Buying a Property in Montenegro

Why Montenegro?

Having suffered great hardship during the Balkan Conflict of the 1990s, Montenegro is now undergoing a period of change and economic growth. It is a candidate for EU accession, and already receives generous EU funding, which is enabling it to overhaul its ailing infrastructure.

These factors, combined with deep blue seas, beautiful beaches, pristine lakes and rivers, rugged mountains, lush green forests, picturesque villages and well-preserved medieval towns, have led to resurgence in tourism, which in turn has created the conditions for an emerging property market.

We hope this guide will help you decide whether to consider Montenegro for your property purchase. Many research tools are available, including television and radio programmes, magazines, the internet, property exhibitions and estate agents.

The property market

Montenegro is widely believed to be in the first stages of a property boom. Prices are around 40 per cent cheaper than in neighbouring Croatia, the average being EUR150,000 (around £110,000) for a two-bedroom apartment and EUR250,000 (approximately £180,000) for a three-bedroom house.

In the short term, money can be made from letting, to tourists or to the domestic market, depending on location. Prospects for long-term growth seem promising, as the local population grows richer, mortgages become more widely available and the international property market becomes established. Rental yields can reach 8-10 per cent.

Opportunities for capital appreciation are currently greatest in the south of the country and in mountain resorts, including the ski areas of the north and east, where the winter sports industry looks poised to expand.

Popular locations – an overview

The Kotor Bay region, at the northern end of Montenegro’s dramatic coast, has traditionally attracted the majority of foreign property investors, including Germans, Italians, Russians and the British.

The area’s popularity is reflected in prices, which tend to be considerably higher than the country’s average; a three-bedroom house costs around EUR400,000 (about £311,000).

The centre part of the coastline, the Budva Riviera, is Montenegro’s tourism capital. A three-bedroom house in the city of Budva costs an average of EUR400,000 (approximately £311,000), and properties close to the region’s long, sandy beaches are expected to see significant price increases.

Kotor Bay

Kotor Bay, a UNESCO World Heritage Site, is actually Europe’s most southerly fjord. The area combines attractive, varied coastline and mountainous inland terrain with culture and history.

The ancient walled port of Kotor, which has one of Europe’s best-preserved medieval Old Towns, is another World Heritage Site. Its summer carnival draws crowds, and it is known for its nightlife.

Like Kotor, the towns of Bar, Herceg Novi, Perast, Prcanj and Tivat (which boasts one of Montenegro’s two international airports) offer a range of properties, including apartments and detached houses, many within a short walk of the sea. Rents have more than doubled over the last two years, with almost 100 per cent occupancy during high season in good-quality developments.

The Adriatic Coast

This area’s picturesque resorts, striking coastline, sandy beaches and mild climate have long made it a favourite with holidaymakers. In summer, open-air festivals at Budva, Petrovac and Becici offer the chance to experience traditional Montenegrin culture. Historic monuments abound, including ancient monasteries clinging to the mountainsides.

Budva is approximately 40 minutes from Tivat International Airport and two hours 30 minutes from Dubrovnik. Much of the city has been restored, including its walled medieval Old Town, where there are numerous characterful shops, restaurants and galleries.

Becici, two kilometres from Budva, offers a wide variety of watersports. Walking is another popular pastime. Montenegro’s best paragliding location, which operates from late March to late September, lies above Budva.

Buying a property

There is no restriction on UK nationals buying private property in Montenegro.

However, because of the country’s unstable past and its status as an emerging market, purchasers face numerous pitfalls. For instance, although there is a Land Registry, effective methods of tracking property ownership have hitherto been lacking, which can make it hard to establish clean title, if not properly registered.

Surveys are hardly ever carried out, but it is wise to insist on one, particularly in the case of an older property.

The purchase process

Once a price has been agreed and the preliminary searches have been conducted, a deposit (typically 10 per cent) is paid and a pre-contract signed.

When all searches are complete, buyer and seller sign the final contract of sale before a notary public, and the balance of the purchase price is paid. The change in ownership is then registered.

Fees and costs

A purchase tax of 3 per cent on all properties is payable, calculated on the Montenegrin Inland Revenue’s valuation rather than on the purchase price. Other expenses the buyer must meet include the lawyer’s and notary public’s fees (typically 1 per cent) and the estate agent’s charges (usually 4 per cent).

Financing your purchase

When deciding how to finance your purchase, consider all the options. Paying cash, if you can afford to, is the simplest way.

The other options are remortgaging your UK home or arranging a mortgage on your new property through a Montenegrin lender. Remortgaging generally offers the easiest solution. Releasing equity in a UK home means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible if you own your first home outright.

Mortgage lending is in its infancy in Montenegro, but is beginning to become more widespread. Loans are usually from 50 to 70 per cent of value.

Euro mortgages

Euro mortgages, which are tied to the rate set by the European Central Bank (ECB), currently lower than the Bank of England base rate, may seem an attractive option, though no UK lenders are currently offering mortgages on property in Montenegro.

Taxation

The UK has a double taxation treaty with Montenegro; tax is paid in one country or the other, not both. Unlike the UK’s, Montenegro’s tax year corresponds with the calendar year.

Income tax rates are 15 per cent.

There is no Capital Gains or Inheritance Tax in Montenegro.

Personal taxation: non-residents

Foreign nationals living temporarily in Montenegro are considered non-residents and taxed only on Montenegrin-sourced income, including rental income (at 15 per cent), interest payments and dividends.

Personal taxation: residents

Foreign nationals who have a permanent home in Montenegro, or who spend more than 183 days there per calendar year, are classed as residents and taxed on their worldwide income. The 183 days need not be consecutive.

Residents are liable for tax at 15 per cent on rental income earned in Montenegro.

Property taxes

An annual property tax of between 0.08 and 0.8 per cent is payable, calculated on the market value of the property as at 1 January of the year in question.

Money matters

Montenegro’s currency is the euro (EUR). The current exchange rate is EUR1.30 = £1.00 sterling.

Standard banking hours are 9:00 am to 4:00 pm, Monday to Friday, and 8:00 am to 3:00 pm on Saturdays for some banking transactions. ATMs are widely available.

Foreign currency can be exchanged at banks, bureaux de change, post offices and large hotels.

In theory, travellers’ cheques are accepted, but they can be difficult to exchange, so it is advisable to carry cash and debit/credit cards. The latter are accepted in many hotels, restaurants, petrol stations and larger shops, but their use is not yet as widespread as in many other countries, and some businesses still insist on cash payment.

Currency (including travellers’ cheques) in excess of EUR2,000 (£1,346) must be declared by anyone entering Montenegro.

Passports, visas and residency

Following a referendum in May 2006, the State Union of Montenegro and Serbia (the looser alliance that replaced the Federal Republic of Yugoslavia) has been dissolved, and Montenegro is now independent country.

Passports and visas

UK citizens with passports endorsed ‘British Citizen’ can visit Montenegro for up to 90 days without a visa. Passports must be valid for the duration of the visit, and in a presentable state.

Residency

Those wanting to stay in Montenegro for more than 90 days must apply to the Ministry of the Interior for a temporary residence permit.

Montenegro’s economy

During the 1990s, the economy was badly affected by war and economic sanctions. It is now undergoing a period of change and expansion, but progress is slow.

Unemployment remains a key issue. On the plus side, inflation is low, the public spending deficit is decreasing, the banks have been privatised, credit is booming and access to EU markets is on preferential terms.

The government’s chief goal is sustained increases in economic growth, employment and incomes, both for their own sake and as a foundation for EU membership.

Tourism is now Montenegro’s main industry. Tourist arrivals have almost doubled from 2004-2006, with 950,000 visitors in 2006. Aluminium production (now privatised), lumber milling and salt processing are also important.

Communications

Telephone

Montenegro’s telecommunications service is modern, with access to European satellites. Telecom Montenegro has a monopoly in operating fixed telephone lines.

The country has around 600,000 mobile phone users, a number that is increasing rapidly. Mobile services are operated by two GSM providers, ProMonte (owned by Telenor) and T-Mobile. Both offer national coverage and operate advanced services. A third provider is expected to enter the market shortly, as is 3G telephony.

Internet

Services are provided mainly by Internet Crna Gora, owned by T-Com (who bought Telecom Montenegro), which offers ADSL and dial-up connections.

Post

Postal services are reasonably good. They take a week on average. This applies to both inland and overseas post, including airmail.

And finally …

Buying property abroad is a major decision, and one that must be researched thoroughly. Do as much fact finding as possible, including visiting your chosen location at different times of year. Set a budget, and stick to it.

Investing in property is not without risk, particularly in an emerging market. The aftermath of the Balkan Conflict, the black market, which continues to thrive, and the separation from Serbia mean that many aspects of life in Montenegro are uncertain.

It is essential to obtain professional advice and guidance specific to your circumstances, especially in areas like property purchase, potential rental returns, taxation and mortgages. Never sign any document until you are satisfied that you fully understand what you are committing yourself to.

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