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Comment by Dejan Molnar

Reduced Turnover, Yet Higher Prices – Paradoxical or Not?

Price stagnation for apartments and houses (or negligible growth of 0.2%) was recorded at the EU level over the course of 2023. The price per square metre fell in Luxembourg (-14.4%), Germany (-7.1%), Finland (-4.4%), France (-3.6%) and Sweden (-2.9%), while the countries that stand out for rising prices include Poland (13%), Bulgaria (10.1%), Croatia (9.5%), Lithuania (8.3%), Portugal (7.8%) and Slovenia (6.8%)

Following intensive price growth in 2021 and 2022, Serbia experienced something of a “cooldown” in 2023. The year-onyear price growth totalled a rate of around 5.8% in the final quarter, which was lower than the second ( 1 0 .9%) and third (8.2%) quarters.

This nevertheless doesn’t align with the decline in the number of sales (concluded contracts). The total number of sales contracts on the Serbian real estate market fell from 140,592 in 2022 to 121,627 in 2023 (a fall of 13.7%). The intensity of the decline differed by segment: flats/apartments (-18.8%), houses (-15.3%), garages (-13.2%) and business premises (-8.3%), while growth was only recorded in the case of agricultural land (+5%).

Viewed from the perspective of the financial aspect, the value of our country’s market fell last year by 13.3%, with the volume of funds in 2023 totalling 6.5 billion euros, or a billion euros less than in 2022. In terms of real estate type, the price decline was felt the most in the case of houses (-18.8%), followed by flats/apartments (-16.7%), garages (-16.9%) and business premises (-5.2%), while the only segment to grow was that of agricultural land – which was up by a whopping 14%.

The reduced housing market turnover could also be attributed to a decrease in the percentage of purchases made with the help of bank mortgages, which fell from 32.8% in 2020 to “just” 17% in 2023. This is fully aligned with the trend of increasing interest rates on housing loans in the observed period. The average interest rate for newly approved euro- indexed loans for the purchase of apartments stood at 2.63% in December 2020, while by August 2023 it had reached the level of as much as 6.73%.

The fact that excess liquidity is mainly invested in real estate – as opposed to productive and innovative business ideas/ventures – indicates the presence of certain weaknesses in our economy.

The dynamics of building permit issuance doesn’t correspond with trends when it comes to the number of sales realised and the volume of funds. In 2023, only 0.7% fewer permits were issued on the basis of total usable square metres compared to 2022. This leads to the conclusion that investors aren’t planning to scale down construction, despite the sustainability of demand being in question due to the increasing numbers of citizens facing falling living standards and reduced payment power.

At the same time, sellers (investors) still aren’t reducing prices even though a significant number of potential buyers have clearly been left “out of the game” due to worsening financing conditions. One possible consequence of this situation is a slowdown in new construction and a reduction in the supply of new build flats. The real estate market could reach a state of new equilibrium as a consequence of reduction in the quantity on offer and demand – with prices remaining at the current high level.

The fact that excess liquidity is mainly invested in real estate – as opposed to productive and innovative business ideas/ventures – indicates the presence of certain weaknesses in our economy. Among other things, this could mean a lack of high-quality entrepreneurial ideas or that the entire business environment is insufficiently stimulating for the development of activities that could ensure the national economy’s long-term competitiveness. Viewed over the longer term, real estate investments still have a one-off effect. The question of expediency also rightly imposes itself, given that Serbia is recording a continuous decline in the number of residents.

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