How come I feel qualified to write on this subject? Well, I am a retired captain of UK-based corporate airplanes and moving house forms part of a professional pilot's lot as a new assignment usually leads into another area and hence a new abode. My present house is, in fact, my number 9. I have also owned, built or refurbished 3 houses in the Balkans of which 2 have been in Montenegro. Besides, I am unbiased. I do not work in the Real Estates/ or Tourist business and hence have no axe to grind either way.

Real Estate in Montenegro constitutes an investment for growth and not for income, because the summer/ winter tourist seasons are too short to make buy-to-let feasible. Besides, it can never pay for an absentee landlord, who has to leave the marketing & renting administration to unsupervised local agents. However, if the forecasts are correct that Montenegro will transform herself into a second Monaco and in view of the improved infrastructure (motorway as far South as Dubrovnik Airport next year) as well as the present dip in real estate prices, there seems to be a potential for growth. Apart from that, there is the intangible benefit of a 'place in the sun' for vacation and retirement.

I shall bring up issues, which are applicable generally and then lead to points which are specific to Montenegro and I start with acting as the devil's advocate:-

Agents have promoted apartments 'off plan', that is to say that the punter puts down a hefty deposit without any collateral while the project is still on the drawing board. I say to them with Shakespeare 'I am not bound to please thee with my answer'. Some 40 years ago, I flew the corporate plane of a property developer's who had projects all over the place - as far a field as Menorca and Jakarta - hence the company aircraft. Their last development was nearer home (on their door step, in fact), namely in the Thames valley in Berkshire, England and this one was an eye opener for me and gave me insight into the 'off plan' mechanics. It reminded me of the story of General Dayan, who was asked after his victory in the 5-day war, what he would have done, had he lost it. His answer was:- 'No problem, I would have started another one in my wife's name.'
Well, the developer took large deposits for flats in apartment block A. He did not manage to sell the last flat at the time, also the price of some materials had risen, but there was no problem because he used the deposits for block B to finish A and so forth and everything went fine as long as the subsequent project was larger than the previous one. Then came the oil crisis of the seventies. He could not sell any apartments and the company went bankrupt. The punters lost their money but the developer did a General Dayan and rose like Phoenix from the ashes. I am not suggesting generalization from this experience, but I believe that an 'off plan' transaction deserves the label 'speculation' rather than 'investment'.

Apartments contained in large blocks are normally managed by a committee of a residents' association to the effect that a code of conduct is agreed and that each owner pays a monthly maintenance fee to cover the cost of looking after the jointly owned portions of the property such as the roof, the corridors, the parking spaces etc. Such arrangement does not normally exist for small blocks of say 8 to 10 apartments. Well, Jean P Sartre said 'hell is other people' and you may buy a flat in one of these blocks in haste to repent at leisure. If the roof leaks, the owner of the top apartment will have to fix it and no-one else will chip in, nobody will change the burnt-out light bulb in the stair case, there is likely to be a scrum for parking spaces and some residents could disturb the peace and quiet of others by, e. g. , lighting smoky barbecues on the balconies or throwing noisy all-night parties.

A friend of mine is a Yorkshire businessman, who is renowned for tagging his lawyer and his accountant along wherever he goes. There is story out, that on a skiing holiday he asked the accountant whether he could afford it and the attorney whether it was legal before setting off down the slope. You should take a leaf out of his book whenever you want to invest in real estate in general, and in a country of a different legal system and language in particular. As far as Montenegro is concerned, the Bar Association publishes a list of members on
http://www.advokatska.komora.cg.yu/web/en/  (Sorry - dead April 2011)
and I advise you to hire one them for business in Montenegro. (Attorneys owe allegiance to whoever pays their bill, hence never use the real estate agent's solicitor.) If you also want to build or renovate, you may require the services of an accountant to keep track of scores of receipts and bills written in a foreign language.

There is a saying in Montenegro:- 'litigation is a machine, which you enter as a pig and leave as a sausage'. Montenegrin jurisprudence is excellent and fully up to EU standards. The system is nevertheless flawed for 2 reasons:-
  • litigation is too cheap, hence there is a backlog of cases to the effect of a time-lag of up to 2 years for the issue of a summons, and
  • litigants do not require leave to appeal against a judgment so that most losing parties appeal anyway to gain time, whether they have a point of law or not. The Supreme Court is, therefore, deluged and the delay of a final verdict can amount to another 3 years

In conformity with Oscar Wilde's words ' the only way to get rid of temptation is to yield to it', this state of affairs invites 2 scams, in which the person at the receiving end finds himself in a 'no win' situation with an choice between a Pyrrhic victory after a long time delay or a compromise:-

  • If parties conclude a pre-contract for real estate transfer, a deposit changes hands. According to the law, the purchaser loses it or the vendor has to refund it double if he/ she reneges. A vendor could conceivably welsh and refuse the refund of the sum (let alone the double) paid on account of the purchase price but show willingness to proceed with an improved offer. Ergo:- never make a pre-contract. If you purchase real estate, get the real estate transfer tax assessed and make a final check in the land register for clean title. Then exchange the contracts proper first thing the next morning, hand over the purchase price in cash, pay the tax and lodge the application for the land register all on the same day
  • The owner of a private road, over which a neighbour enjoys Right of Way as an intabulated easement, could conceivably block the access but indicate at the time that he would move the obstruction if certain conditions are met. Ergo:- do not buy an object without access via a public road.

When you are ready to choose an object for purchase, enter Internet search engines with ' Montenegro "real estate " ' and visit as many sites as you can manage. You will find some objects listed by more than one agent and at vastly different prices, reason being that some agents are satisfied with the commission whilst others expect to pocket an additional mark-up.
If you are a foreigner (non-Montenegrin), ascertain, whether you can register your desired object in your own name (that depends on the amount of bare land forming part of the property) or whether you have to quickly form a Montenegrin company first*. If after viewing the object you want to take the matter further, check the availability of utilities. Then instruct your attorney to examine the documentation, to instigate all the searches, which you would make at home and - if applicable - to arrange a structural survey. Finally, have the boundaries checked by a surveyor and proceed with the conveyance.

If you require construction work after securing your title, avail yourself of the site
instruct a local architect (make sure he holds a degree and not just a diploma) and get your lawyer to write a contract with him, which should include the duties of a quantity surveyor. The architect should propose contractors and again detailed contracts are of the essence and must include a non-back-hander clause (my standard contract with the architect spans 4 and with the builder 13 pages). Ensure that you own all the building material by buying it direct from the builders' merchants and store it securely and with a permanent guard on your site. Remunerate the contractors' labour with progress payments. Thus you can not lose much should the construction company go bust.

Remember to budget for 50% over and above the quotes to ensure that there will be no cash-flow problems.

Chances are, that you will require a reliable low cost English - Serbian translation service. I use olipo@eunet.yu and I am highly satisfied.

With all these chores accomplished you can enjoy your first holiday at your Montenegrin real estate.


Ernst Stogmuller

 * this law is expected to be repealed in the near future

Posted 31Aug08