Inflation per square meter - Real Estate in Montenegro - Weekly Time

Most citizens of Montenegro, as well as those involved in real estate, consider the current state of the market to be "unreal and chaotic." This is more applicable to the rental of residential properties than to the prices of new builds, which continue to rise. However, it seems that they will not reach the levels recorded in the Montenegrin market in 2008, when the price per square meter of new construction averaged 1530 euros, and in prime locations, especially on the coast, apartments were sold for 3000 euros per square meter.

At the end of last year, the average price per square meter of new construction in Montenegro was 1,400 euros, while in the capital of the country it was around 1,480 euros. This represents a 12 percent increase compared to the previous year. According to experts, the price rise was due to a temporary increase in construction costs caused by the COVID-19 pandemic, inflation, Russia's aggression against Ukraine, and Montenegro's specific economic citizenship and "Europe Now" program. Key construction materials significantly increased in price during the pandemic and directly affected apartment prices. Although the situation stabilized at the beginning of last year and the main construction costs returned to previous levels, this did not lead to a corresponding decrease in housing prices.

According to the January data from the Statistical Office (MONSTAT)

Inflation in Montenegro last year was 17.2 percent, and the biggest generator of inflation on a monthly basis was, according to statisticians, the rise in rental prices for residential properties. Experience shows that periods of high inflation lead to an increase in investments in real estate as a reliable means of capital preservation. In the case of limited supply, this also causes further price increases in the real estate market. However, when it comes to the average prices for residential properties reported by the Statistical Office, it should be noted that they differ significantly from the prices at which apartments are actually offered on the market. Additionally, prices for apartments in tourist projects such as "Luštica," Portonovi, and Porto Montenegro are not included in the average prices reported by MONSTAT. Despite the fact that, from a statistical perspective, the highest price increase for new constructions occurred in the capital of Montenegro, an overview of offers on the free market and in real estate agencies shows that the largest increase is still happening in Budva, while the price increase in Podgorica is 14 percent compared to 2019.

For example, for 100,000 euros in Ulcinj, you can buy an apartment with an area of 83 square meters, in Podgorica - 76 square meters, while in Tivat, Kotor, or Budva, you can only get between 40 to 45 square meters. In other words, prices in Tivat are around 2,500 euros, while in Ulcinj, you can buy a square meter of an apartment for 1,200 euros. However, it should be noted that these prices are largely inflated due to a slowdown in sales. This also indicates a lack of market logic regarding real estate in this country.

The rise in real estate prices last year was also caused by

The government of Montenegro has extended the economic citizenship program for another year. This program was launched in 2019 by the ruling Democratic Party of Socialists led by Milo Djukanovic and allowed for obtaining Montenegrin citizenship based on investments in a project of 250,000 euros in the north and 450,000 euros on the Montenegrin coast. The government, under the technical mandate of Dritan Abazovic, recently stated that this program has brought 300 million euros in investments to Montenegro and an additional 70 million euros that have entered the state treasury in the form of paid fees. Since the launch of the economic citizenship program and until its conclusion at the end of last year, 807 citizenships were issued, and at the end of the program, another 787 applications were still under review. A special government group still needs to determine the legal basis for working with these projects. The majority of those who obtained Montenegrin passports through this program are Russians, followed by Chinese, as well as citizens of the USA and Lebanon. People who gained the right to Montenegrin citizenship under this program represent 31 countries.

Almost two-thirds of citizenships were issued after the change of the DPS party, that is, during the tenure of Prime Ministers Zdravko Krivokapić and Dritan Abazović. Economic citizenship particularly changed the situation in northern Montenegro, where the real estate market was virtually non-existent. Thanks to the program's conditions, significant investments were made in Žabljak and Kolašin, which increased the price per square meter, and in the planned condo-hotels in Kolašin, prices are significantly higher than in the rest of the market. Of course, in addition to economic citizenship, a significant incentive for foreign investors after 2009 was the government's decision that foreign citizens could own land plots of up to 5,000 square meters.

According to the Central Bank, citizens and companies purchased real estate in Montenegro last year, from January to October, for a total of 370 million euros. However, it is interesting to note that Russians are no longer the most active buyers of real estate in Montenegro. Last year, German citizens and companies took the lead with investments amounting to 57 million euros. Russians spent 50 million on this, while citizens and companies from Serbia invested 42 million euros.

Despite the fact that the prices of new buildings in Montenegro have almost reached their peak.

Established in 2008, the increase in investments did not lead to a significant rise in sales, which at a certain point would have stabilized the market and resulted in price stagnation. Sales slowed down due to a sharp rise in rental payments. As a result, owners prefer to rent out their properties without hesitation instead of selling them. Considering that, for example, the monthly rent for a quality three-room apartment in Podgorica has reached the price per square meter of a new building, a simple calculation shows that an investment in an 80-square-meter apartment can pay off in seven years of rent at current prices. Such a return on investment is desirable even in more profitable sectors of the economy. The primary factor behind this rental growth has been the influx of refugees from Ukraine and Russia. Real estateagency experts claim that just in the first few months of the war in Ukraine and the arrival of wealthy refugees, rental prices for apartments have increased by 50-100 percent in certain areas and for luxury apartments.

Apartment owners usually require a six-month rent prepayment. On the other hand, the introduction of sanctions against Russia has led to a change in the behavior of Russian citizens. They no longer buyreal estate because they cannot pay for it through a bank account, and if they manage to bring cash, sellers generally do not accept this method of transaction because they cannot deposit the money into their account without proof of its origin. This has resulted in a further increase in rental payments for housing.

According to the Ministry of Internal Affairs, by the end of last December, there were 80,000 foreign citizens in Montenegro, of which just over 30,000 reside permanently. According to this source, 27,000 permits for temporary residence and work were issued last year. The number of Russian citizens exceeded 14,000, and according to official data, 7,419 citizens of Ukraine applied for permits, with 6,663 of them receiving temporary protection. The government granted them residence permits for up to one year, with the right to medical care, education, and work. It should also be noted that foreigners established more than 7,000 commercial organizations in Montenegro in 2022. According to the Customs Service, Russian citizens founded nearly 4,000 such organizations, which is seven times more than in 2021. Most of them operate in the information technology and creative industries and express intentions to stay for a long time. Currently, for example, in Podgorica, studios are rented out for prices ranging from 230 to 300 euros, one-bedroom apartments from 350 to 600 euros, and two-bedroom apartments from 500 to 1,000 euros. A similar situation exists along the Montenegrin coast.

The "Europe Now" program of the government of Zdravko Krivokapić

significantly increased the purchasing power of the population and encouraged them to address housing issues, also thanks to better lending conditions. However, the impact