Real estate analysts rarely take into consideration the policies of military alliances when considering property market values. But in Macedonia the possibility of joining NATO has property experts convinced that prices will shoot upwards.
By Jane Dimeski in Skopje
The result, for the moment, is an unusual lull in the market, analysts say. The lull is akin to a pause in trading before the publication of new economic figures, as prospective buyers and sellers wait to see whether the US and its NATO partners choose to extend membership to the small Balkan country three months from now.
In April, when NATO heads of state meet at a 2008 Summit in Bucharest, Romania, Macedonia could receive an invitation to join the alliance, along with Croatia and Albania.
Owners of apartments and business premises in Skopje and across the country are withdrawing properties from the market, anticipating a new price boom if NATO expands for a second time into the former Yugoslavia. Slovenia joined the alliance in 2004.
Last year property owners saw prices rise by 20 percent, although prices actually fell in some European post-communist transition countries during the same period. Few believe the potential for strong short-term price growth is exhausted in Macedonia.
Market experts see a direct link between integration in the military alliance and the potential for more growth.
“People are withdrawing their apartments from the market, because they believe there will be another price boom if we enter NATO. Currently we have increased demand not only from foreigners but also from local clients, and comparatively little on the market,” Milena Miloseska, owner of Pin-project, a real estate agency in Skopje.
The possibility of NATO expansion is not the only factor in play. This probable price driver is combining, experts say, with anticipated liberalisation of rules on foreign ownership of land.
Nonetheless, the current real estate pricing dynamic underlines how central NATO’s role has already become in this non-member state and in the surrounding Balkan neighbourhood. Its influence extends far beyond military affairs and politics, indirectly into matters of homeownership, business location and other aspects of the economy where demand is sensitive to broad perceptions of stability.
Zoran Ivanovski, an economist at European University, a private university in Skopje, reckons real estate would be the first sector to profit from Macedonian membership in NATO. Judging by the experience of other new NATO member states, including neighbouring Bulgaria which with Slovenia and five others joined in 2004, factors would range from broadly positive implications for the country’s security to specific demands for new investment, notably in construction and related industries.
“Becoming a NATO member, the country will be seen as less risky. As for foreign companies, NATO will guarantee political and economic stability, which makes investment much safer. This will increase interest in investment, and growing demand will increase prices,” Ivanovski says.
Market data from Bulgaria in the year it joined NATO indicate that the security factor may have paid off there. Though it is statistically impossible to measure the impact of NATO’s expansion on Bulgarian property prices, in isolation from other factors, 2004 was a banner year there. Prices in leading Bulgarian markets such as Sofia and Varna doubled.
A place for Macedonia within NATO is anything but guaranteed. Matthew Nimitz, the United Nations mediator in Macedonia’s long-running dispute with Greece over the former Yugoslav republic’s use of the name “Macedonia”, also the name of a neighbouring Hellenic province, visited Skopje last week. His visit pointed toward a moment of decision for an alliance whose decision has been hampered in part by objections from Greece, a member state.
Uncertainty about Macedonia’s security role also persists elsewhere in the Balkans. Earlier this month, a deadly crash near Skopje of a Macedonian military helicopter returning from participation in the European Union’s peacekeeping mission in Bosnia and Herzegovina highlighted continuing security challenges in the region. Chief among these is the unresolved status of Kosovo, Serbia’s breakaway province.
In a politically fluid and uncertain neighbourhood, there is a growing concern among Macedonians that their country risks missing out on the kind of economic transformation already well underway in those post-communist countries that have already joined NATO and the similarly eastward-bound EU.
Last year’s price increases show that a significant number of local and foreign individuals and companies believe such risk will be averted.
Miloseska, the agency owner, says prices in the centre of Skopje are climbing toward levels seen in much larger, richer capital cities. The price for one square metre of space ranged from 800 euros to 1,000 euros twelve months ago, but a typical price is now 1,400 euros, she says.
Vlado Pecijarev of Remis, building company from Ohrid, says prices there remain lower than in Skopje – from 450 euros per square metre in outer-lying areas to 1000 euros in the historic centre.
The recent scarcity of properties on the market – whether apartments in central Skopje or lake-view houses in the holiday resort of Ohrid – accounts in part for that price increase. If properties held back at this time flood onto the market after April, the impact might initially soften the initial “boom” from which imminent sellers say they hope to benefit.
Meanwhile, a growing number of aspiring buyers feel themselves caught in the lull. They do not blame higher prices and low stock volumes on NATO diplomatic timetable alone but on a combination of property market dynamics.
Meri Karanfilovska, who recently sold her Skopje apartment and now intends to buy a new one, identifies three such dynamics.
First, a shortage of new locations in central Skopje is forcing prices up. Second, the financing of construction projects that previously took 12 months is increasingly drawn out to 18-20 months, due to new regulations that prohibit contractors from selling properties until they are built and receive public certification.
Finally, the rise of retail mortgage lending in Macedonia’s nascent retail banking and finance sector is boosting demand by creating opportunities for individuals and companies to buy properties over 30 or more years which, previously, they would have been asked to buy outright. This also pushes prices upward.
Milosevska says the interest of the foreigners is an increasingly important factor, NATO membership can be expected to impact and signs of institutional stability buoy foreign buyers’ confidence. Greek, British and Slovenian companies are among the most eager, seeking property for tourist, residential and business use.
“The most interested are Slovenians who are looking for good locations. They buy apartments in Ohrid without any hesitation, good locations with lake views, and price is not a barrier. They have high standards,” Milosevska says.
Victor Mizo, director of Macedonia’s state agency for promoting foreign investment, says demand for commercial property is high, but he warns against excessively optimistic expectations in the residential market.
“If someone can buy a similar weekend house in Bulgaria at lower price, we should not expect a sharp rise in the price of a square meter and foreigners wasting money just to buy property in Macedonia,” he says.
“Real estate prices in southeast Europe have undergone dramatic changes in the past two to three years. In Bulgaria, Croatia and Montenegro, especially the coastal regions, some of the properties were overrated,” Mizo adds.
If so, one result may be greater caution among foreign buyers. Nonetheless, Mizo argues that liberalisation of law on foreign land ownership will boost the positive price trend, and he is joined by Ivanovski, the university economist, in predicting that prices will initially soar if Macedonia gains NATO membership.
If nothing else, entry to the alliance would be suggestive of basic stability and security. In Macedonia, rarely has anything been more valuable.