associate of savills spotlight montenegro second homes ...... · porto montenegro 5-star hotel with...

SpotlightMontenegro Second Homes Market July 2015

Dream Estates Montenegro

savills.co.uk/research

An International Associate of Savills

This publicationThis document was published in July 2015. The data used in the charts and tables is thelatest available at the time of publishing. Sources are included for all the charts.

Glossary of terms ■ Mainstream: mainstream property refers to the bulk of the Montenegro second home housing market. ■ Prime: the prime market consists of the most desirable and aspirational property by referenceto location, standards of accommodation, aesthetics and value. Typically it comprises propertiesin the top five per cent of the market by house price.

Dream Estates MontenegroDream Estates Montenegro are the largest and the most trusted real estate brand in Montenegro – and for more than 10 years our clients have come to rely on us for our knowledge and commitment to the job. We have exclusively represented Savills, the global premier property services company with 600 offices world-wide since 2004 as their appointed associate – now that’s a vote of confidence.Our offices are located in the heart of Kotor Old Town, and we have representation in Croatia as well as throughout Savills global network. Our experienced multilingual team has a proven and consistent track record of success that includes over 500 successful property sales to date – we pledge to go above and beyond to provide clients with exceptional real estate service. Our consultancy division, Montenegro Foresight, is the only such company in Montenegro and renowned for providing leading real-time market research services, project feasibility analysis studies, design consultancy, development management and sourcing and securing hotel operators.We have provided our services to practically all of the large investors already here, to the Government and banking institutions.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Dream Estates Montenegro accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Dream Estates Montenegro.

ForewordTHE GLOBAL VIEW

The growing interest in second home or ‘retreat’ property comes at a time when urban real estate has been the biggest growth story of the last six years. City property defined the credit crisis, especially world class cities where strong price growth was seen.

There are now strong signs that the recovery which started in cities in 2009 is now rolling out to the hinterlands and boltholes.

Firstly, many prime city markets have shown good performance but have become much more fully valued, so buyers are actively looking for alternative real estate markets in which to invest. Prime second homes in the most sought after locations are an obvious choice.

Secondly, low interest rates are making overseas property loans more affordable, although lending requirements are much more stringent than in the pre-crunch era.

For sterling buyers, the weak euro has made eurozone property better value, some 12% cheaper year-on-year on this basis. Given that prices in some European second home markets are more than 20% below their former peak, many buyers are now moving to secure a deal.

Montenegro is a euro-denominated market that is seeing the return of Northern Europeans – notably British buyers – to its second home markets. Still an emerging destination for leisure property, it fits with our longer term view on the growing appeal for the authentic.

Kotor Old Town, for example, is a UNESCO World Heritage Site and offers prospective investors historic property with income potential.

Yolande BarnesDirector,World Research+44 (0) 20 7409 [email protected]@Yolande_Barnes

savills.co.uk/research/world.aspx

Confidence is also building as the UK, one of the most important second home investor nations, enters a sustained economic recovery.

July 2015

dreammontenegro.com 03

Montenegro’s heritage and appealing natural environment will underpin a growing demand base for its leisure property over the longer term.

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange.The company, established in 1855, has a rich heritage with unrivalled growth.It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

GRAPH 2

Change in average asking price in €/m2 including VAT for mainstream completed apartment units along the whole coast

Montenegro’s property market is characterised by historic properties of charm and character, pockets of local housing projects and more recently, an increasing number of quality properties and high-end large scale resort developments, located primarily in Boka Bay and along the Budva Riviera. Development of such properties is driven by an entry of increasingly sophisticated buyers into the Montenegrin real estate market and increased competition among developers and competition to attract buyers.

The remainder of 2015 is expected to be sluggish as the current market is still very much dependant

on Eastern European buyers, and their number dampened, with the increased number of Northern

European buyers not making up the shortfall of Eastern European buyers from previous years.

Renewed interest of Northern Europeans will fill some of the gap and will lead to an increased buyer

diversity going forward.

The mainstream market is expected to experience continued strong demand for smaller, better

quality properties valued between €100,000 and €150,000.

₽ ₤The market experienced minor fluctuations in

absorption rates in the first half of 2015. We would expect the market to stabilize in the latter half of 2015 with confidence returning to the Eastern European market and a strong and stable UK

pound.

Individual front line prime properties remain resilient and very strong demand continues, with increasing

interest for a limited stock.

2015 Predictions

Montenegro Market Overview

Supply

ApartmentsThe past 12 months have signalled an increase in supply, a change in the product profile and an increase in the quality of the property offered, to match more savvy buyers.

The first half of 2015 has heralded the return of British and to a lesser degree, other Northern European investors and holiday home seekers.

A broad geographical range of investors have identified Montenegro as the strong mid-term bet in the second home and resort sector in Europe.

Within the golden triangle of Tivat / Kotor / Herceg Novi alone, current and planned developments, such as the €500 million One&Only resort project by SOCAR, the Azeri oil and gas company, are forecasted to attract some €2.4 billion in investments (equal to over two thirds of

Montenegro’s current annual economic output over the next 5 years), with 5 star hotels expected to be the catalyst for serious property market growth.

As of May 2015, more than 600 apartment units are under construction on the Budva Riviera alone, showing continued demand and confidence in the market, although many projects were already committed to commencement before the Rouble crash, and a significant percentage of those were not envisioned as a product for a changing market, leading to a glut on the market - properties not meeting the changing buyers’ needs - too large and as such too expensive.

As in any emerging market, reliable market data is often hard to come by – this is further complicated in Montenegro by the markedly different products on the market and geographical areas which create micro-markets within a market. For simplicity, we differentiate the products into 2 distinct markets - prime product, such as the widely heralded new apartments at Porto Montenegro, Luštica Bay or Dukley Gardens for instance which often sell for well in excess of €5,000 / m2 and over €500,000 per unit. Sales at these developments have been hardest hit by the Rouble crisis.

The other market, which is smaller, mainstream product with values less than €200,000, in the second homes market, has been resilient.

04


Developers will need to be mindful when it comes to their product: price, size, design, and software offer (the inclusions). Developers will need to rely more on market intelligence and data in order to

successfully sell their product.

Discerning buyers will require absolute clarity and transparency of the purchase process.

Interest in investment product is expected to increase, which will lead to demand for smaller

properties which produce yield.

The average property price is expected to slightly increase due to signature projects already on the market and coming to the market, influencing the image of Montenegro as an attractive investment

and second home destination.

2015 Predictions cont.

GRAPH 1

The increasing number of properties for sale

Graph source: © Dream Estates Montenegro

July 2015



GRAPH 3

Average asking price in €/m2 including VAT by geographic area for mainstream completed apartment units (June 2015)


Montenegro Second Homes Market Report

Aver

age

aski

ng p

rice

in €

/m2 in

clud

ing

VAT

Aver

age

aski

ng p

rice

in €

/m2 in

clud

ing

VAT

Diff

eren

ce in

num

ber o

f uni

ts u

nder

co

nstr

uctio

n an

d un

its so

ld to

dat

e

Selection of Large Scale Signature Projects in the pipelinePROJECT NAME INVESTMENT DETAILS PROJECT DETAILS STATUS

Porto MontenegroTivat

Adriatic Marinas d.o.oValue: €600 million

Luxury awarded mega-yacht marina with 455 berths by Summer 2015; 240 luxury apartments so far; Regent Porto Montenegro 5-star hotel with 34 hotel keys and 52 residences; year-round vibrant international community; 50 domestic and international retails brands and amenities

Ksenija Residences completed this June, Regent Pool Club residences and Boutique Luxury Casino by 2016Over 200 apartments sold to date. Buyer profile: Russia, Canada, USA, UK; France, Region, Europe other, China, Middle East

Sveti Marko IslandTivat coastal(Sveti Marko Island)

Metropol Group, Russia 74 private luxury villas; marina, retail, sport facilities, functon centre160 keys 6-star Banyan Tree Hotel and spa;

Project currently on hold seeking financial partner

Luštica BayLuštica Peninsula

Lustica Development AD - a joint venture between Orascom Develop-ment Ltd. (90%) and the Government of Montenegro (10%)Value: €1.5 billion

1000 apartments and 500 villas and townhouses;2 world-class marinas; A Gary Player-designed signature 18-hole golf course;spa and wellness centres, conference centre, year-round amenities; 7 hotels totalling 1,200+ rooms

Timeline is 20+ years. Phase one due for completion in 2017. 115 apartments to be delivered in 2015 and 2016. Golf course; first building permit issued in Montenegro; €22 million revenues to date. Buyer profile: Serbia, Switzerland, Egypt, Middle East, Americas, diaspora, Russia, CIS

One&Only PortonoviKumbor, Herceg Novi

Azmont Investments (SOCAR)Value: €500 million

550 luxury residences240 berths marina Commercial facilities, conference centreEurope’s first “One&Only” luxury six-star resort with 120 keys and Henri Chenot destination Espace Vitalite

Building permit issued in January 2015 for the construction of phase 1, Lower Village, an area of 45,000 m2. Phase 1 to be completed by 2017 also to include a marina and sand beach with 900 sunbeds

Plavi HorizontiLuštica Peninsula, Tivat

Qatari Diar Hotel Property Invest-mentValue: €350 million

168 residential units with 78 annexes5-star condo-style hotelAmenities

UT conditions for 21 plots obtainedMajority of property rights issues resolved

Punta MimosaHerceg Novi coastal

Atlas Invest (Montenegro / Azerbai-jan)Value: €400 million

Serviced apartments & luxury villas5-star hotel, condo hotelsCommercial and retail

Planning documents adopted Phased development - three phasesPPP with Montenegro Government

MontroseLuštica Peninsula

Northstar & AlyasraValue: €210 million

Branded luxury residence, 5-star hotel & spa, marina, retail, recreation, function facilities

Planning documents and prepara-tions; Two phasesConstruction to commence in 2015

Mogren TownBudva coastal

Atlas Invest Serviced apartments, 5-star hotel, spa, retail

Three phase projectPipeline project

Budva New ExpoBudva

Atlas Invest Modern expo building, hotel and apart-hotel with commercial content

Pipeline project

SafiroBudva

Future Capital Partners 325 residences, 5-star hotel with 100 keys; Retail, conference, spa, well-ness, congress facilities

Pipeline project

Budva Beach TowersBudva

Ominvest Condo Hotel of two 14 and 16 storey towers; Commercial, hospitality and recreation space

Pipeline project

Dukley GardensZavala Peninsula, Budva

Monterra/Stratex GroupValue: €100 million

202 luxury apartments, boutique hotel with 30 keys, 330-berth Dukley marina, beach resort, wellness, retail

Phase 1 opened. Complex to be completed in 2015. Marina to be expanded by 60%. Over 70% of units sold to date. Buyer Profile: Russia, CIS, Azerbaijan, USA, West Europe

Galije ResortBudva Riviera

Oman Investment Authority 650 residential unitsProposed “Aston Martin” hotel Restaurants, retail

Pipeline project

Kamenovo Tourist ResortBudva Riviera

Atlas InvestValue: €120 million

Waterfront villas, apartments within two condo hotels, retail and hospital-ity

Pipeline project. In phases.

Maljevik BayBar Riviera

Mercury Group 120 apartments, 55 villas, hotel and spa, retail, helipad

Pipeline project

Velika PlažaUlcinj

N/A Large scale ‘sustainable’ resort scheme to be developed in participa-tion with Montenegrin government.

Pipeline project

Porto Skadar LakeRijeka Crnojevića

Montenegro ResortsValue: €90 million

Serviced apartments and villas. Eco hotel and spa, recreational facilities

Construction to start in 2015To be completed by 2017


July 2015

Table source: © Dream Estates Montenegro

Large Scale Signature - Prime ProjectsSelected developments

1 Porto Montenegro

2 Sveti Marko Island

3 Lustica Bay

4 One&Only Portonovi

5. Plavi Horizonti

6. Punta Mimosa

7. Montrose

8. Mogren Town

9, Budva New Expo Centre

10. Safiro

11. Budva Beach Towers

12. Dukley Gardens

13. Galije Resort

14. Kamenovo Tourist Resort

15. Maljevik Bay

16. Velika Plaža

17. Porto Skadar Lake

06


Montenegro

Albania

Swiss Alps 4050000French Riviera 3375000The Algarve (Golde 2745000Barbados 1908000Marbella (incl. Soto 1879200Cayman Islands 1800000Ibiza 1699200Mallorca 1485000Tuscany & Umbria 1350000St. Kitts & Nevis 1152000Croatia 850000MONTENEGRO 800000

French Riviera 3375000Swiss Alps 4050000Barbados 1908000The Algarve (Golde 2745000Mallorca 1485000Cayman Islands 1800000Tuscany & Umbria 1350000Ibiza 1699200Marbella (incl. Soto 1879200St. Kitts & Nevis 1152000Croatia 850000MONTENEGRO 800000

Swiss Alps

French Riviera

The Algarve (Golden Triangle)

Barbados

Marbella (incl. Sotogrande)

Cayman Islands

Ibiza

Mallorca

Tuscany & Umbria

St. Kitts & Nevis

Croatia

MONTENEGRO

Typical four bed villa price accross prime residential retreats

GRAPH 4

Price for a typical four bedroom villa in a newly built prime development (absolute prices including VAT), 2015.

Graph source: Savills and Dream Estates Montenegro

Absolute values for prime properties in Montenegro are still considered very attractive when compared to established markets.

MONTENEGRO

Demand trend Northern Europeans

The favourable exchange rate has triggered more British people to consider an overseas property purchase, in particular in the Eurozone in 2015. This trend is expected to continue in H2 of 2015, and new pension rules, enabling hundreds of thousands of people to access the cash in their pension pots, could be adding to the resurgence also, as could the UK’s buoyant housing market.

The top Montenegrin destination for Northern European / British buyers continues to be the Kotor Bay area, where they look for investment opportunities with some usage and purchase quality properties with traditional Mediterranean charm. For this buyer group, their purchase decision is a pure appreciation play with some rental requirement as a secondary driver.

Prices in Kotor are more than 60% below neighbouring Dubrovnik for instance. Prices are at this level due to the fact that the traditional Eastern European buyers, most prevalent over the past 5 years, were not interested in traditional Old Town property - now with the resurgence of the Northern European market, transactions and prices are on the up. We expect significant gains over the next 5 years. In addition, the best yields from rental are achieved in the Old Town.

In the UNESCO protected Kotor Old Town, located in the only natural fjord of its kind in the world, prices start from €1,600/m2 for un-renovated apartments.

GRAPH 5

Price for a typical 70m2 gross internal area apartment in a newly built development (absolute prices including VAT), 2015.

Graph source: savills.co.uk and Dream Estates Montenegro

GRAPH 6

Average asking price in €/m2 for land for the construction of mainstream apartments; with sea views, urbanised with density >0.7 to 1, everything else being equal (June 2015)


LandRising interest in Montenegro’s property market in years prior to the economic crisis sparked a boom in the sale of land for residential and hotel development, particularly in the coastal area, which led to substantial land price growth at the time. Developers have enjoyed the opportunity of tapping into a virgin market identifying long term potential in the leisure and real estate sectors.

Some of these proposed schemes comprised significant scope in terms of scale of development and proposed amenities.

Most of those developments were stalled after the crisis, due to the lack of development finance or ongoing planning and zoning issues combined

Courcheve 893690St. Tropez 882910Venice, Ita 847228Porto Mon 490000Quinta do 460000Dukley Ga 400000Ibiza 389375Dubrovnik 360000Costa del 324310Budva Pri 280000Budva Ma 160000

Dukley Ga 400000Ibiza 389375

€0 €200,000 €400,000 €600,000 €800,000 €1,000,000

Courchevel, France

St. Tropez, France

Venice, Italy

Porto Montenegro

Quinta do Lago, Algarve, Portugal

Dukley Gardens, Montenegro

Ibiza

Dubrovnik, Croatia

Costa del Sol

Budva Prime (Tre Canne), Montenegro

Budva Mainstream, Montenegro

Typical two bed, 80m2 GIA apartment in newly built prime developments, absolute prices

Land stock on the market is significant. Prime sites would need to sell before developers will pay ‘market’ price for non-prime sites.

Demand from Northern European markets is expected to return to an even greater degree than in early 2015, over the next 24 – 36 months matching better-faring economies at home.

July 2015



Aver

age

aski

ng p

rice

€ / m

2

(Regent Pool Club Residences)

with the requirement of expensive infrastructure where the development was not located in a mainstream area.

After the crises, property buyers in Montenegro have opted for completed product as opposed to land for investment or off-plan projects, which is why we have witnessed a significant reduction in land sales in post-crisis years, and a substantial increase of land stock for both prime and non-prime sites that have been sitting on the market for some time now.

The slowdown in apartment and villa sales has had the knock-on effect of reducing significantly the land sales being made.

Off plan sales are practically non-existent and developers of land banks are now reliant on self-funding, or in a very rare instance, on bank financing, to commence the project.

- 15%The average price decrease of

prime land since the crisis.

The average price decrease of non-prime land during the same period

In our view, it could take 5 years or more before the majority of land stock on the market is absorbed. And thereafter we expect to see land values rising again and transaction numbers increase.

Land sellers calculate land prices according to maximum GBA (gross build area) allowed by planning documents released, while end user purchasers are seeking much less dense schemes within which to purchase.

DemandFrom a macro-market perspective in Europe, 2008-2012 were the years of asset price inflation, yield compression and ‘safe haven’ investment into ‘World Cities’. 2013 was the year when yield-seeking investors started to expand into secondary assets in prime cities and prime assets in secondary locations in search of greater income returns while first-tier Cities started to be perceived as fully valued or even potentially overvalued.

In 2014 and in the early months of 2015, Montenegro continued to moderately outperform regional and some international markets as regards sales volumes, with continued demand from an increasing international base of investors and end-users.

Indicators for residential construction and sales activity show that the market rebounded in the first half of 2014.

+ 16.6%The total number of dwellings sold in new residential buildings rose by

16.6% in the second quarter of 2014 alone from the previous quarter,

based on official data.

If all land which was purchased by investors from 2004 to 2008 were developed, more than 50,000 units would have come to the market along the Montenegrin coast.

- 30% to - 40%

In the second half of 2014 however, the market felt the full brunt of the weakening Ruble versus Euro and the fact that many Eastern European buyers delayed purchase choices. However, we are seeing a slight increase in the number of sold dwellings in new residential buildings in the first half of 2015 compared to the second half of 2014, primarily due to stable economies in the West, slowly recovering Ruble and developers’ openness to adapt their strategies to a changing buyer profile.

Absolute spending power decreased for Eastern European buyers to an average of €200,000 although the numbers of buyers in the market remained constant, and at a price of around €160,000, we are seeing the return of stronger interest from Northern European markets.

*Average asking price for smaller prime waterfront urbanised plots of land for single individual housing units along the coast ranges from 600 €/m2 to 800 €/m2

The graph below indicates the price positioning of product in Montenegro, both prime and mainstream, versus other established destinations

Key to developers entering the Montenegrin real estate market, more so now than ever, is to deliver a product which the market demands, in a clever way. Seems like a simple proposition, however a combination of poor data and research combined with a sense on behalf of the developer to deliver what they would like, is leading to a glut of properties on the market which are over-expensive, over-sized, poorly designed, and as such are extremely slow to sell. ■

GRAPH 7

Percentage of buyers in Montenegro real estate market by geographic division


Current Buyer Profile Mix 2015 Forecast

24%Our research has shown that 24% of prospective buyers, typically Eastern European, are looking for a property purely for their own use. This group have no interest to rent the property and will spend up to 3 months or

more utilising their property.

45%A further 45% of potential buyers coming to the market, including Northern European buyers, are

expecting to both use and let their property.

This high proportion of potential ‘end-user’ buyers (69%) underlines the need to provide resorts with product and services that appeal to their lifestyle requirements.

25%An additional 25% of buyers, typically

Northern European, are looking to purchase Montenegrin property purely for investment purposes -

either to capitalise on rising values or a mix of both price growth and rental

income.

The perception of longer term demand for property and tourist rental based on strong amenity provision and product quality will help draw investors looking to benefit from capital appreciation or rental returns.

We would expect the return of Northern European buyers and purchasers from non-Eastern European countries over the next 5 years, to require more of an income producing investment product.

GRAPH 8

Difference in ‘hardware choices’ of Eastern European and Northern European 2nd home Buyer choices (as of June 2015)


Eastern European Buyer Northern European Buyer

Average spending budget €200K €160K

Main Purchase Drivers LIFESTYLE INVESTMENT

Number of bedrooms

% of time rented

Importance of title and process

Prefer local mortgage

Possibility of having residency

The list goes on and on...

Strong interest expected for smaller sized well priced units from Northern European clients. Cleverly designed products allowing for appreciation and yield in the near term are expected to produce strong demand.

OUTLOOK

BUYER CATEGORY

YES HOTEL OPERATOR

orNO HOTEL OPERATOR

MAIN DRIVER TARGET SOURCE OF FINANCE

GEOGRAPHIC SOURCE AGE UNIT SIZE MIX

INVESTORPure Investment Product

25%

INVESTOR - USERWith some usage 45%

USERNo interest in leaseback

24%

OUTLIERSCash Rich Trophy 6%


GRAPH 9

The Current Buyer Profile mix (as of June 2015)*

GRAPH 10

Change in mainstream apartment unit size (in m2 sellable area) demand

The reduction in spending power has driven purchasers to smaller properties.


This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Dream Estates Montenegro accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Dream Estates Montenegro.

July 2015

10 dreammontenegro.com 11


Perc

enta

ge o

f Buy

ers

Significant ongoing interest expected in absolute front line small land plots for single villa units.

Kotor Old Town – undervalued and set to show strong appreciation in the next few years. Properties in Kotor Old Town are the best source of rental income along the coast of Montenegro.

*This data shifts over time. We would therefore recommend that you contact us for our latest market report. In addition to real-time market research services, we offer project feasibility analysis studies, design consultancy, development management and sourcing andsecuring hotel operators.

Please contact us

for a full market report

Please contact us

for a full market report

Sale

able

are

a (m

2 )

*Please contact us for further information on unit sizes


Dream Estates MontenegroStari grad 321

85330 Kotor, Montenegro

T: +382 (0)32 304 788E: [email protected]: www.dreammontenegro.com

associate of savills spotlight montenegro second homes ...... · porto montenegro 5-star hotel with...

Documents