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Factors Sustaining High Apartment Prices: An In-Depth Exploration

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While it was expected that after years of rising real estate prices in Serbia, there would be a cooling of the market resulting in a 20 to 25 percent drop in square meter prices, we have been experiencing stagnation for quite some time now. This raises questions about why apartments are still expensive and what keeps the square meter price at high levels, especially when many European capitals are adjusting their real estate market prices downward.

Apartment prices in Serbia have remained at the same level for the second consecutive year. Some municipalities record occasional, slight declines, but on average, it can be said that not much is changing in the real estate market. The most expensive properties are still in Belgrade, with central municipalities in Novi Sad and the most attractive locations in Niš not lagging far behind.

Nebojša Nešovanović, a real estate expert and senior director at CBRE, says to NIN that Belgrade is most popular for real estate investment, and the number of cash buyers has now shifted from 70 percent to 85 percent. He also adds that there are several systemic reasons for high prices, with the lack of a functional capital market being one of the primary factors. According to the interviewee, all of this leads to our market resembling developed stock exchanges more than real estate markets.

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“The problem is that we don’t have real investment opportunities, neither on the stock exchange nor outside of it. On the other hand, we have a real estate market that has traditionally been good, where prices consistently rise, and people feel quite secure. They are confident that what they physically have exists, that they have the key to the apartment. Everything else is a risk for them. Thus, all the excess value we create in the country ends up on the housing market, pushing prices higher. To calm the real estate market, a serious stock exchange must be created to divert people with excess capital away from the housing market – explains Nešanović, noting that in the West, there is a shift that could also happen here.”

“We see that investor confidence has been restored in the capital market in the West, and stock exchanges are at historic highs. If this confidence returns here and interest rates start to fall, as expected this year, I wouldn’t be surprised if we see pressure again in the second half of the year, both on prices and the growth of turnover,” our interlocutor points out.

And the President of the Board of the Real Estate Cluster Association, Nenad Đorđević, says that the European Central Bank will loosen monetary policy, and euribor will fall again, leading to an increase in the uptake of housing loans from banks.

“In our conditions, where the majority of real estate transactions, more than 80 percent, are still financed in cash, this will have a psychological significance for our people, signaling that they should not expect a market decline. I think that this signal is already being accepted in our market, and, in terms of turnover, it will move towards recovery,” stated Đorđević for Tanjug.

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According to the official data from the Statistical Office of the Republic of Serbia (RZS), in December 2023, 2,510 building permits were issued, representing a 2 percent decrease compared to the same period the previous year. Of the total number of permits issued in December, 83.9 percent are related to buildings, and 16.1 percent to other structures. According to this data, the construction of 4,274 apartments has been reported, with an average area of 71.6 square meters.

The prices of apartments in European capitals are much higher, but many cities have seen lower prices in recent months. The largest decline in the last quarter of last year was recorded in Luxembourg (17 percent), Germany (-15 percent), as well as Finland, Hungary, and Slovakia (each with -12 percent).

In Munich, one of the most popular cities in Germany, buyers had to pay an average of 10,500 euros per square meter for a new apartment last year, while in Paris, it was 13,000 euros. Slightly more affordable are London, Oslo, and Frankfurt, where the average price per square meter is 8,400 euros. In Hamburg, buyers paid 6,900 euros, and in Berlin, 6,500 euros per square meter of residential space.

On the other hand, Bulgaria is a country attracting an increasing number of foreign investors and property buyers. In Bulgarian cities Varna and Burgas, prices are more favorable, and a new apartment can be purchased for an average of 900 euros per square meter.

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