing crisis have taken a toll on the wealth of many, impacting even the most illustrious figures such as Elon Musk and Mark Zuckerberg.

 

The article dives into the profound implications of the economic turmoil, revealing a startling decrease in the number of millionaires worldwide. This decline, sparked by the pandemic and its far-reaching economic ramifications, has reshaped the financial world.

 

 

Even prominent figures renowned for their substantial wealth have not been immune to the challenges posed by the crisis. Elon Musk, the visionary behind SpaceX and Tesla, along with Mark Zuckerberg, the co-founder of Facebook, have also witnessed fluctuations in their fortunes. This serves as a testament to the unpredictability of the current economic climate and its influence on global wealth distribution.

 

The article underscores the interconnectedness of financial systems, emphasizing that these losses are not confined to a specific region or sector. From moguls in technology to titans in industry, the financial landscape has been transformed in a year, revealing the delicate balance that defines the world of wealth.

 

 

The story also delves into the sectors that have faced particularly steep declines, providing insights into the vulnerabilities of even the most affluent portfolios. Amid these challenges, it becomes clear that navigating the economic turbulence requires adaptability and the ability to pivot strategies rapidly.

As the world continues to grapple with uncertainties, the experiences of individuals like Elon Musk and Mark Zuckerberg stand as a testament to the resilience and adaptability required to thrive in times of crisis. This evolving narrative serves as a stark reminder that financial strategies must remain agile and dynamic, capable of withstanding the unprecedented shifts that can impact the global economy and its most notable figures.

In a move set to enrich our services, we are proud to introduce our latest team member, Janja Ninović. With an impressive real estate agent license in her arsenal, Janja is a valuable addition to our team.

 

Janja Ninović studied economics and international marketing. With many years of experience in real estate as a licensed real estate agent she achieved successful cooperation with clients from Serbia and from foreign countries.

 

Thanks to living and working in Russia and other European countries, she speaks Russian and English languages.

On August 8, 2023, Russia partially suspended double tax treaties with states is considers “hostile”. These are 38 countries that imposed sanctions to varying degrees. In addition to Switzerland, the EU, the US, Australia, New Zealand, Japan and Singapore are affected. The decree came into force from the moment of publication.
It is worth recalling that Russia currently has 84 double taxation treaties. This means that the decree affects almost half of the agreements.

 

Who is affected and may be affected?

Generally speaking, the decree can negatively affect anyone who has a connection with both Switzerland and Russia.
The most transparent example relates to dividends: according to a tax treaty, tax on dividends of Swiss companies derived from Russia cannot exceed 5% under qualified circumstances in the country of origin. Without the treaty, a higher rate of 15% applies in russia

 

What to do?

It is possible to transfer debts from a company in a “hostile country” to a company in Serbia, which is “friendly” and thus bypass the suspension of the tax treaty. This is a very new possibility, which is important for a large number of foreign companies with Russian capital that have been doing business with Russia.

 

If you would like to get advice on this topic, please contact our international experts.
office@welcometoserbia.org; +381 60 1849 443

On August 4, 2023, new changes to the law on foreigners came into force, allowing you to obtain a residence permit for three years. As it seemed during all these years of our work – the law is one thing, the practice is quite another, and no one knew how the new changes would look in practice.

 

We decided to try with our dear clients, about whom you have already read https://welcometoserbia.org/en/serbian-residency-by-real-estate-purchase/

 

The clients bought a property in Zlatibor in 2021 and they have been living in Serbia for two years on a permanent basis, they have complied with all the rules according to the basis on which they received the residence permit and it is time to renew the residence permit for the second time.

 

We prepared all the documents and hoped for a good result. The inspector studied all the documents, talked to the lawyer and the clients and decided on the spot to approve the residence permit for three years, and in an hour and a half the clients had a sticker in their passport for 2026.

 

If you would like professional assistance in the process of obtaining a residence permit in Serbia contact us.

 

Nina Barudžija

Client Advisor

nb@welcometoserbia.org

+381 60 1849 443