Macedonian property market weak, amid severe political crisis
April 20, 2016
The price falls are concentrated in the capital city, Skopje:
- In Skopje, the average price of dwellings dropped by 1.8% (nominal and inflation-adjusted) to MKD 52,916 (USD 963) per sq. m. in 2015 from the previous year.
- House prices in other parts of Macedonia only decreased by 0.8% (nominal and inflation-adjusted) y-o-y to MKD 33,243 (USD 605) per sq. m. in 2015.
Demand has slowed in recent years, with a period of real panic about over-building in 2013. Demand dropped by around 30% according to estimates, with around 4,000-5,000 new unsold flats in Skopje. Vacancy at delivery stood at 43% in 2013, according to Forton.
In an effort to help the housing market, the government has increased its subsidies for homebuyers to 75% of the monthly bank mortgage (from an initial 50%) for new flats and houses costing under €900 per sq. m. for the first five years. This means that for a flat with an average price of MKD 3.12 million (USD 60,000), the government will pay a total of MKD 937,331 (USD 17,050) through subsidies.
This has somewhat helped the housing market recover, with building permits rising in 2014 and 2015 from 2013's low, especially in Skopje.
However, the road to recovery has not been smooth as the country continues to struggle from its extended political crisis and the impact from problems in neighboring Greece.
Macedonia: yields are moderate
Buying prices of apartments in Skopje, Macedonia, remain very reasonably price at around 1,100 Euros per square metre.
Due to moderate price rises since 2005 (all our figures are stated in Euro terms), there have been slight declines in yields. It seems to us that another reason is that rents have been falling, though we don't have official statistics to confirm this. Gross rental yields in Skopje are now moderate, with most apartments yielding around 5.0% to 5.5%.
Income taxes in Macedonia are moderate
Rental Income: Rental income is taxed at a flat rate of 10%. Income-generating expenses and depreciation costs are deductible when calculating taxable income.
Capital Gains: Capital gains are taxed as ordinary income at 10%, levied on 70% of computed gains after expenses are deducted.
Inheritance: Spouses and first degree relatives, or direct ascendants and descendants, are not liable to pay inheritance tax on their inheritance.
Residents: Residents are taxed on their worldwide income at a flat rate of 10%.
Buying costs are very low in Macedonia
Roundtrip transaction costs, i.e., the total cost of buying and selling a property, are around 4.30% to 7.60% of the property value. The 2% to 4% sales tax is the greatest cost, and is usually paid by the buyer. The seller pays for the agent’s commission of 2%. However, the first turnover of buildings and apartments is subject to 18% VAT, dramatically increasing the transaction cost.
Macedonian tenancy laws are pro-landlord
Rent: Rent and rent increases can be freely negotiated. The lease contract must clearly state the rent, type of rental payment, and the payment schedule.
Tenant Security: Lease agreements automatically terminate at expiration of the lease contract.
Political instability and the June 5 electionBy European standards Macedonia is a poor country, with 2014 GDP per capita of USD 3,917. Corruption is rife, with ruling party cronies controlling most businesses. There is much emigration. A large proportion of the population lives in poverty, especially ethnic Albanians who are simultaneously derided as "lazy" and discriminated against. Nevertheless, the International Monetary Fund (IMF) estimates that the Macedonian economy grew 3.2% in 2015 – slower than in 2014 due in part to the country’s extended political crisis, and the impact from problems in neighboring Greece.
Over the past year, the country has been in a state of continuous crisis. The Macedonian opposition leader, Zoran Zaev, has been releasing what he has called information “bombs” against the government. Zaev claimed that the government was systematically wiretapping all important people in the country, and released a series of allegedly wiretapped conversations of the then-prime minister, Nikola Gruevski, the head of the secret service and other senior officials, in which they apparently discussed interference in the judiciary, media and urban-planning process.
Zaev claimed that the elections of April 2014, in which the ruling conservative VMRO-DPMNE party of Gruevski defeated Zaev’s ex-communist Social Democrats (SDSM) were fraudulent and has accused Gruevski of operating a dictatorship. Zaev's party tends to represent ethnic Albanians.
Gruevski, who had been prime minister since 2006, resigned in January to pave the way for early elections, initially scheduled for February before being postponed until June 5. A highly controversial presidential amnesty for 56 of those subject of investigations into the alleged wiretappings was issued by president Gjorge Ivanov, with the obvious intention of aborting the judicial investigations and hiding any evidence.
Mass protests have erupted in Skopje. Zaev and 10 other politicians who have received amnesties have refused them, and foreign institutions have condemned them. Russia, however, supports the government.
Few expect the elections on June 5 to resolve the problem, as Zaev's party has boycotted them. Meanwhile Macedonia has sealed the border with Greece.
"Domestic political uncertainties and the crisis in Greece are likely to slow momentum as confidence weakens and some investors hold off investment decisions," noted the IMF.
The fiscal deficit was 4% of GDP in 2015, up from the 3.4% target. This, according to IMF, likely stems from the underperformance of Value Added Tax and non-tax revenues, as well as increased security spending entailed by the worsened security situation.
A dispute with Greece over Macedonia’s name continues to block the country’s accession to European Union (EU) and North Atlantic Treaty Organization (NATO). The National Bank of the Republic of Macedonia announced late in June the imposition of temporary limits on the outflow of capital to Greece and ordered its banks to withdraw deposits and loans from Greek banks.There are two Greek-owned banks in Macedonia which together hold 22% of banking assets.