Serbia Investment and Export Promotion Agency

Vlajkoviceva 3 11000 phone: +381 11 3398 550 fax: +381 11 3398 814 [email protected] www.siepa.gov.rs Real Estate Industry in

Contents

Plaza Centers in Serbia...... 2 Key Information on Serbia...... 3 Why Invest in the Real Estate Industry in Serbia...... 4 Overview of the Real Estate Industry Basic Industry Indicators...... 6 Office Market Trends...... 7 Residential Market Trends...... 9 Retail Market Trends...... 10 FDI in the Real Estate Industry...... 11 Africa-Israel Corporation & Tidhar Group in Serbia....12 Acquiring Construction Land Land Classification...... 14 Leasing Municipality Land...... 15 Acquiring the Right to Use Land...... 16 Conversion of Agricultural Land...... 17 GTC International in Serbia...... 18 Construction Procedure Assessment of Urban Conditions...... 19 Construction Approval...... 19 Land Development Fee Payment and Main Project Preparation...... 20 Notice of the Start of Construction...... 20 Construction...... 20 Occupancy Permit...... 20 Registration in the Cadastre...... 21 Financing Options...... 22 Real Estate Transfer Real Estate Taxes...... 22 Related Contacts...... 23 SIEPA Services...... 24 Plaza Centers in Serbia

Mr. Sagiv Meger, CEO, Plaza Centers Serbia

Why did you decide to start a business in Serbia? We feel that Serbia is in an unstoppable race to close the economic gap it has with its neighboring countries. Thanks to economic liberalization and various newly introduced reforms, GDP was steadily increasing over the past years. This is exactly where Plaza Centers comes in–our goal is to provide a new quality of life for the people of Serbia to accommodate this new growth by providing the development they deserve. This has been our strategy for the past 12 years starting in Hungary and has proven to be a winning formula for us.

What are your current and future projects in the country? Plaza Centers is focusing on Serbia as a whole and not only on the capital. Currently, we have 3 projects: one in Kragujevac (www.kragujevacplaza.rs) where we started building a shopping and entertainment center of 65,000 sq m GBA and two in Belgrade: Visnjicka Plaza with an approximate GBA of 90,000 sq m and our jewel project, which will be the old Police headquarters building in Knez Milos St, where we plan to build a 5-star+ hotel, Class A office tower, and high-end retail shopping center. We are busy acquiring more plots throughout various key towns, and Plaza intends to invest €500 million in Serbia within the next three to four years. Our aim is to uplift the economy as a whole, while offering the Serbian people quality accommodation, office facilities, and shopping and entertainment facilities.

How do you perceive business climate in Serbia? We feel that the people, as well as the Serbian Government are ready for a positive change. Naturally, before the last elections, we were little concerned and we are still keeping a close eye on the political climate of Serbia. But, at the moment, we are very optimistic about the general climate in Serbia.

2 Helsinki 2083 km

Oslo 2109 km Tallinn Stockholm 2075 km 2154 km

Riga 1768 km

Dublin Copenhagen EU Countries 2435 km 1659 km Non EU Countries CEFTA Hamburg 10th Pan–European Corridor 1547 km 7th Pan–European Corridor Amsterdam Berlin London 1721 km 1255 km Warsaw 1982 km 1067 km Brussels Kiev 1672 km 1302 km Frankfurt 1282 km Prague 907 km Vienna Paris 612km 1766 km Stuttgart 1155 km Bratislava Munich Salzburg 578 km 930 km 797 km Zürich Graz 1175 km Budapest 575 km 384 km Ljubljana Zagreb Milan 520 km 390 km 1009 km Bucharest Belgrade 641 km

Marseille Sarajevo 1518 km 291 km So a 403 km Skopje Barcelona Rome 423 km 1956 km Istanbul Madrid 1289 km 980 km 2566 km Tirana 612 km Thessaloniki 630 km

Igoumenitsa 924 km

Athens 1132 km

Official Name Republic of Serbia Form of State Democratic Republic Political Structure President, Unicameral Assembly with 250 seats Key Information on Serbia Information Key Area 88,361 km2 Population 9.5 million South East Europe, central part of the Balkan Geographic Peninsula, at the intersection of Pan European Position Corridors No. 10 and No. 7 In the east, Serbia borders Bulgaria, in the northeast–Romania, in the north–Hungary, in Border the west–Croatia and Bosnia and Herzegovina, in the southwest–Montenegro, and in the south–Albania and Macedonia Temperate continental, with monthly average Climate temperatures ranging between 0.7°C in January and 17.5°C in July Official Language Serbian Main Religion Christian Orthodox Other Religions Roman Catholic, Islamic, Jewish, Protestant Belgrade: 1,576,000; Novi Sad: 298,000; Largest Cities Nis: 250,000 Currency Dinar (RSD) GDP (2007) €29.54 billion GDP pc (2007) €4,002 Time Zone Central European Time (GMT + 01:00) Internet Domain .rs

3 Why Invest in the Real Estate Industry in Serbia

Co m p e t i t i v e Ta x Sy s t e m Ro b u s t Re c e n t Gr o w t h

Serbia’s tax regime is highly conducive to doing business. For years, Serbia was among Europe’s fastest growing Corporate profit tax is the second lowest in Europe, while VAT economies. Between 2004 and 2008, economic growth is among the most competitive ones in Central and Eastern averaged 6.3%, while GDP per capita almost doubled. Strong Europe. In addition, businesses in the country can take GDP performance was largely driven by service sectors such advantage of a broad range of tax incentives. as telecommunications, retail, and banking. In addition, local food, beverage and construction industries expanded rapidly. Principal Tax Rates and Tax Incentives Based on the metal, food, textile, chemical, machinery, and Standard rate – 18% furniture sectors, Serbian exports also increased at a sharp rate VAT Lower rate – 8% of more than 33% annually. Corporate Profit Tax Uniform rate – 10% 20% (for dividends, shares in profits, royalties, GDP Growth Rate Withholding Tax interest income, capital gains, lease payments 2008 5.4% for real estate, and other assets) 2007 6.9% Salaries – 12% Personal Income Tax Other income – 20% 2006 5.2% 10% (for annual income above 5 average 2005 5.6% Annual Income Tax annual salaries) 2004 8.3% Social Insurance Pension and disability insurance – 11% Source: Statistical O ce of the Republic of Serbia Health insurance – 6.15% Contributions Unemployment insurance – 0.75% A 10-year corporate profit tax holiday for investments of over €7 million that create at least 100 new jobs A corporate profit tax credit of 20% of the fixed assets investment Carrying forward of losses over a period of up to 10 years Accelerated depreciation of fixed assets Salary tax base deduction in the fixed amount Tax Incentives of RSD 5,938 (app. €65) Salary tax exemptions for employees below 30 and above 45 years Social insurance contributions exemptions for employees below 30 and above 45 years Annual income tax deductions of up to 50% of the taxable income Customs-free imports of equipment based on foreign investment

4 St r o n g FDI Fi g u r e s Bo o m i n g Ma r k e t Po t e n t i a l

Since the onset of economic reforms in 2001, Serbia has In Serbia, there is strong demand in the office, residential, and grown into one of the premier emerging investment retail market. As a result of robust economic growth and strong locations in Central and Eastern Europe, with the FDI inflow FDI forecast, demand for quality office space has been on a of over €12 billion. The list of leading foreign investors steady rise. Likewise, a residential market is forecast to experience is topped by world-class companies and banks such as an upward trend due to a steady increase in household income Telenor, Philip Morris, Mobilkom, Banca Intesa, AB InBev, and a wide availability of mortgage loans. Furthermore, yields and many others. in the real estate sector tend to be higher than in other CEE According to PwC, Serbia is the 3rd most attractive countries, amounting to 10% in the office market. manufacturing and 7th most attractive services destination among emerging economies. Additionally, E&Y recorded over Prime Office Yields (Q1 2009) 100 inward investment projects in Serbia in 2007 and 2008– City Office Space Yields the 2nd best performance in the South East Europe region. Belgrade 10.00% Sofia 10.00% Inward FDI (EUR mn) Bucharest 9.50% 2008 2,255 Zagreb 8.50% 2007 2,601 Budapest 7.75% 2006 4,279 Bratislava 7.25% Prague 7.00% 2005 1,329 Warsaw 6.75% 2004 788 Source: CB Richard Ellis Source: National Bank of Serbia

Lo w Ov e r h e a d Co s t s

One of the key advantages of doing business in Serbia compared to other CEE countries are lower operating costs. Labor costs in Serbia are comparable to those in South East European countries, while standing at less than 50% of their level in Eastern European EU member states. In addition, electricity, gas, and other utilities are available at very favorable prices.

Total Monthly Labor Costs in EUR (2007) Romania 527 Serbia 566 Slovakia 927 Croatia 973 Poland 997 Hungary 1,055 Czech Republic 1,201 Source: EUROSTAT, Croatian Central Bureau of Statistics, Statistical O ce the Republic of Serbia

5 Overview of the Real Estate Industry

Basic Industry Indicators Employment and Salaries The industry employed 39,105 staff in September 2008. GDP The qualification structure is dominated by high school and According to the latest data available, 2007 GDP in the university-degree holders accounting for 35% and 28% of industry gained 10.35% in nominal terms against the previous total industry employment, respectively. They are followed by year. With GDP of around €2.72 billion, the industry accounted qualified workers, with a 11% share, while other categories for over 9% of the total economic output. make up a lesser portion of the real estate labor force.

GDP in the Real Estate Industry Average Net Monthly Salary (EUR) 2004 2005 2006 2007 2004 2005 2006 2007 2008 GDP (EUR bn) 2.01 2.09 2.35 2.72 Net salary 424 422 491 605 778

Share in Total Economy (%) 10.6 10.3 10.0 9.2 Source: Statistical Office of the Republic of Serbia Source: Statistical Office of the Republic of Serbia In 2008, the average monthly net salary in the real estate Companies sector amounted to €778. By mid-2008, there were 1,325 companies in the real estate industry, encompassing the following sectors: • Real Estate Development, • Real Estate Trade, • Real Estate Renting, • Real Estate Agencies, • Real Estate Management.

Total Number of Companies by Sectors (2008) Employment by Quali cations (September 2008)

Real Estate Development Real Estate Agencies University Quali ed Unquali ed

272 11,039 Real Estate Trade High 4,164 650 192 School 13,902 2,818 2,240 Semi 180 31 Quali ed

991 2,166 Highly 2-Year Real Estate Management Real Estate Renting Quali ed 1,785 Elementary School College Source: Statistical O ce of the Republic of Serbia Source: Statistical Oce of the Republic of Serbia

6 Off i c e Ma r k e t Tr e n ds Demand (Take-Up) Demand for new office premises during 2008 was The following market overview was prepared by the CB Richard characterized by the prevalence of interest in office Ellis office in Serbia. For the purpose of this brochure, their developments located in area, resulting in report covers the Belgrade residential market trends only. only several significant transactions recorded in Belgrade downtown. The total take-up during 2008 was slightly Supply below the levels achieved during 2007. Beside international At the end of year 2008, the total speculative inventory of banks and corporations, the share of local companies in the Class A and Class B office space in Belgrade reached the structure of demand is constantly increasing. amount of 445,000 sq m. In comparison to year-end 2006, Due to current global economic trends, the appearance Belgrade Office Stock has increased by 65% i.e. by 27% in of new companies still not present on the market is not comparison to year-end 2007. expected in the next period, which will certainly influence demand in 2009. Besides, it is expected that the delivery Office yield in Belgrade was roughly 10% in H1 of office buildings currently in a construction phase and announced for development could be postponed. Only 2009–higher than in other CEE countries with the improvement of the economic situation, the market expects the appearance of new international During H1 2008, the postponement of completion of companies searching for adequate office space, but also several office buildings resulted in delivery of only one the growth of local companies and their relocation into Class A office building, 19 Avenue, holding 20,000 sq m of modern office space. GLA. Contrary to H1 2008, H2 2008 saw the completion of Tenant request for office space usually ranges from 200- several Class A and Class B office buildings, totaling 80,000 300 sq m to 1,500+ sq m. Requests for units 400-500 sq m sq m of GLA. large represent the smallest share in total demand.

Selected Office Buildings Completed During H2 2008 Belgrade Market Structure Development Office Area Gross (sq m) Completion Date Taxes and Fees M Business Center 6,000 Q3 2008 Typical Lease Length 5 years Hyundai Office Building 4,700 Q3 2008 Typical Service Charge €3/sq m/month GTC Square 24,000 Q4 2008 Corporate Income Tax 10% Airport City 3rd phase 19,000 Q4 2008 VAT 18% (8% for new housing development) BOP 2nd phase 9,500 Q4 2008 Transfer Tax 2.5% of purchase price B2 4,400* Q4 2008 Agent's Fees (investment) 1-3% of purchase price * NLA Agent's Fees (leasing) 10-15% of the first year's rent Source: CB Richard Ellis Source: CB Richard Ellis Similarly to the previous period, the majority of office developments already in a construction phase or announced Vacancy for construction are located in the municipality of New Changes in Belgrade office stock have resulted in a very Belgrade, with only several office buildings in downtown. sharp increase in a vacancy level, reaching 17.2% at the The situation is likely to remain the same in the forthcoming end of Q3 2008 i.e. 17.6% at the end of the year 2008. Due period. The majority of office buildings located in downtown to the fact that Class A office buildings represented 85% that appeared in the market during H2 2008 has small GLA of total new office inventory delivered during H2 2008, the and is usually leased to one tenant only. vacancy rate of Class A office space has increased

7 much more significantly than the vacancy rate of Class B Future Supply office space. Pipeline developments due for completion During Q1 2009, the completion of additional 65,000 sq m of in Q1 2009 are not expected to change the vacancy rate quality office space is expected, while all projects announced significantly. for completion by year-end 2009 should increase Belgrade Office stock by a total of 130,000 sq m of GLA. By the end of Belgrade Office Vacancy Rates year 2010, Belgrade Office stock should reach the level of Office Class Vacancy Rate 625,000 sq m. Class A To 15.0% Class B To 21.0% Overall 17.6% Source: CB Richard Ellis

Rental Levels Rental levels of Class A office space during 2008 have slightly decreased in comparison to 2007. Recently finished Class A office buildings command asking rental values of €16.5-18.0/sq m/month, while for office space under construction, they range between €15-17/sq m/ month. Brand new properties situated at some of the most attractive locations in Belgrade have recorded asking rents of up to €19/sq m/month. Rents for Grade B stock vary between €11 and €13/sq m/month.

Belgrade Prime Office Rents Office Class €/sq m/month Class A 15.00 to 17.00 Class B 11.00 to 13.00 Class C 9.00 to 12.00 Source: CB Richard Ellis

Selected Pipeline Developments Development GLA (sq m) Completion Date Airport City 1700 11,800 2009 Bluehouse block 26 35,000 2009 Sava Business Center 21,000 2009 Belville Office building 28,000 2009 Tri lista duvana 8,500 2009 B23 53,000 2010 VIG Plaza 9,000 2010 Source: CB Richard Ellis

8 Re s i d e n t i a l Ma r k e t Tr e n ds a modest size, totaling on average 15-20 units. Vracar municipality has marked a significant decrease in the The following market overview was prepared by the CB Richard number of completed units, totaling only 232 units in 2007 Ellis office in Serbia. For the purpose of this brochure, their in comparison to 805 units brought to the market during report covers the Belgrade residential market trends only. 2006. Stari Grad municipality marked an increase of 66% with 93 units in 2007 in comparison to 56 in 2006. The residential market in Belgrade continues its expansion, Besides mid-end residential projects, supply of high-end recording a high construction activity. Nevertheless, supply residential developments is constantly increasing. New is not keeping up with demand. A considerable discrepancy Belgrade area becomes more and more interesting, with two between the two does exist and will continue so in the high-end residential developments currently in a construction foreseeable future. phase, located in close proximity of rivers Sava and Danube. Beside local developers, several international developers have announced the construction of large projects in the next few years. Demand During the last five years, there was strong demand for Supply apartments of smaller sizes on the mid-end market. According to the Belgrade Statistical Bureau, 7,601 Investors were oriented towards the creation of complexes residential units were constructed in Belgrade during 2007, with a high share of small, affordable apartments–mostly only 222 units more than in 2006. Regarding the structure studios and one-bedroom apartments. Demand for high- of those units, 31.6% of them are studios, while the end apartment units comes mostly from wealthy locals and percentage of one-bedroom apartments is 26.6%. Serbian Diaspora, as well as from companies purchasing apartments for their expatriates or their employees, buying apartments for themselves. Selected Biggest Current Projects Very strong demand recorded during the first three Name Size Gross (sq m) Date of Delivery months of the second year-half of 2008 has taken the Block 11 c 15,500 Q1 2009 slower pace starting from September. Savograd 12,000 Q1 2009 Belville 120,000 Q4 2009 Selected Projects Announced for Development Galerija Apartments 18,500 Q4 2009 Date of Name Size Gross (sq m) Block 11 a 22,000 Q2 2010 Delivery Source: CB Richard Ellis Apartments 12,000 2009/2010 Airport City residential project 66,000 n/a According to the official statistics and CB Richard Ellis Lamda, Juzni Boulevard 10,000 n/a research, New Belgrade and Zvezdara areas experienced Yu Kapital, Kraljice Marije Street 7,200 n/a the largest increase in residential projects during 2007, with Neimar – V, Radoja Dakica Street 7,000 n/a 1,340 residential units constructed in each municipality. Source: CB Richard Ellis There is a difference though in an average apartment size, totaling 57.8 sq m in Zvezdara and 66.9 sq m in New A current global economic crisis has made the potential Belgrade. The average size of apartments constructed buyers more prudent when taking a loan, previously the during 2007 in whole Belgrade area was 71.2 sq m, only main source of financing for a large portion of buyers. slightly above average for year 2006, standing at 70.1 sq m. According to data provided by the National Bank of Two very attractive municipalities in Belgrade, Vracar Serbia, at the end of the year 2008, housing loans taken and Stari Grad, are faced with a limited availability of by Serbian citizens amounted to RSD 170 billion (€1.92 construction sites. Projects located in these areas are of billion), 59% more than at the end of the year 2007.

9 Sales Prices developed countries of Central and Eastern Europe (CEE). The According to the Belgrade Statistical Office, average net prices fact that, in comparison to other CEE capitals, the shopping of new apartments in Belgrade reached €1,459/sq m at the center stock per capita in Belgrade is very low provides end of the year 2007 (in comparison to €1,407/sq m at the end possibilities for significant development. of H1 2007). This figure includes the price of construction land, International retailers with established regional presence, as construction costs, and additional costs. well as domestic brands and retailers are the driving force of During the first three months of H2 2008, asking prices have demand for retail units in Belgrade modern shopping centers. recorded an increase of 5-10%, depending on a municipality. Although there were changes in tenant mix in some of the A global financial crisis has slowed down or even stopped a biggest shopping centers in Belgrade, they still record zero further price increase in 2008 second year-half. vacancy. The interest of retailers for old-style shopping centers Mid-end residential developments located in the decreases, even for shopping centers located in the close municipality of New Belgrade recorded asking prices of €1,700- proximity of Belgrade pedestrian zone. 2,500/sq m, while those located in the municipalities of Vracar, Usce shopping center, located in New Belgrade block 16, Stari Grad, and Dedinje were marketed at €2,000-3,000/sq m. featuring 50,000 sq m of GLA is scheduled for completion High-end developments located at very attractive locations in in Q1 2009. Once opened, it will be the biggest modern New Belgrade and downtown have recorded the levels of even shopping center in Belgrade. €3,500-4,000/sq m. (All prices indicated are net of VAT). Modern Shopping Centers in the Pipeline in Serbia Rental Levels Project Location GBA (sq m) Opening Year Rental prices have retained the levels achieved during H1 2008. Demand is primarily oriented towards the municipalities of Dedinje, Usce Belgrade 130,000 Q1 2009 Senjak, and Vracar, proven to be most attractive for employees of Mercator Sabac 23,000 2009 foreign embassies and international organizations. An upward Plaza Kragujevac 65,000 2010 trend in demand has also been marked in the municipality of New GTC Subotica 25,000 2010 Belgrade, especially in the area near Arena Sports Hall. MPC Nis 22,000 2010 Source: CB Richard Ellis Re t a i l Ma r k e t Tr e n ds

The following market overview was prepared by the The very first modern shopping center in Belgrade CB Richard Ellis office in Serbia. downtown is to be constructed in Rajiceva Street, in the immediate proximity of a pedestrian zone. Preparation According to data provided by the Statistical Office of the works for the construction of this mixed-use development Republic of Serbia, compared to the same period of the previous have started and the completion is announced for 2011. This year, the turnover of retail trade in Q3 2008 noted 22.3% growth modern complex with a total area of 46,000 sq m will comprise at current prices in the Republic of Serbia, 28.3% growth in a shopping mall, the first five-star hotel with the capacity of Central Serbia, and 5.2% growth in Vojvodina. With regard to the 240 hotel units, and underground garages. same period, the wholesale trade at current prices noted growth Prime rental values in modern shopping centers retained of 18.9% in the Republic of Serbia, growth of 12.4% in Central the same levels as in H1 2008 and stand at €40-60/sq m/month. Serbia, and 39.3% growth in Vojvodina. (Ø2007=100) The interest of both international and local developers in Serbian retail market is constantly increasing, which reflects Shopping Centers the number of shopping centers planned for construction. H2 2008 witnessed no new shopping center openings in Beside Belgrade, Novi Sad and Nis, other Serbian cities Belgrade. The current stock of modern shopping centers in like Kragujevac, Subotica, Sabac, and Valjevo will see new both Belgrade and Serbia still lags behind the trends in more developments in the next three years.

10 High Streets FDI in t h e Re a l Es t a t e In d u s t r y In order to secure suitable retail premises, retailers are primarily interested in Belgrade high-street zone and modern Growing investment opportunities for international real estate shopping centers. Belgrade high-street zone still represents developers in Serbia have been reflected in recent FDI figures. Since the focal point for retailers, especially the ones that are 2005, inward foreign direct investment in this sector has totaled entering the market for the first time. High-foot traffic and the nearly €600 million, with a sharp upsurge recorded in the last two importance of the high-street zone in terms of a shopping years. In 2008, the total value of their projects reached €225 million, destination secure a good market entry. which is comparable to their amount in the previous year. Although demand remains very high, limited supply of International property developers are led by Israeli investors– retail units keeps the availability at the low level. Only several Plaza Centers and Central European Estates are expected to units have seen tenant change. With the completion of Robne implement €500 million and €400 million worth projects, Kuce Beograd department stores, supply of retail units in the respectively. Additionally, Engel Group is to start the construction of high street zone will be boosted. its €160 million residential and business complex, while Africa-Israel The primary shopping zone, , is still Corporation and Tidhar Group–with their €200 million first business the most interesting location for retailers, with average rents park in Serbia–won the OECD award for the largest Greenfield of over €150/sq m/month. investment in South East Europe in 2005. In a ground-breaking project, Indian Embassy Group pledged to build a €428 million Prime Retail Rents state-of-the-art IT park in Northern Serbia. Other key international Location Prime Rents (€/sq m/month) players in the local market include the Israeli GTC International, Knez Mihailova Street Above 150 Austrian Grawe and IMMORENT, U.S. Ocean Atlantic, and others. Terazije Square/Kralja Milana Street/ 60-120 Kralja Aleksandra Boulevard Inward FDI in the Real Estate Industry Modern shopping centers 40-60 2005 2006 2007 2008 Source: CB Richard Ellis Inward FDI (EUR mn) 11.9 71.2 286.0 224.7 Source: National Bank of Serbia Retail Warehouse Leading Investors, Completed and Announced Projects (2002-2008) A Retail Warehouse segment marks an intense development activity in a large number of Serbian cities. Investment Investment Company Country Amount Croatian retail operator PEVEC has opened its first big-box Type (EUR mn) in Belgrade, totaling 40,000 sq m of GBA. According to official USA& Elgolf Greenfield 700.0-800.0 information, a PEVEC long-term plan includes the opening of Austria&Israel another center in New Belgrade, as well as the creation of a Greenfield& Plaza Centers Israel 500.0 retail network in whole Serbia. Brownfield Embassy Group India Greenfield 428.0 Future Supply Central European Estates Israel Greenfield 400.0 Having opened stores in six Serbian cities, the Slovenian retailer Airport City Belgrade Israel Greenfield 200.0 TUS plans the construction of another two developments in Vranje and Kragujevac. The local retail operator, Tempo, has Blok 67 Associates Austria& Serbia Greenfield 180.0 announced the spreading of a retail network into several Serbian Engel Group Israel Greenfield 160.0 cities: Uzice, Kraljevo, Cacak, and Vrnjacka Banja. BIG CEE Israel Greenfield 70.0 According to official information, Big Centers plan the Grecotel Greece Privatization 60.0 construction of retail warehouse developments in Belgrade, Vondel Capital Netherlands Greenfield 45.0 Pancevo, Sabac, Jagodina, Novi Sad, and Subotica. Source: SIEPA

11 Mr. Gili Dekel CEO, Airport City Belgrade

Why did you decide to start a business in Serbia? Airport City Belgrade (ACB) is owned by Africa-Israel Corporation and Tidhar Group, one of Israel’s most successful construction companies. I came to Serbia around seven years ago to explore real estate business opportunities, already having in mind the introduction of something different from the standard office building. Developers normally identify a piece of land, acquire it, build on it, and then lease or sell the property. However, our approach is to build a complete modern business and residential complex beyond the boundaries of the city center. Airport City Belgrade is currently the biggest real estate development in Belgrade, with six buildings delivered by the end of 2008. Altogether, it is a 120,000 sq m plot of land–the largest piece of land owned by a private company in Belgrade. Prior to arrival in Serbia, our company had completed developments in Russia, Ukraine, Czech Republic, Poland, and Hungary. We chose Belgrade after a thorough research of all other major sites in the region. Apart from Ljubljana, which is already well-developed, our research included cities such as Skopje, Zagreb, and Sarajevo. Among

Africa-Israel Corporation & Tidhar Group in Serbia Group Tidhar & Corporation Africa-Israel those cities, Belgrade seemed an apparent priority, with its 1.6 million population, strong economic growth, rapid internationalization of business activities, and a highly developed construction industry.

12 I would also like to emphasize that Serbia boasts skilled and capable people and we are very satisfied with our Serbian staff performance and cooperation with local construction companies.

What are your current and future projects in the country? Our development is situated in the part of the city called New Belgrade, in the close vicinity of the International E-75 Highway. Due to the lack of parking space and traffic congestion, an increasing number of local companies are now shifting their headquarters from the old part of the city to New Belgrade. I am confident that our company will be strong enough to face the rising competition in New Belgrade and erect a competitive real estate development, not only in terms of standards, but also in terms of pricing. One of the advantages of the Airport City Belgrade development is its largest ratio of parking space in Belgrade. We believe that in the future the Serbian economy will experience steady growth and the number of cars per 1,000 people will increase significantly. Our customers are mostly foreign companies that appreciate Class A office space, the right environment for their employees, and know the advantages of being located out of the city center. We are very optimistic about the future growth prospects, otherwise we would not be ready to invest €200 million in Serbia.

How do you perceive the business climate in Serbia? Investors look for performance enhancement possibilities, and I see Serbia in terms of the future profit. At the moment, one can get better deals than those available in Serbia, but conditions will certainly get better. Therefore, investors with long-term orientation could benefit well from great opportunities in this market.

13 Acquiring Construction Land

La n d Classification

In Serbia, land is classified into two categories: • construction land, • agricultural land. Construction land is the land on which structures have been built and the land that serves for the regular use of these structures, as well as the land that is designated by the corresponding plan for the construction of structures and their regular use. Construction land can be: • public construction land, • other construction land. Public construction land is the land on which public structures of common interest (roads, schools, hospitals, infrastructure, etc.) have been built, as well as the land designated for the construction of such structures. This kind of construction land is exclusively in state property. Other construction land is designated for the construction of other structures–residential, offices, industrial facilities, etc. Other construction land is transferable and can be found in all types of ownership.

Construction land may be used as developed or non-developed land. Developed construction land is the land improved with structures, which are constructed and intended for permanent use. Non-developed construction land is land on which: • No structures are erected; • Existing structures were constructed contrary to the law; • Temporary structures exist. Agricultural land is subdivided into: • cultivable, • uncultivable. Cultivable agricultural land encompasses fields, gardens, orchards, vineyards, and grazing fields. A cultivable land user has the obligation to till the soil or use it in accordance with its purpose. Non-cultivable land encompasses all other unlisted types of agricultural land.

14 Le a s i n g Municipality La n d

Other construction land under state ownership can be leased for up to 99 years under conditions prescribed only by the municipal authorities. The land is leased through either public bidding or a public tender. The duration of a leasing contract is being determined based on the land area, purpose, depreciation period etc. Before the expiry of the leasing period, a lessor and a leasee can extend the contract period by a mutual agreement. The right of use can be obtained through a direct bargain between the municipality in question and the interested party in the following cases: • Construction of structures for the purpose of carrying out activities of state administration and agencies, administration and agencies of autonomous provinces and of units of local self-government, and organizations in charge of public services who operate with state funds and assets, as well as other state-owned structures; • Leasing the land to an owner of a structure who has constructed that structure without a building permit, for the purposes of obtaining construction permission, if erecting such an object is in accordance with the provisions of the Urban Plan; • Correction of boundaries of adjacent cadastral or construction parcels.

Agricultural land can be re-classified, i.e. it can be converted into construction land. Other construction land can be acquired in the following ways: • By leasing land–for the period of up to 99 years, with a possibility of extension through a public bidding procedure (for land under 10,000 sq m) or a tender procedure (for building structures over10,000 sq m); • By obtaining the “right to use” land–by acquiring a legally built structure, an investor acquires the “right to use” land under that structure, with a possibility to build new premises of even greater area, according to the master plan; • By acquiring land through the conversion of agricultural land into construction land–by acquiring agricultural land under private ownership, with a possibility of conversion into construction land, an investor acquires the right to build a construction.

15 Apart from the land fee, pad only once, the user continuously pays a fee for land use, as a type of rental fee. The fee for using developed public construction land and other construction land in state property is paid by the owner of the structure. As an exception, when the object or a part of it is leased, the fee is paid by the lessee of the object or part thereof. The fee for the use of non-developed public construction land and other construction land in state property is to be paid by the user. The amount of the fee is determined depending on the scope and degree of the property’s development, its location, access to amenities, transportation connections to the local or city center, business areas, etc.

Most building land can be leased from a municipality for up to 99 years, with a possibility of extension

The land fee varies heavily at the local level. There is an increasing number of municipalities, offering building land for lease free-of-charge, or at very low prices. By contrast, in Belgrade and other large cities (e.g. Novi Sad or Subotica) the fees can run over €100/sq m. However, the final price is based on the plot location, availability of utilities, number of bidders, and other factors. All city plots are under the state property regime. Even though the land itself is public, the structures built on it are private. A person, who owns real estate built on a city plot, automatically enjoys an exclusive “right-of-use” of the plot. Upon the sale of premises, all the rights on the land under the premises and the land that serves for the regular use of the premises are transferred as well.

Acquiring t h e Ri g h t t o Us e La n d

As opposed to long-term lease (up to 99 years), the “right to use” land is granted for an indefinite period of time based on either: • The ownership of a building on urban land in accordance with the Urban Plan; • The intention to construct a building on urban land (the “right to use” is related to the ownership of a building located on urban land, entitling users to permanently use the land for as long as they own the building).

16 The “right to use” is irrevocable and permanently “attached” to the ownership of a building located on a particular land plot–it is acquired, transferred, and terminated automatically, with acquisition, transfer or termination of the ownership of the building. The “right to use” can only be acquired from previous holders of that right, including privatization. An investor may acquire the “right to use” on a plot of building land from the party who was initially allocated the “right to use” for a sole use or may enter a joint venture with the original holder of the “right to use”. In addition to the costs of acquiring the construction designated for deconstruction, as well as the costs of acquiring companies through privatization, an investor is obliged to pay the fee for the development of other construction land.

Co n v e rs i o n o f Agr i c u l t u r a l La n d

A plot of agricultural land may be converted into construction land, with the consent of the Ministry of Agriculture and the payment of a fee for the change of the land use, if approved. The amount of the fee is as follows: 1. The land is converted for a definite period of time: the fee is paid annually, amounting to 10% of the market value of cultivable agricultural land; 2. The land is converted for an indefinite period of time: the fee is paid only once, amounting to 50% of the market value of cultivable agricultural land on the day of submitting the application; the fee must not exceed €1,500/ha, except for the land of the 1st and 2nd cadastral class. For the change of the land use, an investor must submit a formal application, containing the following: a) information on the current and intended use of the land in question; b) a certificate of the title or the right of use; c) an Extract from the Detailed Urban Plan, detailing the possibility of obtaining a building permit, and d) the consent of the Ministry of Agriculture. By acquiring privately owned agricultural land, with a possibility of the conversion into urban construction land, an investor also acquires the right to build structures on it. The fee amount is determined by local/ city authorities.

17 working environment, but also facilities GTC International in Serbia such as a restaurant, bar, storage, and underground garage. Mr. Robert Snow What are your current and future Other GTC International’s projects Managing Director, GTC Serbia projects in the country? include GTC Square and Park Apartments. GTC HOUSE is the first of GTC International’s GTC Square is the newest innovative office Why did you decide to start a business investment in Serbia. The building– project located in New Belgrade, with in Serbia? completed in April 2005–appeared as the ample parking space, an open interior There are, of course, many reasons long anticipated building, offering Class courtyard overarched by translucent for entering a new market. Serbia A office facilities for leasing to the leading catwalks, and an expansive and majestic presented both a challenge and an international companies in Belgrade. atrium. Park Apartments is a top of the opportunity for GTC. Firstly, as it The modern building is fully equipped range residential building, introducing a is an emerging market, one of the with all high-tech facilities, sophisticated new concept of living, with 200 apartments, principle reasons is that we perceived telecommunications, and elegant double 2-level underground parking, retail stores, a large gap in the real estate sector height entrance lobby, leading into a fitness center, 24-hour reception desk, and a need for more offices, hotels, covered central atrium. security services, maintenance services on shopping malls, and quality mid- Our new office project 19 Avenue the spot, and a video interphone. to-upper level residential buildings. consists of two 1st class office buildings Choosing to come here also reflected with a unique design of 20,000 sq m. How do you perceive the business our confidence that Serbia is full The 19 Avenue is completely equipped climate in Serbia? of promise–everything exists here with high-tech telecommunication This is a very exciting time to be doing in terms of opportunity, resources, devices, offering not only exceptional business in Serbia. In the context of its and skilled workers for the country to catch up to its more developed neighbors in a short time. The world of business buildings is one which has a very long-term vision of the future. The needs of today are of critical importance, but those of tomorrow are paramount. GTC has seen in Belgrade a vision of a major European center of commerce, business, industry, and transport. Belgrade is in the very heart of the Balkans and at the epicenter of all movement throughout South East Europe. As the importance of Belgrade grows, so too will its requirements for office space and business parks.

18 transition, Serbia has launched itself Ass e ss m e n t o f Ur b a n Co n d i t i o n s resolutely onto the path of joining the rest of Europe in terms of its economy This assessment is done based on the Extract from the Urban and business. Foreign investment Plan or the Act on Urban Conditions. These documents continues to come into Serbia from are issued by the city/municipal authorities in charge of across the spectrum of industry urbanism, planning, and construction. In Belgrade, the Extract sectors: banking, telecommunications, and other documents for structures with the area of up to 800 and, naturally, construction. Investors sq m can be obtained in the Department for Property Rights continue to view Serbia not only as an Relations and Construction of the city municipality where the important investment destination in structure is located. For structures of over 800 sq m, necessary itself, but as a gateway to the region, documents can be obtained in the Secretariat for Urban as well. We at GTC are committed Planning and Construction. In other cities and municipalities to open and transparent business in Serbia, the documentation is obtained in the office of the practices, and have been very city or municipality where the structure is erected. Lastly, for encouraged by the country’s efforts to structures of national significance, the documents are issued align itself with the best practices for by the Ministry of Infrastructure. business development, as witnessed in Prior to submitting the Application for Issuing the Extract from the Urban Plan or the Act on Urban Conditions, an

the EU and neighboring countries. Procedure Construction In short, we are very optimistic about investor must obtain the Evidence of Ownership (Leasehold the business climate in Serbia and Rights) or the Extract from the Land Books and the have already experienced many of the Conceptual Project. This Application should be accompanied benefits of investing here. by separate Applications for Granting Consent on the Prior Conditions for utilities (sewage, electricity, telephone, gas, remote heating, and bomb shelters construction).

Co n s t r u c t i o n Ap p r o v a l

Prior to the construction of a structure, a potential investor is obliged to obtain a Construction Approval and prepare the technical documentation for the construction (General Project, Conceptual Project, Main Project, Execution Project, and As-Built Project). As part of the application, the following should be submitted: • The Extract from the Urban Plan, not older than 6 months; • A Conceptual Project, in compliance with the Extract; • The evidence of ownership, or leasehold rights to the construction land, or property rights in an object, or the right to use undeveloped construction land; • The Report on Setting Out the Building Plot and the Regulation Protocol issued by the Republic Geodetic Authority, including the appropriate copy of the plot plan; • Other evidence required in the Urban Plan. The approval for infrastructural works is issued by the Ministry of Infrastructure, while the issuance of the

19 approval for other structures is the responsibility of the No t i c e o f t h e St a r t o f Co n s t r u c t i o n city or municipality. The approval is not obligatory for the construction of auxiliary structures, nor is it necessary After the completion of building documents, the investor for adaptation or renovation, but it is required for the should select the contractor who will be responsible for the reconstruction of premises. whole building site and notify the city or municipality of the start of works. The investor is obliged to provide the office in charge of issuing the Construction Approval with the name of La n d De v e l o p m e n t Fe e Pa y m e n t a n d Ma i n Pr o j e c t Pr e p a r a t i o n the contractor, construction start date, and completion target Upon granting the Construction Approval to the investor, date within a period of 8 days before the construction starts. construction land development fees are determined by city/ Also, an investor must submit: municipal authorities and public companies. In this project • a confirmed Main Project, stage, the investor is obliged to prepare a Main Project, • a report on Completed Technical Control, which has to undergo a revision before submitting to the • a Construction Approval, competent institutions. • the evidence of payment of land development fees, and • the evidence that the administrative fee has been paid. In addition, the investor must also report to the municipality office in charge of inspection that the construction of the structure has started. The investor can start construction works when the relevant municipal department confirms the receipt of the Notification on the Commencement of Works.

Co n s t r u c t i o n

Prior to construction, the surveyor should set out the building site, after which he will be possible to commence excavations for the foundation. Upon the construction of the foundation, the contractor should submit the geodetic survey of a built-up foundation, so that the competent body can inspect its conformity with the Main Project. Within 3 days, if everything is in order, a written certificate will be received and the works can be continued. Throughout the construction stage, the investor must have construction documents (if the Main Project does not contain details required for the construction process) and provide supervision.

Occ u p a n c y Pe r m i t

A technical inspection of a structure is done upon the completion of construction, i.e. the completion of all the works specified in the Construction Approval and defined in the Main Project, or upon the completion of a part of the structure for which an Occupancy Permit may be issued. Upon the submission of the investor’s request for the technical inspection, this assessment may also be carried out simultaneously with the construction

20 process, if the verification of the actual condition of certain parts to submit the results of the probation occupancy to the of the structure is not possible after its completion. relevant office. The inspection includes the control of compatibility of The structure may be put in operation only upon obtaining as-built conditions with the Construction Approval and the Occupancy Permit, which is issued based on the technical technical documentation on the basis of which the structure inspection findings and appropriate consents for utilities was constructed, as well as with the technical regulations (sewage, electricity, and telecomm hook-ups, fire-fighting and and standards applicable to certain trades of materials, chimney-sweeping systems). equipment, and installations. To ensure the suitability for the use of a structure, an assessment and verification Re g i s t r a t i o n in t h e Ca d a s t r e of installations, devices, machinery, stability, or safety of structure, devices and equipment for environmental The final stage in the construction process is the registration protection may take place. If envisaged by the technical of a structure in the Real Estate Cadastre, after the Occupancy documentation, the commission in charge of a technical Permit is obtained. inspection may propose to the relevant office to approve The process of establishing the Real Estate Cadastre on the entire probation occupancy, provided the conditions are met. The territory of Serbia is under way. By 2010, a comprehensive system of probation period cannot last longer than 1 year. Upon the tracking real estate and real estate property rights will replace the expiration of a probation period, the investor is obliged existing records on real estate–the Land Cadastre and Land Books.

A Construction Procedure Stage Steps Documents Institution 1. Evidence of Ownership (Leasehold Rights) 1. Municipal Court Act on Urban 2. Extract from Land Books 2. Cadastre Conditions 3. Conceptual Project 3. Project Consultancy Extract from Urban 4. Consent on Prior Conditions for Utilities 4. Public Companies Plan 5. Extract from the Urban Plan 5. Urbanism and Construction Office 6. Act on Zoning Conditions 6. Urbanism and Construction Office Construction Construction 1. Construction Approval 1. Urbanism and Construction Office Preparation Approval 1. Main Project 1. Project Consultancy Land Development 2. Revised Main Project 2. Project Consultancy Fee Payment 3. Decision on Land Development Fees 3. Urbanism and Construction Office Main Project 4. Decision on Other Fees 4. Public Companies Notice of the Start of 1. Confirmation of Main Project 1. Urbanism and Construction Office Construction 1. Certificate on Conformity of Built-Up Construction Construction 1. Inspection Office Foundation with Main Project 1. Report on Technical Receipt of Structure 1. Technical Inspection Commission Occupancy Permit Occupancy Permit 2. Consent on Utility Hook-Ups 2. Public Companies Registration in 3. Occupancy Permit 3. Urbanism and Construction Office Cadastre Registration in 1. Extract from Cadastre 1. Cadastre Cadastre (Decision on Registration)

21 An Overview of Construction Loans Banca Intesa Hypo Alpe-Adria-Bank Raiffeisenbank Volksbank Interest Rate As agreed with client 5.5-8.0% + EURIBOR n/a 5.0-6.0% + EURIBOR Depending on project value Loan Limit From €500,000 Up to €45mn From €500,000 and construction period Repayment Depending on sale pace Up to 10 years Up to 10 years Depending on sale pace Grace Period Equal to construction period 1-2 years Equal to construction period Equal to construction period Other Loan amount up to 85% of Down payment from 35% to Down payment from Down payment from Conditions project value 40%, clear ownership relations 35% to 40% 25% to 30%

Source: Commercial banks

The Real Estate Cadastre contains the data on real estate, its shape and position, surface area, form of use, Real Estate Transfer land fertility, cadastral income, real rights and rights holders, as well as the data on encumbrances and Re a l Es t a t e Ta x e s limitations. Unlike the Real Estate Cadastre, the Land Cadastre Apart from the 8% VAT, real estate property in Serbia is contains no data on real estate property rights, featuring subject to three basic taxes: information on plots and structures built on land, with • property tax, respect to their position, shape, area, type of land, land • tax on transfer of title, and fertility, class, cadastral income, and users. • capital gain tax. Lastly, the Land Book is a public record, registering real Property tax is payable by all legal entities and estate (land and structures), real rights, encumbrances, individuals who own or have rights over real estate and limitations related to such real estate. located in Serbia. For a taxpayer who keeps books, Once the unified Real Estate Cadastre is introduced, property tax on the rights to real estate is 0.40% of registration of real estate will be done in one place–with a the property’s book value, while for individuals and local office of the Republic Geodetic Authority. Currently, entrepreneurs, the rates are progressive. the procedure is handled by a competent court. Tax on transfer of title over property is payable by all legal entities and individuals who sell rights in relation Fi n a n c i n g Op t i o n s to real estate. The taxable base is the price stated in the contract or the market value of the property, with the In response to the expanding market needs, project current tax rate set at 2.5%. This tax is not payable on financing services are introduced by a growing number the sale of real estate property rights to physical entities, of local commercial banks. As indicated in the table, loan purchasing the first apartment under the 40 sq m area, as conditions tend to vary heavily and may be subject to the well as up to 15sq m for each member of their households negotiations with a specific client. Capital gain is determined as the difference between Based on the Law on Mortgage, citizens are entitled to the sale price and purchase price of the real estate. The purchase real estate while in a construction stage or upon applicable rates for legal entities and individuals are 10% its completion. In the first case, banks will accept mortgage and 20%, respectively. Capital gains can be offset against claim as collateral, while the funds from sale of the real capital losses, occurring in the same period, and a capital estate will serve as collateral for loan repayment. loss can be carried forward for a period of 10 years.

22 Related Contacts

St a t e In s t i t u t i o n s Republic Geodetic Authority Forton 39, Vojvode Misica Blvd. 11000 Belgrade 5, Zmaj Jovina St. 11000 Belgrade Serbia Investment Phone: +381 11 2650 886 Phone: +381 11 2635 432 and Export Promotion Agency Fax: +381 11 2651 076 Fax: +381 11 30 37 50 6 3, Vlajkoviceva St. 11000 Belgrade [email protected] [email protected] Phone: +381 11 3398 550 www.rgz.sr.gov.yu www.forton.bg Fax: +381 11 3398 814 [email protected] Re a l Es t a t e Pr o v i d e rs King Sturge www.siepa.gov.rs 6, Mihajla Pupina Blvd. Usce Tower CB Richard Ellis 11070 Belgrade Office of the Prime Minister Airport City Belgrade, Phone: +381 11 2200 101 11, Nemanjina St. 11000 Belgrade 88b, Omladinskih brigada St. 11070 Belgrade Fax: +381 11 2200 102 Phone: +381 11 3617 719 Phone: +381 11 2258 777 [email protected] Fax: +381 11 3617 609 Fax: +381 11 2281 969 www.kingsturge.com [email protected] [email protected] www.cbre.co.rs Mace Business Registration Agency 6, Mihajla Pupina Blvd. Usce Tower 5, Nikole Pasica Sq. 11000 Belgrade Colliers International Serbia 11070 Belgrade Phone: +381 11 3331 444 115D, Mihajla Pupina Blvd. Phone: +381 11 2200 250 Fax: +381 11 3331 410 11070 Belgrade Fax: +381 11 2200 265 [email protected] Phone: +381 11 3139 955 [email protected] www.apr.gov.rs Fax: +381 11 3139 958 www.mace.co.rs [email protected] National Bank of Serbia www.colliers.com SHM Smith Hodgkinson 12, Kralja Petra St. 11000 Belgrade 10v/I apt 503, Mihajla Pupina Blvd. Phone: +381 11 3027 194 EC Harris 11070 Belgrade Fax: +381 11 3027 394 87, Zorana Djindjica Blvd. 11070 Belgrade Phone: +381 11 3018 624 [email protected] Phone: +381 11 2120 334 Fax: +381 11 3149 968 www.nbs.rs Fax: +381 11 3132 258 [email protected] [email protected] www.shm-group.com Statistical Office of the Republic of Serbia www.echarris.com 5, Milana Rakica St. 11000 Belgrade Beobuild Phone: +381 11 2412 922 EFG Property Services 14a, Misarska St. 11224 Vrcin, Belgrade Fax: +381 11 2411 260 62-64, Cara Dusana St. 11000 Belgrade Phone: +381 63 8212 874 [email protected] Phone: + 381 11 2022 413 [email protected] www.stat.gov.rs Fax: + 381 11 3287 122 www.beobuild.net [email protected]

23 To be able to set up or expand your business at a low cost and in the minimum amount of time, you can rely on the services offered by the country’s central investment institution– Serbia Investment and Export Promotion Agency (SIEPA). We are proud to offer our reference list that includes some of the biggest multinational companies, namely FIAT, Coca- Cola, Ball Corporation, Grundfos, Knauf, and many others. SIEPA puts a special focus on the real estate industry, reflecting the importance of its development to the Serbian economy by providing the following: • Promotion of cities and developers at renowned international fairs; • The database of investment locations in Serbia; • Regular surveys and detailed analyses of the sector; • Working with investors in finding the right location and assisting in the legal processes; • Information on business service providers in the real estate industry. Please join us at our national stands at Real Vienna and other world’s leading fairs, where selected Serbian cities and developers are exhibiting and offering their ready-to-invest locations and projects. Thus, we would like to invite you to contact our specialized staff ready to assist you and your business interests. Working with us is simple, effective and free of charge.

24

Serbia Investment and Export Promotion Agency

Vlajkoviceva 3 11000 Belgrade phone: +381 11 3398 550 fax: +381 11 3398 814 [email protected] www.siepa.gov.rs Real Estate Industry in Serbia