Monday, February 09, 2009

Montenegro Property Bubble Bursts

10 February 2009

BUDVA - An eerie silence prevails over dozens of construction sites on Montenegro’s coast after the collapse of a building boom fuelled by the Adriatic country’s independence.

On the cape Zavala, massive machinery has stood idle for several weeks at the construction site of the Mirax luxury holiday village, whose Russian investors have blamed the global financial and economic crisis.

Fresh construction sites have been abandoned and completed apartments await buyers in vain in the ex-Yugoslav republic of 650,000 inhabitants who were just becoming used to the sound of cranes and bulldozers.

Real estate trade has almost come to a halt, with agents struggling to sell the estimated 4,000 flats now on the market in the coastal tourist hotspot Budva, and 10,000 in the capital Podgorica.

Compared with 2007, the prices of flats along the Adriatic Sea coast have dived by around 50 per cent and are down 20 per cent in Podgorica.

In front of the municipal court in the coastal town of Kotor, where until several months ago people queued for hours for paperwork to seal property deals, there was no one waiting to obtain documents.

“I haven’t sold a single property for nine months, while during the real estate boom, I was selling eight per day,” said agent Dusan Stankovic.

Due to a lack of interest, Stankovic has closed down his Some Place Else agency in Kotor, whose UNESCO-listed old fort town made it popular among foreign buyers.

His agency dealt mostly with clients from Britain and Ireland, who during the 2006-2007 boom bought around 250 apartments from him in Boka Bay, the northernmost part of Montenegro’s small patch of coast.

“Now they want to sell the flats, since they have been burdened with loans they took putting mortgages on their overestimated properties in England,” Stankovic told AFP.

Although Stankovic said his colleagues dealing with Russian buyers might survive on the market, the agents warned these clients, who had a reputation for buying without even asking for prices, have also withdrawn.

The so-called “Russian invasion” increased the demand for property, and was blamed for exorbitant price rises.

Apartments and land were, until recently, priced from 3,500 to 10,000 euros ($4,500 to 12,800) per square metre. But in the past few months, a square metre in a Budva flat could only fetch 1,100 euros, while clients willing to pay up front might even pay 300 euros less.

The depressed property market has mostly halted construction, and the industry, which has played a significant part in the young nation’s economic growth spurt since independence in 2006, is faced with financial problems.

Global real estate agents Colliers International said it was ”not easy to give any forecast” on the future of Montenegro’s real estate and property industry.

“The main projects are only to be done and their realisation depends on recovery of the world financial market,” Colliers said in a statement.


Anonymous said...

What makes this a story at all was the sudden economic boom Mont experiened immediately following independence in '06 and now a total 360 the opposite direction.

We've heard the get-rich stories in Ulqin, for example: Russians throwing millions in cash at Albanians for property once thought to be worthless.

Many had their suspicions that they were just simply "washing" their money into legitimate investments, but that has all cooled as well, and what was once a euphoria has now come back full circle.

One note of interest is that the boom period never really affected the domestic lives of citizens in other regions of Mont, like Malesia. Although Mont profitted handsomely from these investments (Milo even opened a bank to clean his euros), they did little, if nothing, to re-invest in the local economy. All that is continues allotted to Tuz are the meager revenues from a budget that the pilot commune receives from the bigger pie eaten in Podgorica.

In any event, once the dust settles and things start to normalize in Mont, then the real economic reality will set in, and economists can then prioritize and forecast growth based on potential output, i.e., production at "full employment," by growth in aggregate demand or observed output.

And if we speak of this "full employment," that covers another issue all together.

- Simon

Anonymous said...

The article fails to mention the obvious effect the global economic downturn has on foreign direct investment in countries like Montenegro, especially out of Russia.

It isn't just Montenegro's real estate market that's hurting right now, as coastal regions all over the world are experiencing substaintial drops in the sales of vacation homes and land shares.

For a country that relies heavily on tourism, it will come as no surprise that Montenegro is hurting during this gloabal recession.

Anonymous said...

its allll credit ! money that doesnt exist