From 2019 to the end of 2023, apartments in Serbia have seen an increase in prices surpassed only by Hungary, according to an analysis by the Republic Geodetic Authority that compares 12 European countries.
Over the past five years, the square meter in Serbia has increased by more than 60 percent.
The year-on-year growth in prices last year compared to 2022 fell below 10 percent, thanks to a slowdown in the second half of the year. In the previous eight quarters, the annual growth rate of apartment prices was in double digits. There is no talk of a decline in prices, such as the one experienced for almost two years by Western European countries like Germany or the Netherlands.
In the last quarter of the previous year, there was a year-on-year decrease of 36.4 percent in the purchase of apartments with credit, which is actually a recovery in the credit-mortgage market, as the year-on-year decline in purchases was 47.3 percent in the third quarter, and over 50 percent in the second.
Regardless of the decline in credit demand, prices have remained stable, and, according to local experts, fluctuations in the Euribor have almost no impact on them.
In this regard, Nebojša Nešovanović, a real estate expert and senior director at CBRE, emphasizes that there are several systemic reasons for high prices, with a fundamental one being the lack of a functional capital market.
“For us, the housing market is a capital market. All the excess value we create in the country somehow ends up on the real estate market, pushing prices higher. This also creates unfair competition for young people who need homes. Another problem was insufficient construction, but that has been somewhat addressed in the meantime, as seen in the number of issued building permits. The supply of apartments should now be good,” explains the interviewee from Danas.
He also points out that our housing market should not be compared to real estate markets in other countries but rather to stock exchanges or capital markets. He adds that currently, about 85 percent of people buy real estate in cash, and these are investors who treat our real estate market like a stock exchange.
On the other hand, he attributes the decline in credit buyers to the rise in Euribor but notes that the domestic market is dictated by capital, meaning it is relatively insensitive to interest rate movements.
“We currently have around 15 billion euros in banks, and if there were to be a new inflationary period like two years ago, all of that would end up in the real estate market, which could create a problem. Therefore, to stabilize the real estate market, a serious stock exchange must be established, which would be tax-stimulated, aiming to divert people with excess capital away from the real estate market,” warns Nešovanović.
Dejan Šoškić, a professor at the Faculty of Economics in Belgrade, considering Serbia’s high ranking in terms of corruption perception, emphasizes that funds earned in this way tend to find refuge in real estate.
“It is possible that this is one of the reasons why real estate prices in our country are at this level, as there is a very high proportion of those who buy apartments without loans,” underscores Šoškić.
He also points out that higher interest rates generally discourage taking out loans, but he believes that there are other factors in Serbia, given that, as he explains, the entire Western Balkans is unfavorably rated regarding the shadow economy, crime, various forms of money laundering, corruption, and similar issues.
“Previously in Belgrade, apartment prices were driven not only by additional domestic demand but likely also by buyers from abroad. In conditions of a weak institutional environment like ours, foreign buyers might find it easier to invest without having to fully verify the origin of their money,” explains the professor.
Jasna Atanasijević, a professor at the Faculty of Sciences in Novi Sad, explains the decrease in the number of apartments purchased with credit financing by the rise in interest rates. This has caused both citizens and investors to be less inclined to take on debt from banks.
“This is reflected in prices, as on one hand, we have the pressure of declining demand, which should lower prices, while on the other hand, there is a decrease in supply, pushing prices higher. The result of these two forces is the current prices we have,” says the professor.
Nevertheless, she points out that there are other trends that are less a consequence of current conditions in the financial market and more a reflection of the “structure” of the financial system.
“The reason for the relatively less ‘noticeable’ decline in demand in Serbia is that there are other sources of investment financing besides borrowing – and that is income savings. Given the fact that Serbia does not have a developed capital market, there aren’t many options where savings could be invested to preserve its value. As a result, a lot is invested in the real estate market,” emphasizes Atanasijević.
She adds that this is not the case in most European countries, stating that in Serbia, this happens because the country lacks a developed stock exchange or financial market where those with saved income (which, according to her, is common among a certain portion of the population) could invest that money.
“We should not forget the effect of the arrival of a large number of Russians in Serbia, some of whom probably decided to purchase real estate,” explains Atanasijević.
Commenting on the fact that the percentage increase in square meter prices over the last five years is highest in Hungary and then in Serbia, she points out that on an annual basis, it is not as high if cumulatively compared to the previous period.
“The price increase is now only a few percent in Serbia, while it used to be double-digit. This tells us that the effect of declining demand is evident, but it is probably less ‘strong’ than in countries with developed financial markets where savings can be invested in other types of assets, influencing the fact that prices do not fall,” concludes Atanasijević.
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