The apartment market in Belgrade is too large and too inert to expect significant changes in the short term
We spoke with Miodrag Gazibaba, the Director of the consulting company Cordon, about the current developments in the real estate market in Belgrade and Serbia
What is the current situation in the real estate market? Have prices calmed down?
The situation in the real estate market, specifically apartment sales, is stable, but it is evident that the number of transactions on an annual level is lower compared to 2022, which was a record year when the volume of apartment sales in Belgrade alone amounted to 2.6 billion EUR. Since January 2023, a decrease in the number of transactions has been felt, which has also caused a slight drop in prices, primarily among investors selling apartments under construction, where discounts of 2-5% compared to 2022 prices are more commonly offered. This price difference can be considered more of a price correction rather than a drop, and it is not talked about enough because it seems that some market participants expected, and still expect, a larger drop. However, there is certainly no price growth across the entire market as was the case in previous years when prices grew by as much as 10% annually.
How realistic are the prices? Not only are they high, but the market shows almost no logic. Apartments in neighborhoods that do not offer a quality lifestyle are valued highly, simply because they have historically had a good reputation.
Realistic prices, in our view, are those that have been achieved, and historical data is always looked at for this. It is enough to look 6-12 months back to estimate which prices were realistically set based on completed transactions. For some people who only observe the real estate market, prices have long been illogical. However, it is obvious to market participants that a large number of buyers purchase apartments as investments, and their reasoning is different from buyers who purchase apartments for themselves. According to data from the RGZ (Republic Geodetic Authority), cash transactions make up about 75% of the total market, which shows how many investment buyers there are. For most buyers, the process starts with location, hence the old mantra: location, location, location. Based on this crucial criterion, investors manage to charge high prices per square meter in good locations, even if the quality of construction or the quality of life does not meet the expectations of some buyers. Demand is the only true element that drives up the price per square meter, and there will always be demand for good locations.
In our opinion, conditions for a different way of thinking have long been established: location, critical mass, and concept. This means that location does not have to be the only parameter and that it is possible to offer a larger complex that provides a better living concept in a location that is not prestigious. There are also market examples of this way of thinking.
Does snobbery drive up the price per square meter?
The total volume of the apartment sales market in Belgrade last year amounted to about 2.1 billion euros, and we do not see snobbery significantly affecting the overall market. Snobbery exists everywhere in the world and is generally associated with certain parts of the city. In Belgrade, these areas include Upper Dorcol, parts of the city centre, parts of Vračar, parts of Senjak, and parts of Dedinje. These locations will always be prestigious and attract a small segment of buyers who want to follow the larger market, but we do not believe this influences price increases.
What truly drives price increases is high demand, or more precisely, the impatience of buyers. Most purchases you will see in the upcoming period reflect impatience that has built up over the years, and this is part of the explanation for the market’s apparent illogicalities.
A typical investment buyer accumulates funds for an apartment purchase over many years, during which impatience grows to invest the funds and start generating income from that investment. In this impatience, different criteria for construction quality emerge, meaning less attention is paid to quality during the purchase.
Buyers purchasing for themselves have much higher expectations, but in this context, they also have far fewer options that meet all the conditions regarding location, quality, and price at the beginning of the process. Many of these buyers spend several years searching for the right property before they manage to invest their funds, often making compromises compared to their initial wish list.
We have drastic examples of poor apartment construction, which often destroys precisely what should be raising the price per square meter. For example, Zlatibor –has always been valued for its nature, but now it’s almost gone. Similar examples are found in Belgrade, Novi Sad, and throughout Serbia.
Inadequate construction quality is a common occurrence in our real estate market, and this is also a consequence of high demand. In previous years, demand was so high that investors could sell all apartments even before construction began, meaning buyers could not see the construction site or enter the apartment they wanted to buy. This situation allows certain investors to save on construction quality.
Of course, some investors care about their reputation and invest in construction quality. Although this may be a smaller part of the market, there is a slight increase in investments in quality. The more a project or a place like Zlatibor becomes interesting to investment buyers, the greater the chance of encountering lower construction quality. However, there are certainly more examples of quality construction now than there were 5-6 years ago.
What is the situation with real estate prices in Serbia? Apart from Belgrade and Novi Sad, where else do we see a rise in prices and demand?
We do not see many examples of price increases in the last 18 months, but it is evident that certain projects and certain investors have managed to maintain a portion of the demand. In previous years, it seemed that all investors were doing well, but in the current market, differences in demand are now visible. This reveals who manages to offer the right balance between quality and price. We see examples of residential projects outside Belgrade and Novi Sad in good locations, but we have not noticed a price increase. Instead, we observe a similar trend where some investors manage to retain part of the demand, while others find it more challenging.
Has the drop in interest rates for housing loans increased the sale of apartments on credit?
The total number of housing loans has increased slightly, so we see this more as a correction rather than growth. It seems that the market has simply adapted to the new reality and high interest rates, as the percentage of loans in arrears is extremely low, despite the evident rise in interest rates over the past two years.
How do you predict real estate market trends until the end of this year?
The apartment market in Belgrade is too large and too inert to expect significant changes in the short term, so we do not anticipate any major shifts in the overall market by the end of the year. What is evident is the absence of a certain segment of buyers who expected larger discounts in the past 18 months, which did not happen. It appears that interest rates will gradually decrease, leading to increased demand. Additionally, we believe there will be a rise in demand at some point, driven by impatience and accumulated funds that have not been invested in the past 18 months since the market slowed down.