Real estate market: buying an apartment in 2023 - a mission for the average citizen?
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Have real estate square footage prices reached their peak or will they continue to skyrocket well into 2023? This is a dilemma that worries all those who are on the verge of buying their first real estate property.
All the circumstances of recent months and years - from the coronavirus epidemic, to the war in Ukraine, to high inflation - have driven square meter prices sky-high and given them away from that dream. Experts believe that those who plan to buy an apartment on credit will not find it easy to settle in the new year.
The average price of a square meter in Belgrade exceeded 2,200 euros in the third quarter, while how much buyers paid on average for apartments in the capital at the end of last year will be known in the coming days, when the Republican Surveyor's Office publishes its latest report. According to real estate agencies, prices continue to rise, especially in the central areas of the city.
The rise in interest rates and its consequences
Professor of the Faculty of Economics at Belgrade University Dejan Molnar tells Euronews Serbia that the rise in mortgage interest rates over the past few months has reduced the circle of those who can use bank loans and act as buyers of living space. "Each additional percentage point of interest rate leaves one segment of potential buyers 'out of the game.' This could cause demand to drop and prices to fall at some point. This is particularly important given that real estate prices are more dependent on economic growth, which is slowing down, the standard of living of the population, which is exposed to inflation, and the conditions under which banks approve mortgages, which are deteriorating," Molnar explains.
The professor notes that in the third quarter of 2022, there was a significant decline in the share of apartments purchased using mortgages from 33 percent to 25 percent compared to 2021, and the number of apartments sold in the third quarter decreased by 5.6 percent compared to the same period in 2021. "Considering that there has been an increase in apartment sales over the last eight quarters since June 2020, we can conclude that there has been a 'cooling' of the market to some extent, although prices are still rising." The decline in the share of credit funds in real estate purchases in the first half of the year, with an expected further decline in the second half of 2022 and throughout 2023, will definitely affect the decline in demand for real estate in Serbia," Molnar believes.
Unfavorable scenarios for credit buyers
Director of valuation at real estate company CBRE Nebojsa Nešovanović tells Euronews Serbia that "real buyers of apartments" who buy them for living are mainly credit customers, and further growth of euroboro is expected, so loans will be less profitable than now. He adds that for those who owe debt, almost no scenario is a good one.
"If prices remain stable or if they continue to rise, then it will be much less profitable than it is now to buy. If prices were to fall, for that to happen there would have to be some black scenario of a serious economic downturn accompanied by rising unemployment, real estate might become more affordable, but in such a situation things would be uncertain. There's going to be pressure on wages, so those people won't benefit anyway. 'If the economy successfully overcomes the crisis, prices will rise with high interest rates, and if the economy goes badly, it will affect people who are working and earning normally the most,' Nesovanovic points out.
He notes that for people who work some average and "normal jobs" and have to buyreal estate, it becomes dramatic because it is increasingly difficult for them to pay rent and almost impossible to buy apartments. "And then there's the question of how young teachers or police officers or drivers or janitors are going to be able to be able to buy any kind of apartment and live in this city. Who will teach our children and clean the streets and everything else.... If this is going to last, we need to think about how we solve this problem. Really bad option for Belgrade to become a city of the rich where people working "normal jobs" can't afford to live. It's bad for the rich, for the state, and for everyone.
Decrease in the number of credit buyers
The CEO of the City Expert agency Miloš Mitic tells Euronews Serbia that it is noticeable that the economy is gradually entering recession due to inflation and notes that interest rates have doubled, which has led to a decrease in the number of credit buyers. "Mortgage interest rates were around 2.5 percent and now it's around 5 percent and so for those who are just now taking out a loan the arrears are getting more expensive, but also for those who have taken it out in recent months, a fee of €300-400 is now €500-550, which is quite a significant increase for a household budget.
People who had savings were afraid for the value of their money and invested in real estate, so there are a lot of cash buyers on the market who may not have thought about investing in real estate before, but this situation has forced them to do so. They have supported that demand, although the decline in credit buyers is obvious," says Mitich.
He points out that because of this, prices are at the same level or have a standardized increase throughout the year. He also notes that December and January are months when demand is in a bit of a slump, due to both cold weather and the holidays. "Those who are in urgent need are taking every opportunity, but people who are hesitant and pondering are postponing their demand until after the holidays because the market revives from January 20," says Mitic.
The uncertainty in the real estate market
He points out that all the forecasts for the real estate market have been mostly wrong so far because everyone expected the market to drop after the pandemic, but it's still holding relatively steady. "The decline in credit buyers is obvious because of interest rates, but also because we don't really know how high they can go. Uncertainty prevents people from going into debt, and on the other hand, this situation means nothing to credit buyers because they are taking out a mortgage for the long term anyway, and the question is how things will change over the thirty year repayment period. The most important thing is that at this point the buyer should feel able to cope with these variations and have a stable job as far as possible, because no one can predict the interest rate movement in the next 20 years," says Mitic.
He adds that Russian citizens have created confusion in the real estate rental market, as they have caused unconventional demand, which has also contributed to the rise in the prices of square meters. "Prices have doubled or tripled, which doesn't mean they will stay at that level for the long term. I think rental prices will start to drop in the spring once the Russians stop coming in such large numbers. In the last month, the number of arrivals has already decreased and the demand has decreased," says Mitic.
The Euronews Serbia interlocutor also notes that now the rental situation is calming down, because the prices were set exclusively for them and our people could not afford to pay it, so Mitic believes that rents will start to decrease, but predicts that they will not return to the previous level, because it "never happens".
The unpredictability of the real estate market
Nebojsa Nešovanović reminds that the increase in transactions and prices during 2022 occurred for several reasons, but low interest rates on savings deposits also had a significant impact, because of which people invested money in real estate. "Not only have we not exhausted these opportunities, but we are seeing savings continue to grow. There's still more money than ever, it's just that it's concentrated in a relatively narrow circle of people who make good money and live well. The real estate market has become their playing field. Rents are generating good income and this is becoming a very comfortable situation for people who have capital and own real estate," says Nesovanovic.
He points out that European markets are slowly "cooling down" in terms of square meter prices, but that does not mean that this trend will work in Serbia in 2023. "For the first time in my 20-year career, I can say it's difficult or nearly impossible to predict what's going to happen
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