Investing in Montenegro

Little-known Montenegro, just across the Adriatic from Italy, boasts a beautiful coastline and a wealth of potential as a tourist destination. With impressive geographic diversity and much lower …

Little-known Montenegro, just across the Adriatic from Italy, boasts a beautiful coastline and a wealth of potential as a tourist destination. With impressive geographic diversity and much lower prices than neighboring Croatia, Montenegro is attracting both western and Russian tourists and investors.

Montenegro topped the World Travel & Tourism Council’s list for highest tourism growth rate in each of the last four years—and property price acceleration is beginning to reflect that shift.

Economy and culture

Montenegro’s estimated population was 684,736 as of July 2007, according to the CIA World Factbook. Much of that population is unskilled, so unemployment is high and employers often seek skilled workers from neighboring countries, particularly for jobs in the booming construction industry, Kieran Kelleher, owner and managing director of Dream Property Croatia and Montenegro, said.

Part of the former Yugoslavia, Montenegro was less ravaged by wars than some of its neighbors. However, Montenegro’s tourism market was hit hard by the conflict, dropping in the 1990s to just a fraction of its 1980s level, when Elizabeth Taylor and Sophia Loren were regular visitors to Montenegro’s coast, Colm Mitchell, partner in, said.

The Yugoslavian conflict also held back Montenegro’s infrastructure. “Montenegro as a country is rough around the edges with major infrastructural investment requirements,” Mitchell said. Development in basic services such as telephone and Internet access is still needed.

In June 2006, Montenegro separated from Serbia and became Europe’s newest nation, thanks to forward-thinking political leadership, Kelleher said.

Montenegro is moving toward future European Union membership. Its official language is Serbian, and the currency is the Euro. For American investors, the exchange rate between the dollar and the Euro is relatively unattractive, but for Russian investors, the Euro is cheapening relative to the ruble, Stuart Place of said.

“What we love about Montenegro is [that] it is underpinned by both the western market and the Russian market. Now, very few markets are,” Chris Kemsley of said.

British and Irish investors have a strong presence in Montenegro, but if that market wanes, demand will continue from the fast-growing Russian middle class which is anxious to “get their foot on the ladder in Montenegro,” he said.

Montenegro contains many historic locations for sightseeing. “The place is absolutely steeped in history,” Place said.

Beaches draw visitors to the coast, but hiking, backpacking, skiing and white water rafting are available inland. Even hunting and fishing, activities frowned upon in many areas of Europe, are available in Montenegro, Place said.

Religious diversity, tolerance and a cultural mix make Montenegro attractive, and in an era when many European markets have not welcomed Americans, “I don’t think that would be the case in Montenegro,” Kemsley said.

“It’s probably one of the best places to live in Europe…in the next eight to 10 years’ time,” Kelleher said. “I think it has a very exciting future, and prices have stayed quite moderate today.”

Benchmarking prices

When judging value, it is crucial to compare Montenegro with similar markets such as Croatia, Kemsley said.

“Don’t come to Montenegro expecting it to be significantly cheaper than Bulgaria because it’s not going to be and one wouldn’t expect it to be, because it has a lot more to offer,” he said. “Is it cheaper in comparison to Croatia? Most definitely. Does it have as much to offer? Most definitely.”

Unlike Montenegro, Croatia is “very reliant on the western market” and lacks the Russian market underpinning its economy, Kemsley said.

Montenegro has attractive property and personal income tax rates, Kelleher said. Doing business is simple and fast; “it takes a day to set up a company; it costs €1,” he said. “Croatia, on the other hand, is a much more complicated place to do business.”

Montenegro’s prices have risen more dramatically than Croatia’s; many properties have more than doubled in value during the past few years, Kelleher said.

Still, Montenegro’s prices remain significantly lower than Croatia’s. In Dubrovnik, a popular coastal Croatian city near Montenegro, prices are nearing €10,000 per square meter in prime areas, Kemsley said.

In contrast, Montenegro’s popular coastal towns range from €2,000 to €4,000 per square meter, Kemsley said. The southern coast is about €1,500 per square meter, and inland prices are roughly €600 to €1,000 per square meter, he said.

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Most of Montenegro’s available properties are apartments, and the few houses left probably aren’t very attractive to foreign buyers anyway, Kelleher said.

Investment properties typically range from €100,000 to €400,000, although a small studio could be as little as €40,000, and a special villa or top end apartment could exceed the million Euro mark, Kemsley said.

Geographic diversity

Montenegro’s coastline has seen the greatest appreciation thus far, but “we still think there’s room for movement on the coast,” Kemsley said.

Coastal areas have the greatest rental demand, particularly in Kotor and Budva, where a 6 to 7 percent net yield is possible, Kelleher said.

The Kotor Fjord attracts tourists, although development has been somewhat restricted by UNESCO, Kelleher said. Kotor is a bayside town with spectacular scenery, reasonable prices and a quieter market than Budva, he said.

The €500 million shipyard development in nearby Tivat is bringing money into Kotor, and infrastructure and other development will follow, Kemsley said. “Rather than being a rough diamond, it’s going to become a very shiny one, and a very commercial one, which is what Dubrovnik has become.”

The luxury yacht marina being developed in Tivat will be the largest in the eastern Mediterranean, and golf courses are also in the works, Mitchell said.

Budva, a town of 18,000 on the central coast, is popular with younger buyers because it is “the party capital of Montenegro,” Kelleher said.

“The Budva Riviera is what’s had all the attention and where we’ve seen most of the capital appreciation,” Kemsley said.

Planning controls in Budva have been looser than in Kotor, and the area offers beautiful beaches and sailing, Kelleher said.

Further south, investors recently discovered the port town of Bar, with very attractive prices of up to 50 percent cheaper than Budva, Kelleher said.

Inland areas are more speculative and offer lower prices, Kemsley said.

“The towns of Kolašin and Žabljak offer tremendous value for land prices, and land can be purchased for €4 a square meter to €20 or €30 a square meter,” Kelleher said.

These towns are home to Montenegro’s two ski resorts, and speculative investors can take advantage of the cheap land there, Mitchell said.

The inland ski and mountain area is “absolutely ecologically stunning,” Kelleher said. Montenegro’s mountains contain the second-deepest canyon in the world, he said.

For a speculative long-term investment, Kelleher recommended land in the mountains near proposed ski resorts.

Just 40 minutes to an hour inland is the Skadar Lake region, which has a rural Italian feel with land and old buildings for reasonable prices, Kemsley said. The big question is how long it will take for those areas to take off, he said.

The inland rental market was poor up until this year, when “suddenly we’ve noticed hotels are full,” Kemsley said.

Foreign investing

Foreigners can purchase property in Montenegro with freehold ownership and rights equal to Montenegrins, except that foreigners may not buy bare land directly, Kemsley said. “What you can do is buy bare land through a  company. You have to set up a local company with local directors.”

Montenegro’s title and land registry system is “pretty advanced for that region,” Kemsley said. It is “computerized and centralized” and recently made title information available online, he said.

“The Montenegro banking system is still relatively immature, lacking competition and diversity in lending products,” Mitchell said.

Few lenders will currently provide financing for foreign investors, but that is likely to change quickly, Kemsley said. “The most willing lenders at the moment appear to be Austrian banks,” he said.

Kelleher said he expects financing to be more widely available by the end of the year.

Investors will pay approximately 3 to 4 percent for a real estate agent, 1 percent or less for an attorney and 2 percent toward a real estate transfer tax, Kelleher said. He said he expects that tax to increase at some point.

In selecting a real estate agent, Kelleher recommended large agencies with reputations to protect. “The prime mistake is that you buy something from the taxi driver or from the shopkeeper, because everybody in Montenegro is a real estate agent.”

Negotiation can be difficult and lengthy because many sellers are “not prepared to budge on price,” Kemsley said.

Once the parties agree, a contract is drawn up, the buyer puts money down (usually 10 percent) and closing takes 30 to 90 days, Kemsley said. “If the buyer pulls out, then he will lose his 10 percent. If the seller pulls out, he loses his 10 percent plus an additional 10 percent.”

This helps to prevent sellers from pulling out to seek higher prices in Montenegro’s rapidly appreciating market, Kemsley said. “What we often do is put more than a 10 percent deposit down to ensure that they don’t pull out because there’s too much to lose.”

Title insurance is not currently available in Montenegro, Kemsley said. However, property insurance is available at less than €200 per year and is highly recommended, Kelleher said. Earthquake insurance is not yet available, even though the area is subject to earthquakes, he said.

Few reliable, credible property managers are currently available, but that is likely to change quickly, Kemsley said.

“You do need somebody locally on the ground to go to your property once or twice a week to open the windows and…make sure that everything is okay,” Kelleher said.

That type of service should not cost more than €30 per month, and a friendly neighbor will sometimes perform that service in return for a beer when the investor visits, he said.

New developments generally offer an add-on management service as part of their package, Mitchell said. He recommended that investors use a property management firm when seeking rental yield on a property that is not part of a managed complex or facility. Fees would start from a minimum of €500 or $650 per year, he said.

Future outlook

Kelleher said he is unsure whether Montenegro’s rapid appreciation will continue, but “the worst case is that there’d be moderate growth from here on” of 8 to 10 percent in prices.

Infrastructure developments in communications, tourist amenities and technology will be crucial if Montenegro is to become the tourist destination it hopes to be. Vacationers renting rooms are a major source of rental demand, and they will be needed to maintain price appreciation.

Location will be a big positive factor in helping Montenegro to grow as a business tourism destination, Mitchell said. “Not only are London and Frankfurt less than a three-hour flight away, so are Moscow and Istanbul.”

Most purchasers of property are either second-home buyers or investors, Kelleher said. “I think in a couple of years to have a villa with a pool on the market for €300,000, €350,000 would be very attractive for future clients,” he said.

“Off plan” properties, or preconstruction properties, “if you’re buying from the right developer, can be quite lucrative…and it takes away a lot of the risk of having to build yourself,” Kelleher said.

Kelleher said he has seen investors successfully renovate three-story properties near the water, dividing them into three separate apartments.

High land prices along the coast may prove risky, but land in the hills just 10 kilometers from the sea offers attractive prices, he said. The mountain and ski region is attracting interest and may offer future appreciation as well, he said.

Kelleher estimated that there are probably only about 1,500 newer properties currently on the market in Montenegro. “The best product hasn’t arrived yet. A lot of it is…going through the planning process.”

Many thousands of properties are expected to enter the market over the next 18 months, and “if the buyers are in no hurry and want to take a risk on where the market will be in the future, the products coming look to be quite stunning,” he said.

Although development into an elite tourism destination still has a long way to go, “the foundations are in place for take-off,” Mitchell said. “Many see it now as the next Monaco.”

Mitchell likened Montenegro to the French Riviera of 20 years ago; “it offers investors the potential for significantly greater returns than other emerging markets.”

Kemsley said he doesn’t think investors have to look hard to find value in Montenegro. In spite of recent appreciation, “it’s not too late at all for the investor,” he said.


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