Investment in Real Estate in Montenegro is an excellent investment opportunity - Great potential for developing modern business complexes

During the last year and a half, the real estate market in Montenegro has been characterized by a significant increase in prices, so compared to 2021, they are on average 40% higher. Squares have been the most expensive in Tivat for a long period of time, and if we talk about demand - the golden triangle of Tivat, Kotor and Budva generates the greatest interest of buyers. The Montenegrin market is characterized by predominantly residential construction, while commercial real estate is overshadowed by apartments. And this is where the great potential for development and investments in the coming period is hidden. The challenges on the market are numerous, however, from the investment aspect, investing in real estate in Montenegro in the long run represents an excellent investment opportunity.

This is what Darko Djikanovic, a real estate market analyst at the consulting company Adriatic Appraisal, said in an interview for eKapija.

Prices are rising, but so is the demand for real estate

According to him, a significant increase in prices is exactly what characterizes the real estate market in Montenegro in the past year and a half, and what we are all witnessing, either as active participants in the market or as passive observers.

- In Podgorica, the average price of a one-room apartment is currently EUR 1,750 per square meter, while, by comparison, in 2021 the average price was only EUR 1,200. On the coast, prices are significantly higher, and the most expensive square meters are in Tivat, Kotor and Budva. If you plan to buy an apartment in these cities, consider that the average price of a one-room apartment in Budva is EUR 2,750, while in Kotor the average is EUR 2,950 per square meter - said Djikanovic for our portal.

Tivat, he adds, has been leading real estate prices for a long time, mostly due to the effect that Porto Montenegro and Luštica Bay have on the city`s image as a luxury destination.

- Just this year, the average price of one-room apartments in Tivat exceeded the threshold of EUR 3,000 and currently stands at EUR 3,370 per square meter. Of course, growth fluctuated from city to city, but on average, apartment prices are now about 40% higher than in 2021 - he points out.

Despite the high prices, it seems that the demand is not abating, and at one time it was even said that there is not enough real estate on the market. Our interlocutor also agrees with that, stating that during 2022 the demand for real estate was at an extremely high level. This trend continued in 2023.

- The construction sector has recognized the imbalance of supply and demand, as evidenced by the growth of residential construction after a long period of inactivity caused by the pandemic. The number of planned apartments in buildings that received construction permits in the first half of 2023 is 33% higher compared to the same period of the previous year, while the number of completed apartments increased by 30% on an annual basis, and the number of apartments currently under construction is also large. - Djikanovic tells us.

On the other hand, the demand of loan buyers is slowing down due to less favorable credit conditions.

- It is important to note that the demand for real estate is still high and that even in the domain of loan buyers we are talking about amounts that are at a higher level than in previous years. It is certainly to be expected that credit activities will further slow down if interest rates remain elevated for a long period of time - he adds.

As he points out, in addition to loan buyers, in our market, and also in the region, a big role on the demand side is played by cash buyers, for whom the level of the interest rate is of less importance when deciding on a purchase.

- It is precisely this type of buyer who decides to invest in safe capital in times of economic and geopolitical uncertainty, i.e. real estate with a high potential for issuance and capital appreciation. Foreigners play a big role in this field, and that is why we have recorded a record influx of foreign investments in real estate in the past two years - says the eKapija interlocutor.

Tivat and Kotor are the most desirable locations

Talking about the demand and the most attractive locations, Djikanovic says that buyers, especially foreign ones, are most interested in the coast of Montenegro. This is precisely the reason why the prices on the coast are the highest.

- The most attractive locations with the highest concentration of luxury projects are Budva and Boka Kotorska, while Bar and Ulcinj lag behind in the development of this market, although several large projects have been announced in these municipalities in recent years, and it is reasonable to expect that these municipalities will also experience prosperity in the coming period. Over the years, Budva has experienced a certain saturation of the market and the interest of buyers has spilled over to other coastal municipalities, especially towards the Bay of Kotor and the municipalities of Tivat and Kotor, which now represent the most desirable locations. In addition to the southern region, the capital Podgorica is the center of the country where a third of the population lives and whose market is growing significantly - says Djikanovic.

The real estate market in the northern region is almost non-existent, with the exception of Žabljak and Kolašin, that have positioned themselves on the map of investment destinations through the economic citizenship program.

- A greater number of condo hotels are currently being built in these cities, which has significantly raised the price per square meter. Overall, the golden triangle of Tivat, Kotor and Budva generates the greatest interest of buyers - he points out.

If and when can we expect price stabilization?

When it comes to the trend of price growth, the interlocutor of eKapija states that it started in the second half of last year, and accelerated in 2023.

- Numerous factors led to the record growth, among others the high level of inflation, both at the global and local level, but also the high demand for real estate, which is largely a response to the unstable economic and geopolitical situation, which encouraged the growth of investment in real estate - Djikanovic believes, emphasizing that these trends have led to increased activity on the market and an almost record-breaking influx of foreign capital, which, in combination with higher operating costs, have led to a significant increase in prices.

- Of course, there are other factors as well, such as the significant influx of Ukrainians and Russians, the economic citizenship program that was active until the end of 2022, but also the growth of the population`s earnings, which fueled the record value of newly approved housing loans last year. As I already mentioned, the supply of apartments is growing, which will certainly affect the reduction of the gap between supply and demand, but due to the still high activity on the market and the significant inflow of foreign investments in real estate, I am of the opinion that the market will have no problem absorbing the new supply and I believe that there will be no significant changes in the near future - our interlocutor adds.

According to him, further expansion of the supply in combination with a potentially longer period of increased interest rates may lead to certain price corrections in the second half of the next year.

- Of course, the market is unpredictable and there are numerous factors that can influence future developments, so it is ungrateful to give some long-term projections.

Foreign investments are also on the rise

Since the beginning of the year, there has been a noticeable drop in foreign direct investments in Montenegro. However, this does not apply to the real estate market, which continues to grow. According to Djikanovic, in the period from January to July this year, foreign investments in real estate continued to grow, reaching a value of EUR 260 million.

- This represents an increase of 9% compared to the same period of the previous year - a year that stood out as a record in terms of investment activities in the last 15 years. This shows that Montenegro continues to be an attractive market for foreign buyers despite the decline in total investments and the significant increase in real estate prices - Djikanovic said.

Among the main investors, there are traditionally present investors from Serbia, Russia and Germany who are still very active on the market, as well as investors from Turkey and the USA who have been increasingly present in recent years.

- The trend of buyers from Great Britain, Austria, Switzerland, Bosnia and Herzegovina, Ukraine and the United Arab Emirates is also stable. If the growth trend continues, there is a possibility that the value of foreign investments in real estate will reach a historical maximum in 2023 - Đikanović points out, adding that there are numerous reasons why he believes that Montenegro will continue to be an attractive investment destination.

- And not only in the field of real estate, but also in the field of business. In the previous period, significant steps were taken in attracting renowned foreign companies that are now successfully operating in Montenegro. This opens the door to large investments in our country, and the multiplier effect of investments in businesses will be reflected in the real estate market and other segments of the economy.

Commercial real estate in the shadow of residential real estate

If we look at the region, especially Belgrade, we also notice significant investments in commercial real estate. However, this trend has not yet taken hold in Montenegro. The market of commercial real estate is in the shadow of apartments, less represented and less developed.

- Smaller cash flow, scarcer offer, but on the other hand great potential is what characterizes this market and I believe that in the coming period we will witness the accelerated development of this real estate segment - says our interlocutor.

According to Djikanovic, the focus of the commercial real estate market is in Podgorica, which represents the main hub of business activities. In the north, this market is non-existent, but on the coast it is active in a certain form, but on a smaller scale than in the capital.

- There is a noticeable lack of modernly equipped office spaces intended for larger companies. In general, the offer consists of smaller offices in older residential buildings that are not equipped according to modern standards, while new office buildings do not have enough capacity for the increasing interest of international as well as domestic tenants. The demand was generated by the arrival and opening of new companies, but also by the expansion of existing ones. Among the key sectors that encourage interest in modern business premises are financial, IT and consulting companies - Djikanovic believes.

He adds that in recent years we have witnessed a significant growth of the IT sector in the country, both domestic and foreign companies that are looking to expand their businesses in Montenegro. These are businesses that need modernly equipped offices.

- The demand is growing, and the offer of such spaces is generally scarce, especially the offer of quality spaces with larger capacities. This is precisely where the greatest opportunity is reflected, and I believe that in the future there will be modernization of existing and construction of new business premises in order to meet the needs of future tenants. What is also interesting to point out are the coworking spaces that are increasingly popular in the region and attract more and more companies and freelancers. Coworking spaces in Montenegro are present to some extent, but on a smaller scale and with smaller capacities than is the case in the big cities of the region. With the expansion of the IT sector and the program for attracting digital nomads, I believe that there is potential for this type of office space both in Podgorica and on the coast - says Djikanovic.

Montenegro also lags behind the region in terms of shopping centers and retail parks.

- Activities on this market have been at a low level for many years, but that changed recently with the arrival of the BIG CEE company, which invested over 200 million EUR in existing commercial facilities. The company also announced new investments in retail parks in several Montenegrin cities, which will lead to the expansion of this market. I believe that this segment will continue to develop, and recent activities and announcements give a positive signal in support of that - says our interlocutor.

Greater transparency required

When asked to compare real estate markets in the region, Đikanović replied that they record similar patterns characteristic of those in development, against the more saturated Western European markets, which are more sensitive to macroeconomic trends and have a different profile of market participants.

- There is a great potential for development here, and investors recognize this, which is why in the post-COVID period, demand in Montenegro, Serbia and Bosnia and Herzegovina exceeded supply, and prices rose similarly in percentage terms. Of course, each country has its own specifics, but I think that in general, similar trends govern these markets - he states.

He believes that the Montenegrin market needs greater transparency, and that the establishment of better registers and data monitoring systems is necessary.

- What I would like to point out as a data analyst is that the Montenegrin market is less transparent compared to the markets of the region, especially Serbia, which leads the way in data availability and reporting regularity. I think that as an investment destination where the real estate market plays a big role and on which many businesses are based, Montenegro must establish registers and systems for monitoring relevant data so that decision-makers, companies, investors, and citizens know at all times how to assess the real situation and make the right decisions that would ultimately contribute to our economic development - says Djikanovic.

Is it the right time to invest in real estate?

To sum it all up, the real estate market challenges are numerous. Prices are rising, loans are getting more expensive, and significant changes are still not in sight. Is it the right time to invest in real estate, despite all these challenges?

Our interlocutor points out that this is an extremely difficult period for citizens who are looking to solve their housing problem, considering the current prices and less favorable credit conditions. That is why, he states, it is necessary for the state to step up its efforts and help citizens solve housing issues through solidarity construction projects, subsidies and tax breaks.

- From an investment perspective, I believe that investing in real estate in Montenegro is an excellent opportunity, of course, provided that a detailed market analysis is done and the right investment is chosen. Our market characterizes excellent potential, and there still is room for progress in numerous segments - Djikanovic believes.

As he states, Montenegro is a tourist destination that grows year by year and where the emphasis is increasingly on elite tourism.

- This is evidenced by numerous renowned projects as well as global hotel brands that are increasingly present on our market. Additionally, we are an increasingly attractive market for international companies, and there is a real possibility of joining the EU by 2030. These are some of the main reasons why I believe that real estate is a very profitable investment in Montenegro in the long run - Darko Djikanovic concludes in an interview for eKapija.