Why Montenegro?

Stealthily, something is stirring along a compact stretch of the Adriatic Coast. Montenegro, a small Balkan country blessed with great natural beauty, is now emerging with a chance to for-fill its potential as the next property hotspot.

Montenegrins have been here before. Fleetingly, between the time socialism was on its knees in the late 1980's and before the conflict of the Balkan wars in the 1990's, the jet set made this self-styled 'Pearl of the Adriatic' their holiday destination of choice. This time, they intend to make more than a fleeting impression. This time, with sound political judgement and strong European guidance, they offer a pathway to a stable and prosperous future. If they are right, then Montenegro's holiday property market, presents-right now-an extremely attractive investment opportunity.

Montenegro or Crna Gora, Black Mountain when translated into English is situated in the heart of the Mediterranean. Bordering Albania, Croatia, Bosnia and Herzegovina, divided from Italy by the Adriatic Sea, and less than a two hour flight from London. With a climate that boasts all four seasons: Spring, hot balmy summers and autumns with temperatures in the 20's and 30's, accompanied by relatively mild winters although inland areas experience heavy snowfall. In addition, Montenegrin Cuisine is usually organic including fresh fish, juicy steak, peppers in Kajmak (sour cream), smoked hams and lamb braised in milk. Crisp salads, earthy vegetables, rich sauces, bread, garlic, parsley, olive oil and Lubenita (watermelon) being the staple accompaniments. All washed down with a full-bodied red, dry white wine or rather cheeky Merlot.

The first, unyielding fact to bear in mind is Montenegro's sheer beauty. The UN designated the country, the world's first 'ecological state' in 1991. While the Balkan economy was shackled by decades of Titoism and crippled by the conflagration of the 1990's, Montenegro maintained, albeit a fragile multi-ethnic democracy, whilst peaceful relations ensured its magnificent scenery survived in tact. More than this, the lack of investment over the decades has had the perverse effect of avoiding all the pitfalls of unsympathetic tourism development. This has left the country well placed to generate 'ecotourism': skiing in its prodigious mountains, white-water rafting in its cavernous gorges, fishing, sailing and bird watching. There are acres of UNESCO protected natural parks and lakes. Most of all, for those less inclined to exert themselves, bathing in a generous Mediterranean sun in any one of Montenegro's 117 beaches and caves along 190 miles of gorgeous coast.

Alive to these possibilities, the country's democratic government in 2001 unveiled a tourism 'master plan', a blueprint for all tourism planning and targets up to 2020. At the heart of the 'master plan' is the opening up of Montenegro's hotel and tourism industry to free enterprise. But it also sets a framework to ensure only suitable planning developments on the coast, to update the transport infrastructure, and to add professional training to the warm hospitality that comes naturally from the Montenegrin people.

The statistics are already starting to sound impressive. The world travel and tourism council puts Montenegro third among the fastest growing tourist destinations in the world. Tourism has risen over 17% per annum and today amounts to almost 15% of Montenegrin GDP. This equates to €214.2 million, putting the country within sight of the €250 million tourism peak in 1989 before the benighted of the 1990's. Tourism's proportion of GPP is projected to surge to 21%, or €626.6 million by 2014. That would represent a growth rate in excess of 10% per annum compared with forecast worldwide growth for travel and tourism of 4.5%.

Over 80, tour operators from more then 15 countries are already organising packages to Montenegro, including 6 in the UK. Whilst in 2004 the number of British tourists increased by 156%. The independent newspaper concluded on 12th June 2005:
"In the ongoing battle for the title jewel of the Balkans, Montenegro may emerge as the ultimate winner. The prize: wealth-generating ribbon development along 190 miles (293.5 kilometres) of spectacular Adriatic coastline."

The Montenegrin government is itself leading the way in tourism investment: €42.8 million spent in 2004 is projected to rise to €121.2 million by 2014, over a fifth of total government investment. However, recognising the country's economic potential, the government is eager to accept help and assistance from the international community. It restored Montenegro's membership of the World Bank in 2001 which, along with its acceptance of IMF fiscal and free-market reform programs, has helped the country establish a respected level of creditworthiness for inward investment.

The European bank for Re-construction and development and the European investment bank are underwriting major investment in airports and railways, highways and waterways, such as the EIB-funded €23 million modernisation of Montenegro's international airports at Podgorica and Tivat provided jointly by the EBRD and the EID. The EBRD has committed €691 million to over 36 projects and mobilized an additional €780 million with partners from the public and private sector. The EIB, EU and other investors have co-financed projects worth around €290 million.

Montenegro's own national tourist organisation has partnered with development companies like Germany's DEG to refine its tourism 'Master-plan' and help guide private inward investment in tourist projects from Germany, the Netherlands, Russia, Ireland and elsewhere. This rapid growth in tourism has helped to swell Montenegro's overall economic growth rate to an IMF-forecast 4.5% this year, one of the highest of the region. At the same time, the government's decision to adopt the euro in 2002 has enabled the country to avoid seeing strong growth spiral into runaway inflation. In fact inflation in Montenegro fell from 6.7% in 2003 to 4.3% in 2004.

Tourism aside, the government is seeking to diversify the country's economy away from commodities towards added value production in food processing, aluminium, steel and textiles. An estimated 50% of the economy has now been privatised. The banking sector, business enterprises and hotels have led the way. General trading in shares started in 2003. In November 2004 the US under secretary for economic, business and agricultural affairs stated at a conference in Belgrade:
"There is no reason why… Montenegro cannot achieve the same success we have seen in other countries, such as the Czech republic, Poland and Hungary"

If this is all good news for a country in transition, even better news for the property investor is that the market remains-for the time being-relatively undeveloped. Traditional stone water-front or costal properties are highly sought, with property prices rising about 20% per annum. This figure rises to more than 30% in the tourist's hot-spots such as the UNESCO-protected and breathtakingly beautiful bay of Kotor. Given the inclusion of Kotor and Risan bay areas into the UNESCO World Heritage List, and the admission of the Boka Kotorska Bay into the Most Beautiful Bays in the World Club.

As a matter of fact Montenegrins have learnt a valuable lesson from their more developed neighbours: Property development is restricted and planning regulations stringent. More often than not any building works are limited to construction across three levels, promoting traditional methods to protect the existing beauty of the Montenegrin coastline. Even given these restrictions profits from small new-build developments; clusters of 10 - 15 apartments often reach in excess of 50%. Land purchase working in conjunction with a registered Serbian & Montenegrin citizen constitutes 4-10% of the final sale price per apartment, whilst entire build costs are less than 30% of the final price. Such developments are paving the way - promoting the purchase of properties off-plan; a shrewd investment that promises a healthy return given the upsurge in property prices and rental demand. As a matter of fact coastal property, can command cash prices of between €1,000/m² to €3,000/m² dependant upon the condition and location, with properties inland providing a cheaper alternative. Furthermore rental can yield anywhere between €250 per month permanent (local) tenancy - €50 per night for a one bedroom apartment inclusive during high season. Payment is usually cash, in euros with a corporation tax of less than 9%.

As if the afore mentioned facts and figures were not reason enough to buy, purchase tax is only 2% for re-sale and new build properties - half that of it's Croatian neighbour. Furthermore whilst there is 17% PDV (the equivalent of VAT) between the build price and sale price, this is usually paid for by the developer not the purchaser. Moreover there is no structured inheritance or capital gains tax although tax regulations are bound to become more stringent given the growth of the economy. Finally the majority of properties are purchased freehold, provided there is a legal contract of sale property can be re-sold at any time enabling monies to be taken out of the country.

This constellation of economic opportunity inevitably contains risk albeit limited. In Montenegro's case, the risk has been essentially political regarding relationship with its larger neighbour Serbia and the two countries bid to join the EU and NATO.

The June 2006 declaration for Montenegrin Indepependance now leaves Montenegro free to chase EU membership and with it secure the stamp of political and economic normalisation which smaller and often less cosmopolitan Balkan countries have secured. Montenegro appears now much closer to being able to meet the EU entry requirements. In President Filip Vujanovic's words:
"Liberalised exports and imports brought customs services up to EU standards, delivered treasury and public expenditure reforms and entered the economic system with more transparency".

Political realities have been factored into the property prices, but the rapidly changing and more secure economic and political outlook will begin to have effect. Also factored into the prices are of some of the more obvious difficulties and hazards that come with trying to purchase property in another country: The language, legal requirements, taxation and other regulations given Montenegro which, however willingly is itself seeking to learn the free-market ropes. Hence the services of a safe and knowledgeable agent are indispensable. Mr Mijat Jovanovic director of Montenegro Premier Properties states:
"There are no major restrictions regarding property purchase however, land titles must be registered and verified through the court, given there can be multiple ownership as assets have passed down through generations. Legitimate agents will employ resident solicitors and recommend reputable architects to ensure clean titles, ownership, and accurate structural information. Providing a well organised and efficient service, where property purchase and legal transfer usually takes 2 - 4 weeks as opposed to 7 - 10 weeks. Furthermore the majority of registered agents charge a commission of between 3% and 5% based on the property purchase price.

A comprehensive service for the buyer pre and post property purchase should include:
1. Company registration and legitimate office premises
2. Language translation, contractually securing the property - 10% of the purchase price is normally requested as a deposit. Legal transfers of property ownership and land registration, represented by the company's resident solicitor, officiated within the court and inclusive of written translation.
3. A comprehensive verbal quotation from a reputable architect should the property require renovation or re-structuring. To include ongoing advice, project management, the services of tradesmen recommended by the agent and sourcing local materials.
4. Ongoing property management post-purchase which includes; competitive maintenance and cleaning contracts, advice appertaining to local suppliers, support and guidance regarding property rental, utilities management and so forth.
5. In summary an ongoing working relationship between the clients and the agent.

When purchasing a property the only additional costs above and beyond the purchase price should be:
1. Mandatory: Property Tax 2% of the valuation payable to the solicitor who will pay the Property Tax to the local Council Offices. For further details visit our website and click onto the 'Legal' link.
2. Mandatory: Court costs approximately €150 - €300 payable directly to the solicitor
3. Mandatory: Legal fees range from between €500 and €800 dependant upon which solicitor you choose, alongside whether or not their fees include court and translation costs.
4. Optional: A written structural survey which usually costs €150 - €500 euros (maximum).
5. Optional: Home & Contents Insurance, prices fluctuate.

Accessibility from the UK is provided by a weekly flight from Heathrow to Tivat via JAT airlines between May and September and BA offer daily flights to Dubrovnik, 20 minutes from Montenegro's border. Given the €23million modernisation programme for Montenegro's international airports, it is only a matter of time before Montenegro is firmly on the map.