The total value of construction works in the first three quarters of 2010 dropped by 11.9% against the same period in 2009. The main cause was the global economic crisis that strongly hit the construction industry.
When supply is smaller, prices are usually higher. However, in our case, both the number of new residential units and their prices are in decline, pointing to a drastic fall of demand. The reason is, primarily, the global crisis, complemented with domestic weaknesses, inefficient banking system, unresolved property relations and lack of planning.
Also, real salaries in Serbia are smaller, Dinar has significantly dropped in value against Euro, which has resulted in a smaller volume of trade and made users cautious because most loans have a foreign currency clause. Lately, mortgage loans are granted with the interest rate of about 6%-7%, while the state have tried to subsidize these loans and encourage demand and residential development by effectively reducing that rate by additional 2%. So far, that has not given any significant results.
However, the difficult situation in the real estate sector is not accepted by all in the same way. Positive examples show that even in such market, with the reliance on benefits provided by the state, it is possible to register a growth.
- Alpha Bank doubled the amount of granted mortgage loans in 2010. The reasons for that should be sought in favorable crediting terms and the new product launched in 2010. The Alpha Plan mortgage loan with a protective interest rate makes it possible for clients to protect themselves from the growth of EURIBOR over the period of 3.5 or 7 years – people at Alpha Bank explain for eKapija and add:
- The state's decision to continue with the programme of subsidized mortgage loans has significantly affected the demand. Alpha Bank is especially proud of the fact that the standard offer of mortgage loans has proven to be equally favorable as subventions so that a big number of clients have decided for the Alpha Plan mortgage loan.
Drop in apartment sales
However, situation in the market is not that good as it is the case with Alpha Bank. In spite of the government's encouraging of demand through approval of subsidized loans, the prices of residential space are dropping. Srdjan Vujicic from King Sturge points out that the prices that were already decreased by 10% in 2010 are still dropping so that the prices of quality projects (new buildings) in Dorcol and Vracar range between EUR 2,200 and 3,000, the prices on Dedinje and Senjak go up to EUR 3,500, while the prices in suburbs range between EUR 950 and 1,400 per square meter.
- In the period 2007-2008, there were many inadequate data about how many apartments are needed in Belgrade. Certain colleagues consultants were saying that Belgrade lacked 80,000 residential units, the National Mortgage Insurance Corporation (NMIC) announced that there was a need for 50,000 apartments, while King Sturge was much more conservative and assessed that 20,000 new housing units were required, having in mind not only the needs, but also the purchasing power. We are sure that demand is still greater than supply, but we are all witnesses that the economic crisis has introduced plenty of uncertainties, primarily when it comes to the decision-making process preceding the acquisition. It should be stressed that investors of existing projects were making calculations before the crisis and that they are now either not ready or not able to recalculate their projects and reduce expectation – Mr. Vujicic adds.
Goran Zivkovic, the Director of the CBRE Commercial Property Department, says for eKapija that there were no significant changes in 2010 after the correction of prices in 2009 and that the same stability trend is expected in 2011.
- Prices in the most attractive boroughs in Belgrade, such as Vracar, Stari Grad, Dedinje and New Belgrade, where mainly high-quality residential facilities are situated, are still the highest and range between 2,500 and 3,000 euros per square meter. As far as medium-quality apartments in aforementioned boroughs are concerned, prices range from 1,800 to 2,300 euros per square meter – says Zivkovic.
- The fall of demand can be explained by the effects of the economic crisis, which was primarily reflected in the influence on banks, unfavorable crediting terms, as well as in the people's awareness of the possibility that it can also drastically affect their lives. Also, the prices were obviously influenced by the small offer of apartments, lack of any bigger project that would encourage necessary competition, which all affected the prices in terms of further maintenance of their relatively high values – Zivkovic explains for eKapija.
Our interlocutors do not expect much from the announced property leasing. Although the law has not been adopted yet, Goran Zivkovic is of the opinion that the possibility of leasing a property will not introduce some significant changes.
- People here are aware of the fact that having a property in possession is the most important thing. We should wait and see which concept will be offered by leasing companies and how competitive it will be when compared to standard loans. People in Serbia are still quite cautious and the new concept of leasing should not significantly affect demand – says Zivkovic.
People at UniCredit Leasing told eKapija that they were still waiting for the law to be adopted, but they also pointed out that they did not expect that innovation to have some greater influence on demand.
No job for builders
Investors are also experiencing serious problems in their work. Dragan Jovicic from Carlton Invest says that the residential development sector is especially hit by the effects of the external factors of the financial crisis, the government's measures, and the business policy of banks.
- Application of the new Law on Planning and Construction in terms of flaws, understatement and incompatibility with the reality is brought in connection with the government's insisting on the programme of construction of apartments without the share of costs that must be borne by investors. In that way, the government keeps demand in the market at a very low level. Business banks have introduced rigorous measures of the risk sector and much too high interest rates. In addition, political insecurity and scandals that are shaking the public have discouraged potential buyers - says Mr. Jovicic.
Our interlocutor points out that the costs of construction of apartments are still at the same level as in the previous period. Due to reduced volume of trade, contractors avoid bankruptcy by lowering the prices of manpower, which reduces the quality of work.None of our interlocutors is optimistic when it comes to forecasts for 2011. They all agree that, except for insignificant growth of demand, the real recovery cannot be expected before 2012.
The data show that stabilization and stopping of the trend of decrease in the prices of properties should be expected in 2011, as well as a possible mild growth if certain investors start implementation of some significant projects, such as Immorent, PSP Farman or Pluto.
Also, all interlocutors agree that there are significant administrative obstacles to nomral functioning of this market - in the domain of property rights and building permits. Recovery of the market also depends on the living standard of the population, which is in decline. Increase in prices encourages optimism, of which impulse can now be expected only from bigger investors who, at this moment, have no interest in investments in Serbia.