Dejan Molnar, Professor At The University Of Belgrade Faculty Of Economics

Real Estate Prices Have Yet To Peak

Real estate prices in Serbia increased significantly from 2019 to 2022, as evidenced by data showing that the average value of each individual sale increased from 38,000 euros in 2019 to 54,000 euros in 2022. Nevertheless, despite the already extremely high prices being paid for newly constructed residential apartments, there is still room for them to increase further

Our country’s real estate market has been characterised over the last few years by its outstanding resilience and constant growth in demand for almost all types of real estate – land plots, flats, houses, business premises, garages etc. It appears as though real estate, which is considered the “most conservative” type of property, is being treated as a relatively secure form of investment, which is why there is a growth trend in the number and value of transactions on this market.

The amount of money circulating on the real estate market last year was as much as 90% higher than it had been prior to the outbreak of the pandemic, having increased from four billion euros in 2019 to 7.6 billion in 2022. It should also be noted that the number of sales contracts also increased during the same period, albeit to a much lesser extent (33.7%). It thus follows that real estate prices increased significantly in the 2019-2022 period. It could be calculated that the average value of a single transaction (sale-purchase) increased from 38,000 euros in 2019 to 54,000 euros in 2022 (representing growth of 42%). Over the course of 2022 alone, the amount of money circulating on the real estate market increased by 24.6%, while the number of sales contracts was up by “only” 1.8%. At the same time, growth in the number of contracts was higher in both 2020 (2.3%) and 2021 (28.4%).

The largest share of the total volume of monetary transactions is held by residential apartments (around 55%). The increase in the value of transactions in this segment is a consequence of increasing prices far more than it is a result of increases in the number of realised sales contracts. According to the data of the Statistical Office of the Republic of Serbia (RZS), the average price of newly constructed flats was 11.7% higher in the first half of 2022 compared to the same period of the preceding year.

Regardless of the slowdown in the dynamics of realised salepurchase deals, for now investors aren’t reducing their activities, or at least have no plans to do so, judging by RZS data on the number of building permits issued and apartment constructions completed

What is noticeable is the decline in the share of apartment purchases using bank loans. After the record level in the last quarter of 2020 (32.7%), there was a successive decrease in the share of payments for apartments from loans for eight consecutive quarters, and in the fourth quarter of 2022 it fell to “only” 20.9% . This is aligned fully with the trend of increasing interest rates on housing loans in the observed period (2020-2022). At year’s end 2020, the average interest rate on this type of euro-indexed loan was 2.63%, while two years later (year’s end 2022) it had reached the level of 5.11%. Considering that loans for purchasing apartments had become even more expensive by this January (5.42%), we should expect a slowdown in borrowing for this purpose among citizens.

Regardless of the slowing dynamics of sales, investors don’t seem to be reducing their activity. According to RZS data, the number of apartment constructions completed in 2021 was 14% higher than in 2020, while the number of building permits issued for apartments under construction in 2022 increased by 14% compared to 2021. It can thus be expected that the number of new apartments will increase under similar dynamics in the period ahead. Important questions that impose themselves here relate to the origins of the money of those purchasing new apartments for cash, but also those investing cash in housing projects, but also what will become of this market when they no longer find this type of investment attractive.


One of the indicators that’s utilised when checking for the presence of “inflated” real estate market prices (for apartments) is the ratio between the average price of a 60m2 apartment and average annual net earnings (price-to-income ratio). This index actually shows how many years the average resident of a country or city needs to work to be able to buy a new build residential unit with an average surface area (60m2). The higher this indicator, the more “inflated” prices are, and, conversely, the lower it is, the easier it is for citizens to become homeowners.

The standard international threshold for this indicator stands at a value of between four and six, so situations in which it exceeds six indicate the existence of a housing market price “bubble”. This general criterion should nevertheless be observed with certain reservations. It is more important to compare the index’s current value with the multiyear average (representing a sort of standard) for the same country or city. If it is currently below the multiyear average, we can expect a further rise in housing prices. In contrast, a decrease in housing prices is likely in cases in which the current value of this indicator is above the multiyear average.

According to official data on the price per square metre for new build residential properties and average income in Serbia, that index stood at 14 in 2022. Its average value during the 2013-2019 period was 15.7. It thus follows that, despite the already extremely high prices of new build apartments, room exists for them to increase further. Results by city are also interesting – for instance, the index for the city of Zrenjanin shows that there is room for prices to increase by an additional 10 per cent, taking into consideration the enduring trend of the ratio between average income and price per square metre.


The volume of the real estate market, i.e., the total number of completed sale-purchase deals (transactions), is one of the basic indicators of the state of this market. When any changes occur, the real estate market reacts first through increases or decreases in the number of transactions, while prices change slightly and slowly.

That was also the case following the global financial crisis of 2008. Also testifying to this is the data of the National Corporation for Housing Loan Insurance (NKOSK) on the number of sale-purchase transactions realised via bank loans. Prior to the outbreak of the global financial crisis, our country’s real estate market had experienced strong expansion (2005-2008 period). Inflows of funds from privatisations, FDI growth, the hiring of new workers and very dynamic crediting activity in the area of long-term housing loans (mortgages) among banks under foreign ownership all played their part. However, everything ground to a halt once the negative impact of the crisis had been felt in our country (autumn 2008). Many people lost their jobs and monthly earnings and were thus unable to regularly service their obligations to banks, the share of non-performing loans in bank portfolios “exploded” and banks became much more cautious and rigorous when approving new loans. The result was a drastic drop (of as much as 58%) in the number of sale-purchase transactions conducted with the help of bank loans. However, prices didn’t fall significantly, because – obviously – the fall in demand was accompanied by a fall in the supply of residential buildings.

When prices are expected to fall, those who have money/cash will wait to buy, while sellers who can afford it won’t rush to sell and thus reduce the price. It is possible for there to be a repeat of the scenario from 2009 – with a strong drop in the number of transactions, accompanied by a smaller drop in prices.


When we analyse real estate market developments, we must take the latest circumstances into account, i.e., the restrictive monetary policy (raising of interest rates) that is deployed with the aim of curbing inflation.

Borrowing conditions for Serbian citizens have become drastically worse over the previous year. The average interest rate on dinar cash loans rose from 8.64% in February 2022 to a whopping 14.29% in February this year. There has also been a significant rise in prices of housing loans (indexed in euros), which occupy an important place in the structure of total bank placements in the retail sector.

When it comes to indexed loans, as much as 85% of placed funds (approx. €5 billion) relate to housing loans, which are naturally long-term loans.

Although it is a thankless task to forecast what will happen with this market in 2023, construction plans evidently exist. With an increased supply and a slightly lower level of demand, there is perhaps reason to assume that we could see the emergence of a “cooldown”

Over 150,000 households are repaying a loan for a residential flat/house. The average interest rate for this type of loan has more than doubled over the course of the last year – from 2.61% to 5.8%. This is the highest interest rate for housing loans since September 2011, when it reached a level of 5.96%.

If we take the example of a family that started repaying a 60,000-euro housing loan with a 20-year repayment period in February of last year, the monthly instalment (annuity) stood at 320 euros at the start of the repayment period, while today it has risen to the amount of 405 euros, which is a hike of 85 euros (10,000 dinars).

As such, a significant number of potential homebuyers remain “out of the game” – as it isn’t so easy to take out a loan. Banks are now more rigorous when approving loans, borrowing conditions are worse and place a far higher burden on monthly incomes, and this is slowly leading to the waning of demand for apartments in this segment.


However, regardless of the slowdown in the dynamics of realised sale-purchase deals, for now investors aren’t reducing their activities, or at least have no plans to do so, judging by RZS data on the number of building permits issued and apartment constructions completed.

The number of apartments completed in 2021 was up 14 per cent on 2020, while the number of building permits issued in 2022 was up by 14 per cent compared to 2021. The number of new apartments can therefore be expected to increase under similar dynamics in the coming period. Although it is a thankless task to forecast what will happen with this market in 2023, construction plans evidently exist. With an increased supply and a slightly lower level of demand, there is perhaps reason to assume that we could see the emergence of a “cooldown”.

At the same time, it is possible for geopolitical circumstances and rising interest rates, which generally impact negatively on investors, to cause a freeze in construction at a certain juncture.

The growth of prices is gradually starting to slow in the U.S. and EU. That differs by member state in the European Union, but it is noticeable that growth in the prices of apartments and houses was “weaker” at the level of the EU as a whole in 2022. Compared to the same period of 2021, prices were up 3.6% in Q4 2022, which is lower than in the first (10.4%), second (9.8%) and third quarters (7.3%).

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