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REPORTS 2020

Serbian reports (December 31st, 2020)

Economic indicators (GDP, unemployment rate, inflation rate) – Serbia

The second wave of the pandemic has slowed the global economic recovery, but since October its negative effects were significantly smaller than in the first wave, due to monetary and fiscal measures applied by governments and central banks, so many companies have adapted to changed business conditions.

The real decline in gross domestic product in the third quarter of 2020, compared to the same period of the previous 2019, amounted to 1.4%. The seasonally adjusted data series shows GDP growth in the third quarter of 2020 of 7.4% compared to the previous quarter.

Gross Domestic Product

Annual decrease in the physical volume of industrial production of 1.4% was recorded in November 2020 compared to the same period previous year. As a sector that was not greatly affected by COVID19, the Mining sector recorded a growth of 7.2%. On the other hand, most other sectors have reduced the volume of activity. In Manufacturing, a decrease of 3.8% was recorded, and in the Energy sector an increase of 6.6% was recorded. In November 2020, the turnover of goods in retail trade at constant prices increased by 1.1% y-o-y.

After declining due to the 2008 financial crisis, with the exception of 2013, when the country was hit by floods, Serbia’s GDP grew in the previous years. Due to pandemic, Economy declined in 2020, but to a lesser extent than expected. The main drivers of economic growth in the previous decade are foreign direct investments, and in recent years China has stood out as an investor, investing in steel production (HBIS), copper (Zijin), automotive industry (Minth) and construction (primarily infrastructure projects).

The value of the USD against the RSD grew steadily until 2016, but after that over the next 18 months the RSD appreciated against the USD, and was relatively stable thereafter.

The movement of the USD / RSD exchange rate is illustrated in the following chart.

USD/RSD 2010-2020. Source: Bloomberg

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The Serbian economy is highly dependent of trade with European countries, and the stability of the EUR / RSD exchange rate is of the great importance in order to create an affirmative business environment. After the depreciation in the period from 2008-12 period due to the expansionary fiscal policy and the accumulation of national debt, the exchange rate stabilized during 2015, after which the dinar was appreciating slightly, without major oscillations.

EUR/RSD 2008-2020. Source: Bloomberg

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Gross Domestic Product Growth Rate

GDP growth 2009-2020. Source: World Bank, OECD

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As previously mentioned, the floods in 2013-14 primarily had a negative impact on agricultural and energy production, which are one of the largest factors in Serbia’s gross domestic product. After significant growth in 2018, GDP increased slightly in 2019, and for understandable reasons, there was a decrease in GDP in 2020.

Unemployment Rate in Serbia

Unemployment 2008-2020. Source: RZS[1] 2020

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The financial crisis of 2008 had a prolonged negative impact on Serbia in relation to the world for 2 years. After a record amount of out of work labor force in the 2012 (election year), the unemployment rate was halved  to 12% in the following years. The explanation for this trend can be found in the development of the IT sector and increased activity of the construction sector, but with a dose of reserve due to changes in methodology and reduced tolerance when applying for Unemployement byro records, which further reduces the actual unemployment rate. The negative economic cycle did not significantly affect the growth of unemployment in 2020 due to state subsidies.

Inflation rate

Inflation rate 2010-2020. Source: RZS 2021

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From the initial double-digit values from the beginning of the decade, caused by the growth of public debt and volatility of the EUR / RSD exchange rate, the National Bank of Serbia managed to maintain inflation to the strategic target framework. Due to deflationary pressures, the NBS has adjusted the strategic range of inflation targeting to 3 ± 1.5% after 2014. Recently, like other European economies, Serbia has been exposed to deflationary pressures, so NBS lowered interest rates to stimulate aggregate demand. Inflation is currently below the target level.

Real estate Market in Serbia

Sale of property by category in the first half of 2020

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The sale of apartments is still the most common, and due to the downtrend of economic activity, the volume of transactions in the economy has decreased. The share of residential apartments increased at 56%. Demand within this segments has been stable over the last few years, and other categories have reduced the number and amount of transactions realized.

Construction of new housing capacities

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After a contraction in the middle of the decade, a set of measures designed to simplify and speed up the issuance of construction licenses resulted in an increase in activity in this sector. Based on the last published data for 2019, the growth of new construction was 6.6%. Construction is one of the few branches that has not been significantly affected by the COVID19 pandemic, but uncertainty about the future and a partial reduction in current customer revenues may have a negative impact on demand.

Total quantity and value of apartment sales

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The intensity of construction has not been significantly reduced, but the number of realized real estate sales has. This was also influenced by the limited work of institutions that are necessary for the realization of transactions. Turnover in the real estate market is less reduced compared to units sold, which means that higher value properties are more tolerant of the pandemic effect. The long-term demographic trend of population migration to industrial centers (Belgrade and Novi Sad) has influenced the prices at these locations to remain relatively stable.

Real Estate purchase (Cash vs Loans)

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Although the credit conditions are currently favorable, the largest number of transactions is realized by cash purchase, which is especially the case outside Belgrade. Compared to more developed markets, the share of mortgage purchases is modest and amounts to only 15%. For example, based on a study by PWC in Italy, in 2018, 50.7% of the total number of housing transactions were realized by this method.

Residential Market in Belgrade

The Real Estate market in Belgrade recorded a total turnover worth EUR 995 million in 2019, or 19.88% more than in 2018. The development of the IT industry in Serbia, together with increased demand from the Serbian diaspora and foreign nationals, affects further price growth. In addition, the sharp rise in prices is accelerated by the launch of the Belgrade Waterfront project, which offers residential space in an exclusive part of Belgrade. The second IT center, Novi Sad, also has an increase in prices per m2, but prices in other cities in Serbia are stagnant or falling.

Average price change

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Average Price by Location

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In addition to Belgrade Waterfront, several other luxury projects are currently under construction on the territory of Savski Venac, and this has resulted in the largest increase in average apartment prices per m2. The most prestigious locations in Belgrade are in Stari Grad and Vracar but due to the configuration of the terrain and the presence of a larger number of buildings that are under state protection, the possibilities of new construction are reduced, and consequently the growth of prices per m2 is more moderate.

Comparison of prices per location (Old vs New buildings)

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Based on the previous table, the luxury complexes on Savski Venac and New Belgrade lead to a significant difference in price between new construction and older buildings. On the other hand, central municipalities such as Vracar and Stari Grad offer a more suitable location together with certain status symbols, so the large offer for already existing housing results in a smaller difference compared to newly built complexes in these territories.

Price Change in Percentage (2016-2020)

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Average Apartment Size in Belgrade

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Average size of apartments in Belgrade can be observed in two ways. In the first group, the downtown, which consists of Stari Grad and Vracar, is smaller in area than other municipalities and contains a larger number of buildings built before World War II, when the average size of apartments in most cases was over 100m2. Unlike these two municipalities, others were mostly built after World War II (especially New Belgrade), when housing units were designed on a much smaller area. Also, due to commercial needs, the largest number of investors are building apartments with an average size of 60m2.

Highest Price per Apartment (Old Buildings/New Developments)

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The most expensive apartments in Belgrade (Old/New buildings)

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The most expensive apartments per m2 (Old/New)

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The most important projects in construction

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