Market will recover in 2011

Published in CorD magazine

Market will recover in 2011

The real estate sector has been really flourishing in all East European countries and in those that have become EU members, like Romania and Bulgaria.  

One of the most difficult years for the real estate sector is behind us. We are talking about this to the owner and director of Picard Real Estate, Vesna Miljkovi?.  
Mrs. Miljkovi?, what is your view of the year that is ending when it comes to real estate sales?

This was a bad business year. We have had crises in real estate before, but real estate prices have never fallen as much as they did in 2009. Sometimes, when the market would go quiet for a year or a year and a half at the most, prices remained the same. The global economic downturn caused a complete stagnation; everything was paralyzed and blocked, and the prices went south. 

How much did the prices decline, in your estimation?

 

I think at least 30%.

You said there were times when the real estate market was quiet, but prices remained the same. We expected prices of real estate in Belgrade to go down, since real estate is Serbia has been overpriced for a long time.

That is true. The real estate sector has been really flourishing in all East European countries and in those that have become EU members, like Romania and Bulgaria. This is especially the case with Romania, a very large country. Let’s take Bucharest, for example, which is a great and beautiful city. There real estate prices downtown are 5,000 euros per square metre on the average. Of course, the prices did go down because of the crisis, but in Serbia people refused to accept that at first. We should add to this statements made by certain politicians that none of that will happen to us when, in fact, we slowly began to feel the crisis, which was completely normal, especially with our economy and the fact that we are a developing country. The economies of developing countries are already on shaky legs. We are somehow still at the beginning, and then we get hit by something like the global economic crisis. You know, just like when you are sick, then you get a bit better for a little while, and then you are struck by another bout of flu and you get even worse. If you are healthy, and then you catch the flu, then it is much easier to get well.

Do you expect that real estate prices will continue to decline in 2010?

No. I think that, in certain ways, 2010 will be a difficult year. When it comes to prices, I do think they will no longer go down, simply because they cannot go down further than this.  The West has just begun to recover. America is almost back on its feet, so to speak, and once western countries start recovering that will spill over to Serbia too. I think that prices will stagnate, and this year’s winter period will be dead in regard to the real estate market. But come spring, we will see certain things shifting on the market. Banks, like for example EFG Bank, are slowly beginning to advertise new mortgage loans, which was unthinkable a few months ago. You win some, you lose some. We are currently losing investors while customers are benefiting because they can buy excellent real estate at very good prices. This is a circle. In the past 2 to 3 years everything was completely reversed, wasn’t it? Housing prices were very high, e.g. for good locations the prices ranged between 3,000 and 4,000 euros. Then the crisis came and prices dropped. As our country begins to recover and the Stabilization and Association Agreement with the EU is implemented, things will get better and I am confident that all of that will take place next year.

I presume that next year’s prices will not compensate for this year’s 30% decline?

No, definitely not. That will not happen next year, but following the reactivation of the Interim Trade Agreement, there is a slight chance of that happening. Once the countries of the Eastern block became EU members, real estate prices there jumped between 30% and 40% percent within only a year or two. Of course, this will happen in our country too. So this is a good time to buy real estate, if you have available cash, and because investors who sell new property have, in most cases, bank loans to repay and are forced to lower prices in order to cover these loans and get some return on their investments. The owners of old apartments, which are in no hurry to sell, do not have such problems. When you have a stone around your neck, you should get rid of it quickly, since the longer you carry it, the deeper will you sink.
Investors say that one of the problems with new real estate and its prices lies in the fact that banks are no longer that eager to grant mortgage loans, and, even when they do grant them, these loans are pretty expensive and have a high interest rate.

The real estate market is just like any other market. Look at what happened in the world. All major banks in London were asking to see a down payment of 5% before they granted a loan, which, you have to admit, was a pretty reasonable demand. Some of the bigger banks didn’t even require a down payment. However, even these banks, which were quite generous in granting loans, started to crack under pressure. Now, for example, English and French banks are asking for 30% to 40% down payment. Bear in mind that Serbia is a developing country. In large western countries that have always had stable economies, things are functioning as before. True, people did lose their jobs and bonuses, and some of them are no longer able to repay loans, but this is still a healthy environment.  Their foundation is healthy. However, the situation in Serbia is still not like that. You have East European countries, like the Ukraine, which had an inflation rate up to 50% as a result of the economic downturn. In this kind of situation it is very risky to grant a loan since you haven’t got a clue what inflation will be like. The dinar is holding up surprisingly well, and we were quite uncertain as to what would happen with banks in our country. They closed up, so to speak, in order to protect their core capital.

Has your company extended loans and how are you handling that?

Yes, it has. The situation is difficult, because the loans in this country are quite expensive due to a very high risk. The country is still developing and is deemed risky by bankers. I am coping somehow, although things will be difficult in the sense that we are not going to earn money from projects. We believe that the situation will be better in 2011 and that we will continue to successfully operate.

You sell VIP and luxury real estate in the best locations in the city. Are real estate prices in Belgrade formed primarily in respect to how big the property is or location is more important?

We have a mix and match of things. Due to the current situation, smaller apartments (from 50 to 70 square metres) are more in demand, and when you are selling smaller apartments you can get more money, since the overall amount that you pay per square metre is lower. What is my point? If you, for example want to buy an apartment of 50 square metres in a good location for a price of, let’s say, 2,700 euros per square metre, you will have to pay a total of 135,000 euros. If a family is buying an apartment of 150 square metres in the same location for a total of 405,000 euros (at the same price per square metre) then you immediately think that the apartment is expensive and that you need a lot of money for it. Hence, large apartments are not that in demand. Of course, the location always has a bearing on the price, here and abroad. That’s just how things are. 

What are the most attractive locations in Belgrade?

The most attractive location at the moment is Novi Beograd and this location is still being developed. Aside from that, you have locations that have always been attractive like Dedinje, Senjak, Vra?ar, Dor?ol, Neimar, and the Professors’ Colony. These are the locations that have always been considered exclusive. The only trump card that we have at the moment when it comes to VIP locations is good quality apartments and solid construction, so I am not forced to lower my price for certain locations that are not considered that exclusive.