Despite facing various challenges brought on by unfavorable market trends and the global events that shaped them, the Serbian real estate market continued to grow in the last quarter of 2022 according to a press release by the Serbian Republic Geodetic Authority (RGA).
The RGA also stated that the overall value of the real estate market underwent record-high 36% year-over-year growth in 2022, with a total of EUR 2.3 billion used to purchase real estate during the fourth quarter of 2022 alone. This marks an increase of 27.3% compared to the same quarter in 2021. The most expensive apartment in Serbia was sold for just over EUR 2.4 million. These figures illustrate the significance of the real estate market in the Serbian economy.
The Serbian government has recognized the economic importance of the real estate and construction sectors, as well as the corresponding need for improved legislation that would enable their further growth by providing more legal certainty to investors and other participants. At the end of January 2023, the Serbian Ministry of Construction, Transport and Infrastructure published the Draft Law on Amendments to the Law on Planning and Construction and invited all governmental authorities, organizations, entities, and those interested from the general public to participate in public comment. At the time of writing, the public comment process was still ongoing, and it remains to be seen whether the final version of the draft will be updated to take into account the suggestions and remarks generated.
Proposed amendments aim to, among other things, accelerate the building permit issuing process, contribute to the “green agenda” by introducing the term “green building” and regulations on construction waste management and storage, impose additional obligations on investors, and clarify the provisions which were not interpreted unanimously by the competent authorities. For example, it has been proposed that any investors who obtain a “green building” certification will be entitled to a 10% decrease in their contribution to the development of land for construction. Also, investors must provide proof of waste management to obtain a usage permit. Furthermore, investors would be required to obtain an insurance policy before they begin work in order to protect any citizens who could be jeopardized by construction efforts. Finally, it is being proposed that new buildings should be connected to the existing utility infrastructure free of charge.
The general public’s reactions suggest that the most controversial amendment is the abolishment of a conversion fee for construction land. According to the Ministry’s explanation attached to the Draft Law on Amendments to the Law on Planning and Construction, the conversion fee will be abolished for all entities except sports associations, non-profits, agricultural and housing cooperatives, and persons and entities covered by the provisions outlined in the Annex G to the Agreement on Succession Issues of the Former Socialist Federal Republic of Yugoslavia. The rights and obligations of these exempted entities in relation to the conversion of usage and ownership rights for construction land will be regulated by separate laws. The Minister of Construction, Transport and Infrastructure said that the proposal came about because, in past years, conversion fee revenues were not significant, and their elimination would attract more investments in the construction sector, enable higher salaries, create new jobs, and consequently result in more rapid economic growth.
While legislation in the construction sector is facing changes, legislation governing the sale of real estate remains the same; but the application of such laws in practice can be challenging, especially for the sale of real estate portfolios containing properties of differing legal statutes. One example is a portfolio containing some real estate with a statutory pre-emption right and some without. If the potential buyer is asked to make an offer on the entire portfolio without the option to exclude certain properties, it is up for debate if the pre-emption right applies to the entire portfolio or only to certain items.
Life has always been more creative than law, and therefore it is the lawmakers’ task to create laws with clear and practical rules that do not leave room for variation in interpretation by authorities. Time will tell if the proposed amendments, when implemented, will result in an improved business environment and legal certainty in Serbia’s construction and real estate sectors.
By Tanja Dugonjic, Partner, Bojanovic & Partners