Sitemap

Dejan Molnar, Professor At The Belgrade Faculty Of Economics

Exchange Rate Maintains Stability In Property Market

Unless there are large fluctuations in the exchange rate and as long as people experience that their standard of living is rising, and while banks guided by the same logic expand their mortgage portfolios, the current trends in the real estate market will continue. The million-dollar question is: when will that connection begin to slip?

Inflation, the possibility that banks will raise the price of mortgages, the future dinar-euro ratio, people’s purchasing power and the conflict in Ukraine bringing new residents to Serbia are just some of the many elements shaping prices in the country’s property market at the moment. Will the growth of property prices that we have been seeing since 2013 and the growth in the value of approved housing loans continue, or are we facing the bursting of a ‘real estate bubble’? Professor Dejan Molnar of the Belgrade Faculty of Economics analyses these trends and possible scenarios.

In Serbia, we can remember not so long ago when the demand for apartments was so low that owners were happy to find tenants at all, and that now with the story of the arrival of Russians and Ukrainians, apartment rents are said to be growing. In your opinion, what awaits current and future apartment owners and those who rent them in the next year or two?

In our country, when people earn more (or feel they do), they usually decide to buy property. It is also important that rents have grown in recent years, so in conditions of low interest rates, a monthly mortgage instalment is lower than rent, which leads many to decide to take out a mortgage and start repaying their own square metres instead of renting them. Trends in the apartment rental market will above all be determined by the level of people’s living standards and their loan conditions. Expressed in euros, the average salary was about 50% higher in 2021 (553 euros) than in 2014 (368 euros). At the same time, banks’ average interest rate on newly approved mortgages in January 2022 had almost halved (2.56%) compared to the same month in 2014 (4.87%).

This means that for a 20-year mortgage of 50,000 euros, the monthly annuity in 2014 was around 323 euros, up to 88% of the average salary, while today the instalment for such a loan is around 265 euros or just 48% of the average salary. At the same time, the basic macroeconomic variable that ‘holds water’ here is the exchange rate, the value of the euro in relation to the dinar. The fact that we have had no major exchange rate fluctuations during the entire period actually makes people feel that their standard of living is growing. This is how banks treat it, so their mortgage portfolios expand. The value of private mortgages increased by over 73% in the period 2014-2021 – from 2.67 to 4.56 billion euros.

Economists believe that the real estate market has long been overvalued and will sooner or later fall. Does our market follow what is happening on the ‘big markets’ of the USA and the EU, or does it have its own laws governing prices?

House and apartment prices in the EU had increased by an average of 9.2% in the third quarter of 2021 compared to the same period in 2020. This growth varied over member states: in the Czech Republic it was as much as 22%, in Estonia 17.3%, in the Netherlands 16.8%, in Austria and Slovenia 12.9%, in Hungary 12.6%, in Germany 12%, in Croatia 9%, in Slovakia 8%, in France 7.1%, in Romania 5.9%, and in Italy and Spain 4.2%. Apartment prices in Serbia have been growing steadily since 2013. The average price of a square metre in a new building was over 32% higher in 2021 (1,510 euros) than in 2014 (1,140 euros).

Although the price of a square metre of apartment increased by one third from 2014 to 2021, the amount of housing loans sold to individuals also increased. This is primarily due to the growth of average salaries in euros, falling interest rates and a stable dinar exchange rate against the euro

Any increase in mortgage interest rates would reduce the circle of those who can take bank loans to buy a home. Each additional percentage point in the interest rate leaves one group of potential buyers ‘out of play’. This could lead to lower demand and falling prices. New waves of corona virus pandemic would probably cause new interruptions in production and a recession, leading to reduced demand for property. This will affect so-called self-stimulating mechanisms that result from people’s expectations. Today, when prices are rising, buyers hurry to buy property today to avoid paying more tomorrow. Expectation that prices will be even higher creates additional demand that pushes prices upwards. When prices stop rising and start falling, buyers will refrain from buying because they expect prices to fall further, which will reduce demand. At the same time and for the same reasons, sellers will want to sell property as soon as possible and ‘catch the last train’ with high prices.

As we are a nation that is aging and emigrating en masse, a non-expert asks who will live in these apartments? Is our relatively stable housing stock being redistributed between smaller places and towns that people are leaving towards Belgrade and Novi Sad, or are apartments being built with the idea that Serbia will also have an influx of people from other countries who for various reasons want to own property in Serbia?

Uncertainty and expectations of inflation make people with money invest everything they have in real estate. On the other hand, there is a continuous decline in the country’s population. Negative natural increase (more deaths than births) and physical outflow of the population (migration) make a synchronized contribution to this. In addition, we live in a country where children become independent and leave their parents’ homes relatively late. The concurrence of these two trends (continuous decline in population and growth in the number of newly built apartments) raises certain questions.

In 2020, in as many as 19 out of a total of 25 administrative areas (districts), a higher number of emigrants than immigrants was recorded in Serbia. Apart from Belgrade (+4,866 inhabitants), a positive balance of migratory movements in 2020 was also achieved in Novi Sad (+1,572), Pančevo (+179), Subotica (+143) and Niš (+255). The towns from which people emigrated more than immigrated are more numerous: Sombor (-115), Vršac (-57), Kikinda (-159), Sremska Mitrovica (-13), Užice (-308), Valjevo (-112) , Sabac (-35), Cacak (-17), Krusevac (-141), Kraljevo (-227), Kragujevac (-42), Leskovac (-287), Vranje (-263), Smederevo (-330), Zajecar (-87), Pirot (-93), etc.

Just as rural areas and other towns in the country (except Belgrade and Novi Sad) are ‘empty’, so there is a kind of division within urban areas – young people move to new apartments and parts of the city where housing is ‘flourishing’, while other parts of these cities remain abandoned and slowly die out.

On the one hand, primarily in Belgrade and now in various parts of Serbia with well-preserved nature, we see a wave of construction of luxury buildings, large surfaces with fenced green areas and common facilities exclusively intended only for residents, or weekend resorts. Is this a marginal phenomenon or does the structure of new residential buildings tell of some new trends in our market?

I think that this segment of the property market is intended for a narrow circle of more solvent buyers or users of these, for our conditions exclusive, housing estates. Climatologists, urban planners, architects, ecologists say that many cities have long since switched to combining blue and green structures that should enable cities to more easily resist pollution and rising temperatures. In contrast, in Belgrade and larger cities in Serbia, we see the pouring of concrete on all surfaces that can be used for construction. What needs to happen on the domestic real estate market to see smart cities in Serbia?

Just as rural areas and other towns in the country (except Belgrade and Novi Sad) are ‘empty’, so there is a kind of division within urban areas – young people move to new apartments and parts of the city where housing is ‘flourishing’, while other parts of these cities remain abandoned and slowly die out

This issue is related to both supply and demand. When it comes to supply, this is first of all about urban planning and appropriate regulations and standards. Secondly, it is a question of return on investment – high quality modern installations are more expensive to build. Finally, there is the ability to pay (the living standards) of buyers and their willingness to set aside money for such housing. There are smart buildings on the market, but the number of those who can afford such an environment is limited.

Along with new apartments, facilities are being built that make an area comfortable to live in, from supermarkets to shopping malls. What is happening in this market? Is it saturated?

New settlements and the people who live in them also require appropriate content (especially if it is a younger population, families with small children, etc.). The modern way of life ‘dictates’ appropriate models for spending money and free time. We see that shopping malls are quite well visited in larger cities. Just when I think that this market is oversaturated and that there are too many shopping centres, I am contradicted (even surprised) by the fact that shopping centres in Belgrade and Novi Sad are almost always full.

INTEREST

Any increase in mortgage interest rates would reduce the circle of those who can use bank loans to buy a home

DEMAND

Just when I think that this market is oversaturated and that there are too many shopping centres, I am contradicted (even surprised) by the fact that shopping centres in Belgrade and Novi Sad are almost always full

TURNAROUND

Trends in the apartment rental market will above all be determined by the level of people’s living standards and the conditions under which they can borrow

Related Articles

Despot Kovačević, Assistant Professor/Lecturer At The University Of Belgrade Faculty Of Political Sciences

Chance For The Opposition To Profile Itself Among Voters

The post-election dynamics of relations within the opposition showed that a debate will be led on the topic of genuine opposition to the regime...

Bojan Vranić, Associate Professor, University Of Belgrade Faculty Of Political Science

Can “Against Violence” Signify A New Culture Of Protests In Serbia?

The question shouldn’t be about whether the protests can endure throughout the summer, but rather should be posed differently: will the parties organising the...

Italian Day Of Research In The World

Strong Support For Serbian Researchers

An important element in the promotion of Italian research is represented by the “Italian Research Day in the World”, which will this year see...

Ivan Rašković, Professor at the Faculty of Architecture in Belgrade, President of the Union of Architects of Serbia

Ad Hoc Decisions Aren’t in Society’s Interest

I have no dilemma over whether the Army General Staff HQ and the Belgrade Fair, as two architectural masterpieces and symbols of our urban...

Jurij Bajec Ph.D., The University Of Belgrade Faculty Of Economics

Measures To Curb Inflation Are Mistaken

Short-term measures aimed at protecting standards, such as freezing the prices of key food items, interventions from commodity reserves or reductions in vat on...

Ivana Radić Milosavljević, Assistant Professor in European Studies at the University of Belgrade - Faculty of Political Sciences

Not all Right-Wing Parties are Likeminded

The outcome of the European Parliament election is unlikely to cause a dramatic shift in EU policy, particularly foreign policy, but it could hamper...

Team From Faculty Of Mechanical Engineering Exhibits Aircraft In Munich

The Beoavia team of master students at the Faculty of Mechanical Engineering in Belgrade will present their Phoenix aircraft at the Air Cargo Challenge...

Focus

The Liquidity of the Economy and Citizens is Key to a Rapid Post-crisis Recovery

Many economic experts are already predicting that the pandemic caused by the Corona virus will be a bigger challenge for the world economy than...

H.E. Ahmed Hatem Almenhali, Ambassador of the United Arab Emirates to the Republic of Serbia

Relations At An All -Time High

Towards the end of Q1 2025, the citizens of Zrenjanin will gain access to safe, clean water, marking a significant milestone in improving the...

Takashi Shimizu, Representative Director, President and CEO, Toyo Tire Corporation

Serbia is a Key Hub of Japanese Industry

Our choice of Serbia has proven correct, as it has become one of Europe’s most attractive business environments, offering strong government support and understanding,...

H.E. Akira Imamura, Ambassador of Japan to Serbia

A Glimpse Into the Future

Under the main theme of “Designing Future Society for Our Lives”, the Japanese World exhibition will present the diversity of life, the existence of...

Yasunari Miyauchi, JETRO Budapest general director

Breakthrough in Bilateral Cooperation

Growing business exchanges between Serbia and Japan, particularly in the energy, IT and environmental sectors, present significant opportunities for cooperation and new investments Last year...

Director Neil Jordan and Mary Coughlan, the Irish “Billie Holiday,” Guests of the 13th Belgrade Irish Festival

Renowned Irish film director Neil Jordan and exceptional Irish jazz and blues singer Mary Coughlan will visit Serbia for...

New Leadership for Serbia’s FIC

On February 12, 2025, the Foreign Investors Council (FIC) of Serbia elected a new leadership team. Dr. Ronalnd Seeliger,...

The Grand Reopening of The Bristol Belgrade

The Bristol Belgrade has officially reopened after an extensive two-and-a-half-year restoration, seamlessly combining its storied past with modern luxury. Renowned...

European Motorcycle Sales Surge in 2024

In 2024, Europe's five largest motorcycle markets saw a notable increase in sales, fueled by the demand for urban...

A New Front in the Trade War

President Donald Trump’s decision to impose 25% tariffs on steel and aluminum imports is stirring fresh tensions, particularly with...