Rise of domestic real estate market - Can Serbia attract new foreign investments through legal reforms?

After a period of stagnation, the cycle of real estate development has been initiated in Serbia and the next three to five years will be crucial for the implementation of new projects, said Roman Klott, the general manager of the Atrium company which is engaged in property and facility management in central and southeast Europe.

He underlined at the First Serbian Conference on Real Estate Development that an intensive trend of business and retail space construction had been registered in Serbia. As he noted, credits for the rise of Serbia's real estate market go to buyers for an increased demand as well as to the Government for its efforts to make it easier for investors to do business by offering solutions to problems like complex administration and legal procedures.

According to Aleksandra Damnjanovic, the state secretary in the Ministry of Construction, Transportation and Infrastructure, Serbia has implemented comprehensive reforms of regulations with the aim of attracting foreign investments. Among the key novelties are the new Law on Planning and Development, the Law on Building Land Conversion, and the Legalization Law.

- There are over 1,600,000 illegal buildings in the territory of the Republic of Serbia. The new law aims to have them legalized, which will also enable their energy rehabilitation - said Damnjanovic.

She pointed out that one of the most important results of the reforms was the system for issuing electronic building permits, which reduces the permitting process to less than 30 working days. Damnjanovic stressed that the reforms aimed to revive the construction industry of Serbia and encourage new hires. The minister illustrated previous results with the information that 1,051 building permits were issued in December 2015, 56.4% more than in the same month in 2014.

- Our plan for 2016 is to improve the software for issuing electronic building permits as well as to continue to invest in traffic infrastructure. This year will see the completion of Ljig-Preljina highway stretch on Corridor XI, which will be followed by the restructuring of the public company Putevi Srbije. We are also going to invest in water traffic, that is, the construction of ports and docks, as well as in the regulation of riverbeds - Damnjanovic underlined.

Belgrade has by far the greatest role in the development of the construction industry. As GTC Srbija CEO Pedja Petronijevic explained, the only foreign investments outside the capital are those in factories and retail parks. Petronijevic believes that it is necessary to diversify investments into other cities in Serbia as well, which he says show high demand for modern office space.

However, he stressed that Belgrade was still a fertile soil for real estate investments.

- Belgrade competes with Budapest and Bucharest in the region. When it comes to A class office space, Belgrade has about 400,000 square meters, about a tenth of the size of such office space in Budapest - Petronijevic explained.

Construction of high-quality office space in New Belgrade was continued in 2016 as well. This borough in Belgrade has attracted investors like GTC Srbija with the complex FortyOne, MPC Properties with the project Navigator Business Centar, Afi Europe with the business park Airport City, and Erste Group which is building the business center Sirius Offices.

According to Roman Klott, the office space availability rate in New Belgrade was at about 30% a year and a half ago, and it is currently at about 5%. A growth of the number of tenants is a result of the arrival of new companies in Serbia, and so a higher demand pushed the rents up in this part of the city. Despite a large number of projects, real estate market development is still decelerated by certain factors, the most significant of which is legislation.

What are the biggest challenges for investors in Serbia?

Israeli company Afi Europe stands behind the Airport City project, and it has also co-invested with Shikun&Binui Group in the Belgrade condominium Central Garden.

- Legal procedures pose one of the biggest challenges for us. Given that Serbia is a country in transition that works on preparations for the membership in the European Union, laws are changing frequently. It is necessary to complete the transition period smoothly in order not to block investments - Afi Europe Serbia CEO Adir El Al explains.

He adds that exclusively those investors who know how to adapt to changes can succeed in Serbia.

Evangelos Mantzavinotos, the development director at Lamda Development, shares the opinion that legislation is one of the biggest obstacles to doing business in Serbia.

This Greek investor has been trying for many years to start the construction of multifunctional complex on the site of former Beko factory, beneath Kalemegdan fortress. The company acquired that real estate in 2007 for about EUR 60 million, but the start of construction was hindered by a court dispute. Mantzavinotos points out that it was extremely difficult to acquire permits, but he adds that they got the green light in 2015 to start the work on the project. He also notes that Lamda Development plans to commence the implementation of this project, valued at EUR 200 million, this year.

- It took us eight years to get to this point. The main problem in Serbia is a lack of legal system. My advice is to fix the legislation by making laws non-contradictory - Mantzavinotos stresses.

Aside from an acquisition by Atterbury Europe, which acquired a stake in MPC Properties, there were no major transactions in the real estate market in Serbia last year. This too is one of the challenges for foreign investors whose operations are based on exit strategy.

- GTC is building to sell. A lack of such activity in the market of Serbia poses a problem. It is necessary to introduce a better project appraisal system - says Pedja Petronijevic.

Maja Sahbaz of Ernst&Young points out that each project must entail an exit strategy as well.

Real estate development trends

According to Chief City Planner Milutin Folic, several big projects will be implemented in 2016.

- The Belgrade Master Plan will be adopted by the end of March 2016. We will be working on the regeneration of pedestrian zones in the city center, organization of city markets, lighting of public facilities, integral notification system for pedestrians... Slavija Square and few other central city squares will be regenerated in 2016, while 2017 will see the introduction of bike sharing system - said Folic.

These works are all part of the IME project (Identity, Mobility, Ecology) of the City of Belgrade, which aims to improve the tourist competitiveness of the capital, among other things.

New investments in 2016

As it was announced by TGI Group International CEO Symeon Tsomokos, some new companies interested in investing Serbia are going to enter our country over the next few months.

He underlined that he expected the development of the domestic real estate market to continue, adding that there were no funds for projects, which was the reason why TGI Group had organized the First Serbian Conference on Real Estate Development in cooperation with the Embassy of Israel.

Mr. Tsomokos also said that his company planned to bring financial organizations from Europe in order to provide the funding for new projects in Serbia.

Katarina Marinkovic