Buying Real Estate is a Safe Investment

Globally speaking, the coronavirus pandemic has led to a decrease in activity on the real estate markets. This predicament also impacted Serbia, especially under the partial movement restriction conditions that were introduced. However, even though the number of properties traded has decreases, the data from the Republic Geodetic Authority shows that significant real estate price fluctuations have not been recorded in the month of March 2020 in the Republic of Serbia.

The global economic growth forecasts are being adjusted for the expected economic consequences of the said pandemic. The world is entering a recession - according to the International Monetary Fund [IMF, World Economic Outlook, April 2020], the global gross domestic product [GDP] is projected to contract by 3 percent. IMF predicts the same decrease in GDP for Serbia as well [-3%]. Next year, the global economy is projected to grow by 5,8 percent, while the Serbian GDP will increase by 7,5 percent.

It is a matter of fact that, unlike in the previous crisis of 2008, this time around we are not facing a supply-and-demand predicament, since the causes thereof are health related, resulting in the reduction of the freedom of movement and the prohibition of certain activities. The demand exists, but "it is crucial to adopt measures to preserve the supply once the crisis is over" [Vladimir Gligorov, The Vienna Institute for International Economic Studies]. Pursuant to the data from the Statistical Office of the Republic of Serbia, the average floor area per dweller in Serbia is 22 square meters, while in Europe the average is 35 square meters per dweller, which speaks volumes to the real demand for properties and confirms the notion that buying real estate at this point in time is a "safe haven" investment.

Taken into consideration that the interest rates on savings, both globally and locally, are at their historical all-time lows, in countries with shallow capital markets and insignificant stock market turnovers, as well as underdeveloped hedge fund activities, investing in real estate is safe and can often yield greater profits than the aforementioned options.

According to the Statistical Office of the Republic of Serbia, the Serbian national median price per square meter of a new property in 2019 was RSD 163.520, which is EUR 1.388 [2019 median middle exchange rate for EUR, source: National Bank of Serbia]. This relatively high national median apartment price is a result of trade in real estate in the metropolitan municipalities of the City of Belgrade, where the median price per square meter in a new development was RSD 215.842 [EUR 1.831].

In its analysis “Coronavirus - Impact on the Serbian Real Estate Market", the real estate consultancy CBS International states that the real estate market in Serbia has undergone a significant expansion in the past period. Nonetheless, the consultancy's analysts expect that there will be a forthcoming slowdown in real estate activity, taken into consideration that certain buyers will wait some time before completing their real estate transaction. Exercising caution until the situation stabilizes, as anticipated in the second part of the year, is expected from this category of buyers, especially those who need to obtain housing loans in order to complete their transaction. In addition, the majority of large residential developments is under construction and, as per the analysis, they are well positioned on the market, thus they will not experience any pricing pressures. The construction sites are operational whilst adhering to all safety measures, so no significant construction deadline extensions are expected.

What has not changed to date is the unique ability of real estate to generate income through renting, which makes properties more appealing compared to savings interest rates and the publicly available bonds.