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Investments in Serbia VS Inflation
Inflation growth, which has been recorded even in the most advanced economies, brings new challenges in terms of investments and even the preservation of the value of money. Each investment is a chance for you to become wealthier, but it also comes with a certain risk. What to invest in during the period of inflation growth? What if inflation continues to rise?
Inflation at Highest for 40 Years
U.S. has registered a new 40-year high record inflation increase, as well as a significant increase in food and fuel prices. The latest U.S. Bureau of Labor Statistics’ report states that in March the Consumer Price Index (CPI) hit a new record of 8.5 percent for 12 months. In the period from February to March, inflation increased by 1.2 percent, while the highest annual increase has been recorded in fuel (48 percent) and used car prices (35.3 percent). Earlier, the CPI for February reached 7.9 percent compared to last year, which is shown in the chart below.
Chart: U.S. CPI Growth Rates
Source: https://www.nytimes.com/2022/03/10/business/economy/cpi-inflation-february-2022.html
The situation in Europe is not better. According to the Eurostat report, euro area inflation rose from 5.9 percent in February to the estimated 7.5 percent in March year-over-year. In this way, inflation hit a new record and the highest impact on inflation increase had energy prices that increased by 44.7 percent in March, which is shown in the chart below.
Chart: The Increase in Inflation and Its Components in Euro Area.
Source: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area
Energy price growth is not related only to winter period considering that the gas or electricity prices are a part of every product, which means that the increase in these prices will inevitably affect the overall price increase. The official German data are particularly worrying. According to these, the strongest European economy has recorded the 7.3% annual inflation, which is the highest growth rate in the last forty years.
In March 2022, the customer price index in Serbia reached 9.1 p.a. and the National Bank of Serbia predicts that the inflation will slow down in the second quarter and that, by the end of the year, the inflation will be 3.5–4 percent. By then, the energy market, which had the greatest impact on inflation growth, should normalize. The new agricultural season in the middle of the year could result in the decrease of high prices of fruit, vegetables and raw materials used to produce processed food. The annual 2021 inflation in Serbia was 4 percent, while in 2020 it was 1.6 percent.
According to the last IMF forecast, released in January, in 2022, inflation will reach 5.4 percent in the U.S. and 4.4 percent in Europe. FitchRatings predicts that the average euro area inflation will reach 5% in 2022, while the American CPI will peak at 9 percent and average 7 percent for the year as a whole.
As a result of the intensive price growth, the Federal Reserve and ECB will try to stop inflation by increasing interest rates, while many economists are afraid that their aggressive growth might cause recession. By increasing interest rates, natural and legal entities’ loans will become more expensive and their pay-off more difficult, but states will have the same problem because the price of public debt pay-off will increase as well.
Real GDP growth rates realized in 2020 and 2021, as well as IMF forecast for the next two years are shown in the table below.
|
Real GDP, % |
Real GDP, %, projections by IMF, January 2022 | |||
| 2020 | 2021 | 2022 | 2023 | |
| World output | -3.1 | 5.9 | 4.4 | 3.8 |
| Advanced economies | -4.5 | 5 | 3.9 | 2.6 |
| United States | -3.4 | 5.6 | 4 | 2.6 |
| Euro area | -6.4 | 5.2 | 3.9 | 2.5 |
| Germany | -4.6 | 2.7 | 3.8 | 2.5 |
| Japan | -4.5 | 1.6 | 3.3 | 1.8 |
| United Kingdom | -9.4 | 7.2 | 4.7 | 2.3 |
| China | 2.3 | 8.1 | 4.8 | 5.2 |
| Emerging market and developing economics | -2 | 6.5 | 4.8 | 4.7 |
| Serbia | -0.9 | 7.5 | 4.5* | 4* |
| India | -7.3 | 9 | 9 | 7.1 |
| Brazil | -3.9 | 4.7 | 0.3 | 1.6 |
| Russia | -2.7 | 4.5 | 2.8 | 2.1 |
Table: 2020 and 2021 percentage real GDP growth rates, including the 2022 and 2023 forecasts.
Source:
https://www.imf.org/en/Publications/WEO/Issues/2022/01/25/world-economic-outlook-update-january-2022
https://www.stat.gov.rs/sr-Latn/oblasti/nacionalni-racuni/godisnji-nacionalni-racuni
https://www.stat.gov.rs/sr-latn/vesti/statisticalrelease/?p=8375
* 2021 forecast
In 2020, Serbian real GDP decline was significantly smaller that its decline in other countries and it recovered quickly from the Covid-19 crisis consequences. However, the current situation caused by the special operation in Ukraine has consequences for the whole world, including Serbia, whose expected GDP growth rate decrease has been announced by IMF. The World Bank warns that the situation in Ukraine leads to sharp global economic slowdown, growth of inflation, debt and poverty. Apart from that, it also predicts that the Ukrainian GDP will fall by 45.1%, while the Russian GDP will fall by 11.2% during this year.
Why Do Prices Grow and What if This Trend Continues?
The conflict between Russia and Ukraine has led to a significant increase in energy and food prices, but before that, the prices were growing due to global factors, which came as a result of Covid-19 crisis. The current situation is connected to the current lockdown in China, which strives to realize the “zero-Covid” strategy.
If it turns out that the price growth is not a temporary thing and if their permanent growth becomes our new reality, savings, just like fixed salaries, and pensions will lose their value. Now, when inflation is something that the whole world is facing, the question arises: how to save money and what to invest in?
What to Invest Money in and Ensure Safe Future?
Banks offer extremely low interest rates, stock markets demand certain level of analysis and knowledge, followed by a high risk, gold is expensive and bitcoins carry the risk of frequent price oscillations. Since these investment types are highly risky or unprofitable, economic experts suggest investing in real estate. Whether it is investing in suites, houses or apartments, this type of investment is one of the safest and most profitable because their prices keep up with inflation, just like rent. However, the World Economic Forum research shows that even 90 percent of cities in the world do not have a good-quality offer of affordable residential real estate.
According to real estate agents, the purchase and sale of real estate in Serbia has hit its record in 2021 and, besides that, the demand trend was constantly positive even in the pre-pandemic years. Serbian real estate market is the fastest recovering segment after the beginning of the pandemic.
Investments in Serbia
Why Buy Real Estate in Serbia?
One of the most important investment criteria is liquidity, i.e. the possibility to quickly turn real estate into money, which in terms of Serbia is ensured thanks to high demand. Apart from this, there is also high demand for rental property so you can provide yourself with a stable monthly income depending on the apartment location and size. The demand for smaller apartments in Belgrade, which are often rented in record time, is the highest. Besides the above mentioned, it is possible to buy an under-construction apartment at a more affordable price. This is particularly important in the situations when building material prices grow, which is currently the case with steel.
Is It Possible for a Foreign National to Buy Real Estate in Serbia?
Foreign nationals can make investments in Serbia and buy real estate under the condition of reciprocity. It means that a citizen of the Republic of Serbia is allowed to buy real estate in the country where the foreign national comes from.
More and more foreigners, who live here based on different grounds, are arriving to Serbia and they usually choose to live in Belgrade, as well as other attractive destinations such as Novi Sad.
Temporary Residence Permit Through Real Estate Purchase
Apart from a good investment, by buying real estate, many foreigners obtain an active residence permit, which is necessary to live in Serbia and to get a work permit.
The most common ways to obtain a Serbian residence permit are:
- A residence permit issued on the grounds of owning a property in Serbia, accompanied by a certificate of title
- On the grounds on company formation, accompanied by a certificate of incorporation
- A residence permit issued on the grounds of investments made in Serbia
Why Do Foreigners Opt for Serbia?
More and more often, foreigners decide to move to Serbia, mostly because of a great geographical position, as Serbia has always been the linchpin of East and West. The vicinity of other European countries and great connection represent some of the greatest advantages of Serbia and Belgrade.
Serbia offers a great number of business and additional investment opportunities, while Belgrade, as the university and business centre offers quality and highly-educated personnel. Belgrade is also a nice place to live, a city where you will meet pleasant people and try great food.
