Residential Market Outlook Belgrade | Jan 2018 Regulated by RICS Regulated by RICS Residential Market Outlook | Jan 2018 | LeRoy Realty Consultants | 1 Serbia’s overall economy health has been reinforced further in 2017, which lifted up the GDP & Construction Industry Growth country’s credit rating from BB- to BB¹, with a 5% stable outlook in December 2017. The outlook 4.0% for this year shows growth accelerating 4% 2.8% 3% 2.8% 2.2% The GDP growth of 1.8% in 2017 was lower than projected, 2% 1.8%* but its structure points toward underlying changes that will 1% shape the economic expansion in the coming years. The 0.8% growth is primarily driven by the increased investment, 0% -0.7% private consumption, exports and FDI. On the other hand, 2014 2015 2016 2017 the growth of the construction industry outperforms that of -1% the local economy in the last 3 years, with positive future -1.8% -2% prospects. Construction industry growth GDP *estimate FDI inflow in 2017 stood at EUR 2.3 billion, which is up by Source: Statistical Office of the Republic of Serbia 37.5% y-o-y thus exceeding the projection for 2017. The Central Bank has decided to cautiously loosen monetary Unemployment & Salaries policy, to support a boost in domestic economic activity, and 20% 6% decreased its key policy rate at a historic low of 3.5% on 18% Salary growth rate October 2017, which contributed to the decline in the EUR- 16% 4% indexed lending. 14% 3.7% 3.9% 12% 10% 1.4% 2% 8% Elevated levels of business and 6% 0% 4% -0.2% consumer sentiment Unemployment rate 2% 0% -2% Labor market conditions have continued to improve in 2017, 2014 2015 2016 2017 even faster than previously expected, with the Unemployment Salary growth unemployment rate falling to 12.9% in the third quarter of Source: Statistical Office of the Republic of Serbia 2017, coupled with two consecutive years of wage growth. Private consumption and residential investment growth Mortgage rate & Key policy rate should benefit from further improvements in labour market 9% 8.0% conditions and better loan availability. 8% 7% 6% 5% 4.5% Structural changes and sustainable 4% 4.0% 3.5% prospects 3% 2% 1% Keeping public debt under control, the effects of monetary 0% easing policies, investment in export-oriented sectors, 2014 2015 2016 2017 higher government capital spending and demand growth Home loan rates Key policy rate should be the drivers of accelerated growth in 2018-2019, Source: NBS which is estimated at 3% in 2018. ¹ S&P Global Ratings Residential Market Outlook | Jan 2018 | LeRoy Realty Consultants | 2 Belgrade residential market rebounding Number of newly finished, unfinished & sold apartments in Belgrade metropolitan area Demand surge for three years in a row and a relatively 13,412* inelastic supply, especially over the 2015 – 2016 period, 4,500-5,000** 2017 Sold apartments have triggered strong rebound of off-plan sales and the 4,045*** accelerated completion of many multi-phase residential 12,375 projects . 2,568 Newly finished 2016 5,922 apartments 3,265 A decrease in interest rates continued, further fuelling Unfinished 10,585 housing demand in Belgrade metropolitan area, which grew 3,596 apartments 2015 at a pace of 12% during 2014-2017. Buyers’ and investors’ 2,735 3,394 Apartment pipeline confidence is improving steadily, supported by the improved 9,646 (issued permits) labor market and positive economic growth trends. 4,311 2014 3,571 2,295 * preliminary data ** estimate 0 3,000 6,000 9,000 12,000 15,000 The supply lag puts upward pressure on *** Jan-Oct 2017 prices Sources: Statistical Office of the Republic of Serbia, Republic Geodetic Authority New construction activity significantly lags behind the Residential market dynamic in Belgrade municipalities increasing demand, causing a very low volume of 3,000 80% completions during 2015-2016. 2,500 60% ents After stagnation in 2016, the number of building permits in 2,000 40% the first ten months of 2017, increased substantially, which 1,500 20% should partially reduce the gap. The construction of new 4,045 apartments is planned, indicating the growth of 40% of apartm 1,000 0% compared with the same period in 2016. Zemun, Vozdovac 500 -20% and Zvezdara municipalities will host a large part of the new 0 -40% supply. In terms of volume per 1,000 inhabitants, the Number highest development intensity can be expected in Savski Vracar Zemun Venac with 13.3 apartments per 1,000 inhabitants, followed Palilula Cukarica Rakovica Zvezdara Vozdovac by Vracar with 7.3 and Zemun 5.4 apartments per 1,000 grad Stari Savski venac Savski inhabitants. New Belgrade, as the one of the most sought- Belgrade New after locations among new buyers, has the pipeline of only Sold apartments, 2017 Apartment pipeline (issued permits), Jan-Oct 2017 0.6 apartments per 1,000 inhabitants, according to the Finished apartments, 2016 issued permits in the period Jan-Oct 2017. Y-O-Y change in sales 2017/2016 (%) Source: Statistical Office of the Republic of Serbia The highest imbalance, in favour of investors in 2018, will witness municipalities Zvezdara, New Belgrade, Palilula, Cukarica and Stari Grad. Number of sold apartments in Belgrade municipalities 15,000 817 More buyers are joining the market 12,500 792 1,249 994 451 686 691 640 An increase in lending has opened the market to so many 412 639 10,000 548 827 527 more buyers and this trend will prevail in 2018. The total 594 606 1,654 601 318 1,640 volume of property transactions, including the resale 259 660 447 1,615 7,500 1,389 market, has increased by 8.4% during 2017, according to 1,271 2,004 preliminary data. 1,556 1,932 1,593 1,301 5,000 The increase of demand has further accelerated off-plan 1,013 1,145 2,848 2,623 sales in 2017 and investors will still be in control, as the 1,404 2,500 2,115 housing supply is not expected to catch up with buyers’ 617 525 917 775 demand in the short run. Somewhat better market balance 1,687 1,709 1,797 978 can be expected as of 2019. 0 2014 2015 2016 2017* Vozdovac Vracar Zvezdara Zemun New Belgrade Palilula Rakovica Savski venac Stari grad Cukarica Other * preliminary data Source: Republic Geodetic Authority Residential Market Outlook | Jan 2018 | LeRoy Realty Consultants | 3 Price growth & participation in sales - Belgrade municipalities, A considerable surge of demand in 2017 has been registered 2017 in the areas offering solid supply of new apartments, such as 20% Vracar (+75%) and Savski Venac (+67%) municipalities, while a drop was recorded in the areas with the insufficient new 16% g r o wt h offer, such as Stari Grad (-30%) and New Belgrade (-19%). 12% 8% The demand for luxury and upper-mid quality projects show m a r k et sustainable fundamentals, while the visible recovery has - 4% been seen in the middle market segment. 0% u p p e r 0% 2% 4% 6% 8% 10% 12% 14% 16% average growth , y - o - y Demand drives up prices of new units. Stari Grad Savski venac Vozdovac Palilula Rakovica Vracar Zvezdara New Belgrade Resale market is lagging behind Cukarica Zemun Source: LeRoy Residential prices in Belgrade increased by 5 – 6% in 2017, following a prolonged contraction period. A considerable No of Project Location Status Deadline Investor growth of 12 – 15% was recorded within new projects in units 296 1st ph. 2018 mature stages of development, while in the upper market Belgrade Downtown 472 In construction 2nd ph. 2019 Eagle Hills segment prices rose by 10.5% on average. Waterfront 220 2nd ph. 2020 NBG, block 799 Finished 1st, 2nd & 3rd ph. Deka A Blok A large discrepancy between demand and supply in 67a inzenjering N/A In construction 4rd ph. 2019 Central 317 Finished 1st, 2nd & 3rd ph. Z vezdara area has led to a double-digit annual price gain of Downtown AFI Europe 16%. During 2017 the volume of sales in this municipality Garden 67 In construction 4rd ph. 2018 NBG, block 400 Finished 1st, 2nd & 3rd ph. West 65 PSP Farman accounted for 21% of the total transactions in Belgrade 65 114 In construction 4rd ph. 2018 metropolitan area, followed by Vozdovac with 13% share, Zelena Montex Real Zemun 236 In construction 2018 Avenija Estate w here prices grew by 10% in the same period. Sunnyville Palilula 215 In construction 2018 Energoprojekt New South Vracar 129 In construction 2018 Ex-Ing B&P The prices in the bottom tier of the resale market grew Kapija Aleksandar Vracar 252 In construction 2018/2019 insignificantly in the same period. Vracara Group Vozdove 235 In construction 1st & 2nd ph. Shikun & Binui Vozdovac kapije 465 Announced N/A Group Asking prices for new units within upper-mid quality projects Panorama Vozdovac 187 In construction 2019 Alpros Invest depend heavily on the micro location and are within the Vozdovac range of EUR 1,700-2,200 per sq m, while the prices of older Paunov CPI Vozdovac 106 In construction 3rd ph. 2018 apartments range EUR 1,000 – 1,300 per sq m. Higher breg Construction 323 In construction 1st ph. 2018 The Building quality apartment prices are between EUR 2,350-2,800 per Zemunske Zemun 366 In construction 2nd ph. 2019 Directorate of sq m on average, while the offer of luxury new units is still kapije 1,011 Announced N/A Serbia limited and the price ranges between EUR 3,000-3,500 per Kneza Preparation KMR sq m.