Ownership and status of land in Republic of Serbia is an issue which often troubles investors, particularly foreign ones as they are making decision about whether to invest in Serbian real estate market. In this article we outline the legal framework concerning the status of property in Serbia and provide some useful tips on how to successfully complete your real estate deal.
Subject to several exceptions, under the laws of the Republic of Serbia one becomes the owner of land or a building at the moment of registration in the public registry. As registries are kept at the municipality level and for historical reasons, they do not exist in all municipalities, generally, in the absence of a registry in a particular municipality, a written notarized agreement and possession of the relevant land or building is conclusive evidence of the title. Prior to registration of ownership in the land registry, property transfer tax needs to be paid.
A foreign entity can purchase land and buildings in the Republic of Serbia necessary for its business operations, subject to reciprocity existing i.e. that a Serbian entity may acquire land and buildings in the country in which such foreign entity is established (registered). In practice, this generally means that the foreign person must register some form of legal presence (e.g. a limited liability company, enterprise, representative office, branch unit, etc) in the Republic of Serbia in order to directly acquire real estate. If the foreign entity establishes a subsidiary in the Republic of Serbia such subsidiary is considered as a local entity and is under the same treatment as entities founded by local persons, meaning that it may acquire the land and buildings under the same conditions as other local persons.
Land in the Republic of Serbia is classified as either: (i) construction land or (ii) agricultural land.
All construction land is divided into two groups: public construction land and other construction land.
Public construction land is land where buildings of public common interest are located or such buildings are planned to be constructed. Public construction land is determined as such by the relevant state and local development plans. Public construction land is owned by the State i.e. Republic of Serbia and cannot be privately owned.
Other construction land is all land which is not determined as public construction land by relevant state and local development plans, on which land there are buildings and other constructions or on which land construction is planned i.e. the land is zoned for construction purposes. Other construction land may be either privately or State owned. Other construction land is privately owned if it is located outside the city boundaries as well as within the city boundaries under certain specific conditions. Usually, other construction land within the city boundaries is owned by the State whereas private persons can be owners of buildings and other facilities constructed on such land, and have automatically permanent right of use or long term lease right over such land as long as constructed objects exist on the land.
According to legislation currently in effect, the maximum title one can have over the other construction land owned by the State (located within the city boundaries) is the long term lease right (up to 99 years). The long term lease over the State owned land was introduced by new legislation in 2003 instead of the permanent land use right which existed until that time. Those having the land use right over the land at the time of adoption of new legislation in 2003 continue to have the same right on the land whereby persons acquiring the land after new legislation came into force could obtain the long term lease right as a maximum title. The newly introduced long term lease from 2003 does not substantially differ from the land use right existing at the time.
Further, other construction land is divided into other developed construction land and other undeveloped construction land.
Other developed construction land is land on which objects are constructed. Such objects are fully owned by private persons, who are authorized to dispose of them freely. If objects are located on other construction land within city boundaries (land owned by the State), transfer of ownership over the objects automatically triggers transfer of the long term lease (or land use right) over the land on which objects are constructed. On the other hand, the long term lease right and land use right are not transferable as such without the buildings and can be transferred only with ownership over buildings located on the land as they are permanently “attached” to the ownership of the building.Other undeveloped construction land is land planned to be developed according to the zoning but with no constructions existing. Other undeveloped construction land can be fully owned by private persons if located outside the city boundaries (as well as within city boundaries under certain exceptions) and transfer of ownership over such land is allowed. If other undeveloped construction land is within the city boundaries and owned by the State, such land is granted to investors through a tender process conducted by the Municipal Agencies responsible for construction issues. Municipal Agencies keep the records on available locations and are responsible for organization of the tender process. The long term lease right is granted to an investor who offers the highest amount for the lease of land and wins the right to use a specific location for construction of a particular building. The Municipal Agency and the successful bidder enter into a lease agreement which specifies the number and area of leased lots, groundwork fees and fees for lease as well as methods of payments, dimensions of the building to be constructed, duration of the long term lease right, deadlines for completing the construction, etc.
Agricultural land may be privately owned or owned by the State. Due to the emerging real estate market in Serbia and development of the outskirts of cities, usually investors acquire such agricultural land in order to change the purpose of the land i.e. to re-zone the land for construction purposes. Ownership of agricultural land owned by private persons can be transferred simply pursuant to the ownership transfer documents (sale and purchase, exchange, gift, etc). Payment of the property transfer tax precedes title registration in the relevant land registry.
As an exception to general rule that foreigners, under reciprocity requirements, may acquire ownership over real estate in Serbia, the Agricultural Land Law of 2006 does not allow foreigners to own agricultural land in Serbia. Foreigners can overcome this restriction by establishing local companies which may acquire agricultural land, resulting in foreigners indirectly controlling agricultural land through their local subsidiaries. Agricultural land that is owned by the State is managed by the State i.e. leased through tender procedures but only for agricultural purposes. Agricultural land owned by the State is not in principle for sale.
In the event of acquisition of agricultural land, one should take into consideration that the owners of the neighboring lots have a pre-emptive right to purchase the land and the seller of the land should notify the owners of neighboring land of his intention to sell the land. Once agricultural land is acquired, and subject to re-zoning from agricultural to construction purposes, one has to formally convert agricultural land into construction land by paying the land conversion fee and registering the change of status of the land in relevant land registry.