Visit-Montenegro.com : A Drop after a Boom

Podgorica – Montenegrin real-estate market is going through a crisis which could not have been anticipated even by the most determined pessimists – prices of apartments are dropping, there are no buyers, investors are facing difficulties as banks demand payments the credits they have provide …

Following the investment “boom” which occurred during 2006 and 2007, what is now happening, according to informal notions of certain building investors, could be dubbed only as a “drop.”

According to several sources, who agreed to talk to “Vijesti” on the condition on anonymity and who played significant role in Montenegrin building industry over the last couple of years, one of the reasons which can explain current situation can be found in the global financial crisis. Which is, however, hardly the main reason for the ongoing real-estate crisis in Montenegro.

“In Montenegro, there is a complete lack of balance between the main economic categories – demand and supply. Building is intense and the buyers are almost non-existent. Reason for the lack of buyers has to do with the almost complete halt in loans and the fact that interest rates are much less favorable than it has been the case over the past years.

There are not too many people in Montenegro whose salaries are sufficiently high for the payments of these credits. And, in majority of cases, such people have already settled in their own flats”, “Vijesti” have been told by interview partners, who agreed to talk about the crisis only informally, as they do not want to be “accused by their colleagues that they were the ones creating panic.”

According to their opinion, there are no more buyers from the coastline, who used to invest their money earned from the selling of real-estate at these locations, into living or office space in Podgorica.

Informal estimates suggest that 500,000 square meters of living and, to a minor extent, office space, is being presently built only in Podgorica or the works are about to begin.

Among the companies which are, at the moment, working in the capital or those which have announced their intention to do so, are: “Cijevna komerc”, “Normal kompani”, “Bemaks”, “Celebic”, “Zetagradnja”, “Kroling”, “Neksan”, “Ave Maria Kolcevic”, “Europakt” and many others. Some of the companies are beginners in this business.

If half a million of newly built square meters would be sold at the average price of, say, Euro 1,200 per a square meter, one comes up with the figure of Euro 600 Million in profits. However, those who are well-acquainted with the situation at the market claim that this amount of money does not exist in Montenegro.

As addition to that - when one considers the fact that many of the construction companies are not selling their flats for the amount smaller than Euro 1,500 - even Euro 2,000 - per a square meter, it is, than, clear that the situation is even more alarming for the investors. Situation at the coast is not much better, neither when it comes to the price of the square meter, nor when it comes to sale.

Sources of “Vijesti” claim that the builders were now forced to lower their prices in order to sell “whatever they could”. Despite that, buyers are no where to be seen.

None of our interview partners agreed to speculate on how long this situation might persist, nor if a further drop in prices might be expected and how low could it get.

It is believed that the demand has also dropped due to the saturation of the market and that many citizens have obtained their pieces of real-estate during the investment boom in 2006 and 2007.

Those well-acquainted also claim that the people who have money and who wish to buy their own apartments are now avoiding to take part in the trade, as they fear that objects they might be interested in might not be completed. Existing of this fear is strengthened with the financial problems emerging at the market, as well as the halt of the loans for building project in Montenegro.

“Many people have taken out loans, bought land and started building, or they are getting ready to start. However, they cannot sell apartments in advance, as it has been done before.

And, then they have to stop. In that case, there is no building and they have to figure out how to repay their credits. Those who succeed in finishing or are about to finish have to face the lack of demand”, one of the sources of “Vijesti” explained.

Banks are not allowing new credits, as some of the old ones, in certain cases, have been badly invested. Collateral, which had been presented by the investors, in majority of cases, had to do with land or some other pieces of real-estate, which cannot be sold at this point. In other cases, value of this piece of property is not even close to what it used to be a year or two ago.

According to “Vijesti’s” interview partners who are working in the building industry, pressure of the banks to return the loans leads to the situation where investors lower their prices.

For instance, in 2006, with the outbreak of the building boom, prices of the built square meter amounted to around Euro 600, while its’ market value reached Euro 1,200 or Euro 1,700.

During 2007, these prices were much higher. Average prices per square meter totaled at around Euro 800 for construction companies. Market value of these square meters totaled to Euro 1,500 and even Euro 2,500, for the most attractive locations.

At this point, according to “Vijesti’s” sources, those who succeed in selling the square meter for the amount ranging between Euro 1,200 and 1,500 could be considered “lucky.”

Builders say there are also those who are willing to sell for Euro 1,000 or less when they “see” the money. Drop in the selling prices might not be so alarming for the builders, as many of them have earned a lot during the building boom. But, what is concerning is the lack of demand.

“Certain companies will, most certainly, disappear due to the lack of business. It is not excluded that some of them might join forces”, one of “Vijesti’s” interview partners claims.

(31 October 2008)

By: Z.VUČINIĆ- Ma. MIRJAČIĆ