Podgorica / Source: Wikimedia Commons / Acknowledged

The property prices in Montenegro have been inflated due to an increase in foreign investments in real estate, according to assessments made by the Ministry of Finance in their economic reform program (PER).

The Ministry has predicted a decrease in property prices towards their actual value in the coming years, as reported by eKapija.

The latest preliminary evaluation of real estate pricing from 2006 to 2024 indicates that prices in the second quarter of 2024 are moderately inflated, albeit to a lesser extent than at the close of 2023.

While there is a gradual decline in real estate prices toward their true value, this reduction is not as abrupt or notable as it was in 2008-2009. Instead, it appears to be a slow process, which helps mitigate the risk of a price bubble in the real estate market, thereby contributing positively to financial stability, as outlined in the draft PER.

A sudden drop in real estate prices to their fair value could have adverse effects on banks, given that real estate accounts for a significant portion of loan collateral.

The Central Bank of Montenegro (CBCG) has implemented available macro-prudential measures to safeguard financial stability across the banking sector stemming from the real estate market. As of March 2024, they have adopted measures to increase the countercyclical buffer rate from 0 to 0.5 percent, which will take effect beginning April 2025.

To address the discrepancies in real estate pricing, the CBCG is conducting semi-annual research on public perceptions regarding property values.