Montenegro: Montenegro

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Montenegro is one of those markets which is still exceptionally good value for money; more by accident than design. Property values are closer to those in Bulgaria than in neighbouring Croatia, but this isn’t because of any lack of attractions or natural beauty.

Montenegro may be one of the smallest countries in Europe, but it has mountains, lakes, pine forests, fjords, walled cities, world heritage sights; and, most of all, mile after mile of beach.

In the 1960s and 70s Montenegro’s upmarket Sveti Stefan Resort exerted a magnetic attraction on the rich and famous. Elizabeth Taylor and Richard Burton are said to have disturbed other guests with their arguing, whilst Sofia Loren gave the chef lessons in how to cook pasta.

This happy state of affairs persisted until the war in the former Yugoslavia. Montenegro itself never saw fighting, but visitor numbers plummeted. Only in the last two years has tourism in Montenegro returned to anything like the pre-war number of arrivals.

The nature of the market is also changing. Long a favourite of Italians, Germans and Russians, the Brits and Americans are now arriving in droves. English is widely spoken, and the beach resorts are being redesigned to attract wealthy high-end tourism comparable to that in Croatia or Italy.

The World Travel and Tourism Council now tips Montenegro as the number one country for tourism growth over the last ten years. Visitor numbers are expected to rise by an average of 9.9% every year between 2006 and 2015. Montenegro is now becoming a regular fixture on holiday programmes and in travel supplements. Many industry professionals privately consider this one of the best opportunities around.

Is this a good place to buy?

Montenegro’s direct competitors are probably Turkey, Bulgaria, Croatia, Italy and the Mediterranean Islands. Cheaper than other Adriatic states, but with more old world charm, better year around weather, and a more sensitive attitude to development than the Black Sea states, Montenegro has all the best ingredients of the European sun and sea destinations.

In 2005 the World Travel and Tourism Council identified Montenegro as the ‘fastest growing travel and tourism economy in the world’. The amount of construction underway is dramatic. Building projects include infrastructure improvements and the reconstruction of Montenegro’s tired Soviet era hotels. The rather decrepit, but beautifully set, island resort of Sveti Stefan has been bought out by luxury hotel group Aman Resorts and will be restored by 2006. Careful planning has, so far, helped Montenegro to avoid building the type of concrete jungle risked by the Black Sea states.

Montenegro has other advantages: the overspill of buyers from Croatia means that the property market is rising steadily. At present prices are rising most quickly in the north of the principality, but with only 290 kilometres of coastline the balance of supply and demand should favour early buyers and keep prices high.

Montenegro, now linked in a loose federation with Serbia, is also steadily getting richer. EU funding is being used for new roads and infrastructure. In 2004 Serbia and Montenegro was picked by the ‘Doing Business’ report as the single top reformer for cutting red tape and creating an attractive business environment. The report looked at topics such as the ease of registering property and the ease of finding credit.

This link with Serbia may make news in 2006. As part of the federation agreement after the break-up of the former Yugoslavia, a referendum will be held in 2006. The association is fairly weak as it is, Montenegrins run their own economy, use the Euro and are independent in matters of policy.

The signs are that after the referendum Montenegrins may go it alone. Independent from industrial Serbia, the principality will be able to concentrate on development as a tourism hotspot. Serbia’s EU bid has been delayed by suggestions of corruption and that war criminals are being protected. Should Montenegro separate from Serbia, they will have to restart the application process, but the process of accession should then be more straightforward.

Price History

Houses needing a significant degree of reconstruction cost from £20,000 ($35,000) to £30,000 ($52,000) close to the coast. New-build apartments start from a higher base, often costing £40,000-£50,000. To put the prices in context, apartments in Croatia are rarely available for less than £84,000. This kind of price also now applies in popular Kotor. The opportunity for capital appreciation in Kotor may now be past – and savvy buyers are advised to look south along the coast.

Which type of property should you go for?

Montenegro has a high number of good quality stone buildings which have been either abandoned or allowed to fall into disrepair. These buildings may require a lot of work, but they are often very good value. For most buyers though, it makes sense to invest in one of the new apartment or villa developments being built along the coast. Montenegro is aiming to remain an upmarket destination and new build trends should follow this, making off-plan investment both viable and attractive. With foreign and domestic investors given parity of treatment, rising tourism and a stock of attractive good-sized buildings, Montenegro is also a good location for people hoping to set up bars, cafes or seasonal lets.

Buyers this market will appeal to

Montenegro will appeal to many different types of buyer. The country has all the qualities required to make it a top holiday and second home destination. For those with renovation or project management skills there are many opportunities to renovate old buildings here. However, there are also increasing opportunities for buy-to-let investors in new build and off-plan developments which are being developed along the coast.

Hotspots

A new wave of buyers has explored Montenegro after crossing the border from Croatia. This has tilted the property market towards the north of the country and particularly towards Kotor Bay.

Kotor is a Unesco World Heritage Site, a medieval fortress city, which makes it more than just the usual beachfront resort..After rising by up to 50% in the last two years, property prices here are now directly comparable to Croatia. Herceg-Novi, Budva and Bar are also popular resorts.

Budva is a walled town placed just outside Sveti Stefan. Budva is frequently compared to Dubrovnik for the pale stone and the town walls and is surrounded by 24 miles of beach. This area around Budva and Sveti Stefan is the most intense area for development throughout Montenegro.

Opportunities for capital appreciation are now better in the south or inland at mountain and lake resorts. Development is likely to run south along the coast before moving inland. A good bet is Ulcinj, which has 8 miles of beach and prices which remain at good value. Finally, for something different, Cetinje is the traditional capital and cultural centre of Montenegro. Now a university town, property can be picked up cheaply and rented to students.

Key risks and opportunities

Montenegro has more secure property title than many of the surrounding countries as property here was never expropriated. As development intensifies, some of the more popular resorts may risk the kind of over-building seen in Bulgaria and Turkey. At present the authorities are taking a more thoughtful approach to planning and encouraging the rejuvenation of older buildings. Long may this continue.

Purchase process

As with most European countries the purchase process is in two parts; signing the contract and taking legal possession of the property, and then making sure that the process is duly recorded at the land registry. The process is remarkably straightforward, Montenegro uses the Euro, and except for public lands such as parks and roads there are no limits on the property in which foreigners can invest. Like close neighbours Slovenia and Slovakia, Montenegro has computerised the registration process. From beginning to end, registration is unlikely to take more than a couple of days.

The buying process is as follows: after agreeing a purchase price with the seller, a 10% deposit is standard. Should the buyer fail to hand over the balance of the purchase price by a set date the deposit is forfeited, but if the seller fails to complete the deposit is returned plus an additional 10% penalty fee. After the contract is drawn up it must be signed by both parties or by representatives with valid powers of attorney. The signatures must also be attested, purchase tax of around 2% of the property value is paid and the change of ownership registered with the land office.

There are no restrictions on foreigners buying in Montenegro and non-resident investors are given tax-breaks. Assets from sale of property or other investments can be freely transferred out of the country. There is no capital gains tax and the top level of income tax is 22%: property purchase tax is 2% and legal fees around 1%.

Opportunity rating

Before the Yugoslavia of the early 1990s, Montenegro was one of the most desirable holiday locations on the Mediterranean. The government is now attempting to rekindle this reputation and should be able to do so as the country’s affiliation with Serbia diminishes. Prices remain low; in fact in many cases they are as much as 40% lower than in neighbouring Croatia. These prices are set to rise as tourism increases along with the necessary infrastructure for international investment.

Rating: $ $ $ $

Risk rating

The primary risk for Montenegro is if the country fails to end its affiliation with Serbia. However, this now looks unlikely. Specific risks lie in the clarity of title and buyers should ensure that a good local solicitor is employed.

Rating: * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in Supplied by ...

“Where to buy a property abroad – An investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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