Real Estate Serbia Siepa

Serbia Investment and Export Promotion Agency Vlajkovićeva 3 11000Belgrade tel.: +381 11 3398 550 fax: +381 11 3398 814 [email protected] www.siepa.sr.gov.yu

Real Estate Industry in Serbia

Contents TriGranit in Serbia.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Key Information on Serbia.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Why Invest in the Real Estate Industry in Serbia. . . . . . . . 4 An Overview of the Real Estate Industry Basic Industry Indicators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Office Market Trends.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Residential Market Trends.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Retail Market Trends.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 FDI in the Real Estate Industry.. . . . . . . . . . . . . . . . . . . . . . . 11 Africa-Israel Corporation/Tidhar Group in Serbia.. . . . . 12 Acquiring Construction Land Land Classification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Leasing Municipality Land.. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Acquiring the Right to Use Land.. . . . . . . . . . . . . . . . . . . . . 16 Conversion of Agricultural Land. . . . . . . . . . . . . . . . . . . . . . 17 GTC International in Serbia.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 A Construction Procedure An Assessment of Urban Conditions.. . . . . . . . . . . . . . . . . 19 Acquiring Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Obtaining a Construction Approval.. . . . . . . . . . . . . . . . . . 19 A Notice of the Start of Construction. . . . . . . . . . . . . . . . . 20 Construction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Technical Inspection.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Probation Occupancy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Obtaining an Occupancy Permit.. . . . . . . . . . . . . . . . . . . . . 21 Registration in the Cadastre. . . . . . . . . . . . . . . . . . . . . . . . . . 21 Financing Options.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Real Estate Transfer Real Estate Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Relevant Contacts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SIEPA Services.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

TriGranit in Serbia Mr. George Bobvos Director, Business Development–Serbia Why did you decide to start a business in Serbia? TriGranit considers Serbia to be an important target market in South East Europe. Based on the international experience of the TriGranit Group, we recognize a great potential in developing large-size real estate development projects primarily in retail but also in office/residential market segments. We believe in the country and its people and are hopeful of developing our Serbian business over the coming years. What are your current and future projects in the country? TriGranit is currently in the final-stage negotiations with the Serbian Railways related to the completion of the Prokop Railway project–Belgrade’s future main railway station seated in one of the most prestigious areas in the city. This investment, as well as another TriGranit project (128,000 sqm Belgrade’s first international shopping mall to be built above the Prokop Railway Station), would represent the largest infrastructure project of this type in Serbia to date. Total development costs are estimated at around €170 million. Given the size of this investment, we expect it to put Serbia in the limelight of regional developers community and eventually generate a large number of new jobs for local population. As for other possible future projects in Serbia, they are currently under consideration. How do you perceive the business climate in Serbia? The investment climate is certainly becoming more investor-friendly with significant room for further development particularly in the area of land and construction legislation. In terms of our future expansion, we embrace the Government’s initiative to introduce private ownership of building land and implement further urban planning and construction reforms.



Key Information on Serbia

Official Name Republic of Serbia Form of State Democratic Republic Political Structure President Unicameral assembly with 250 seats Area 88,361 km2 Population 7,440,769 (without Kosovo) South East Europe, central part of the Balkan Geographic Peninsula, at the intersection of Pan European Position Corridors No. 10 and No. 7 In the east, Serbia borders Bulgaria, in the northeast–Romania, in the north–Hungary, in Border the west–Croatia and Bosnia and Herzegovina, in the southwest–Montenegro, and in the south–Albania and Macedonia Temperate continental, with monthly average Climate temperatures ranging between 0.7°C in January and 17.5°C in July Official Language Serbian Main Religion Christian Orthodox Other Religions Roman Catholic, Islamic, Jewish, Protestant Major Cities Belgrade: 1,576,000 Novi Sad: 298,000 Nis: 250,000 Currency Dinar (RSD) GDP (2006) $31.630 bn GDP pc (2006) $4,199 Time Zone Central European Time (GMT + 01:00) Internet Domain .rs (.yu valid until 2011)



Why Invest in the Real Estate Industry in Serbia Competitive Tax System

Upward FDI Trend

Serbia’s tax regime is highly conducive to doing business. Corporate profit tax is the second lowest in Europe, while VAT, salary tax, and social insurance contributions are among the most competitive ones in Central and Eastern Europe. In addition, businesses in the country can take advantage of a broad range of tax incentives.

An FDI stock in Serbia totaled $8.9 bln between 2001 and 2006. An all-time record inflow of foreign capital last year reached $4.387 billion. Ongoing substantial legislative reforms–repeatedly commended by the World Bank and other international institutions–aim to further facilitate doing business in the country thereby triggering future investment boom.

Principal Tax Rates and Tax Incentives VAT

Standard rate – 18% Lower rate – 8%

Corporate Profit Tax

Uniform rate – 10%

Withholding Tax

20% (for dividends, shares in profits, royalties, interest income, capital gains, lease payments for real estate, and other assets)

Salaries – 12% Personal Income Tax Other income – 20% Annual Income Tax

10% (for annual income above 5 average annual salaries)

Social Insurance Contributions

Pension and disability insurance – 11% Health insurance – 6.15% Unemployment insurance – 0.75% A 10-year corporate profit tax holiday for investment over €7.5 mln and 100 employees Corporate profit tax credit of 20% of the fixed assets investment Carrying forward of losses over a period up to 10 years Accelerated depreciation of fixed assets

Tax Incentives

Salary tax base deduction in the fixed amount of RSD 5,000 (app. € 60) Salary tax exemptions for employees under 30 and over 45 years Social insurance contributions exemptions for employees under 30 and over 45 years Annual income tax deductions up to 50% of the taxable income Customs-free imports of equipment based on foreign investment



Net FDI (USD mln) 2006

4,387

2005

1,550

2004

966

2003 2002

1,360 475

2001 165 Source: National Bank of Serbia

Strong Macroeconomic Performance

Booming Market Potential

In recent years, Serbia has been among Europe’s fastest growing economies. Over the past three years, GDP growth averaged 6.8% with the forecast of 7% for the coming years. GDP per capita of $4,199 is coupled with rapid banking loans expansion to fuel skyrocketing local demand. Inflation in 2006 returned to single digits standing at 6.6%, while further reductions are projected for the coming years. Macroeconomic stability is also reflected in a state budget surplus for 2006, providing room for an unprecedented €1.7 bln national infrastructure development plan.

In Serbia, there is strong demand in the office, residential, and retail market. As a result of robust economic growth and strong FDI forecast, demand for quality office space is expected to pick up considerably. Likewise, a residential market is forecast to experience a sharp upward trend due to a steady increase in household income and a wide availability of mortgage loans at continuously decreasing interest rates. Furthermore, yields in the real estate sector tend to be higher than in other CEE countries, amounting to 9% in the office market, 4%-7 in the residential market, and 5%-6 in the retail market.

GDP Growth Rate

Class A Office Space Yields (2006)

2007**

7%

2006* 2005

8.4% 2.5%

2002

4.2%

2001 * Estimation, ** Forecast

4.8%

Cap Rate/Initial Yield

Belgrade

6.2%

2004 2003

City

5.8%

9.0%

Sofia

7.2%-9.0

Zagreb

6.0%-9.0

Bucharest

7.0%

Bratislava

6.0%

Prague

5.5%

Source: Colliers International, Serbia

Source: Statistical Office of the Republic of Serbia

Low Overhead Costs One of the key advantages of doing business in Serbia compared to other CEE countries are lower operating costs. Labor costs in Serbia are comparable to those in EU membership candidate countries in the region, while standing at merely 40% of their level in Eastern Europe EU countries. In addition, electricity, gas, and other utilities are available at very favorable prices. Total Monthly Labor Costs in 2005 (EUR) Serbia Slovakia Poland Croatia

363 700 818 844

Hungary

944

Czech Republic

954

Source: EUROSTAT, Croatian Bureau of Statistics, Statistical Office the Republic of Serbia



An Overview of the Real Estate Industry Basic Industry Indicators GDP In the official statistics, the real estate industry output is covered under a broader category, comprising other activities not related to real estate (e.g. leasing, R&D). As a result, the below figures represent an approximation of the recent trends in the sector. According to the latest data available, 2004 GDP in the industry gained 2.0% against the previous year. With GDP of around €1.1 bln, the industry accounted for 7.8% of the total economic output. Companies In September 2006, there were 365 companies in the real estate industry, encompassing the following sectors: • Real Estate Development, • Real Estate Trade, • Real Estate Renting, • Real Estate Agencies, • Real Estate Management.

Total Number of Companies by Sectors (September 2006)

Real Estate Agencies

Real Estate Development

Average Monthly Salaries (EUR) 2004

2005

2006

Total costs

734

730

849

Net salary

424

422

491

Source: Statistical Office of the Republic of Serbia

Employment by Qualifications (September 2006)

University

Qualified

Elementary school

10,850

112

Real Estate Renting 58

130 21

Real Estate Management Source: Statistical Office of the Republic of Serbia



Employment and Salaries The industry employed 39,489 staff in September 2006. The qualification structure is dominated by high school and university-degree holders, accounting for 36.94% and 27.48% of total industry employment respectively. They are followed by qualified workers with a 10.43% share, while other categories make up a lesser portion of the real estate labor force. In 2006, average monthly net salaries amounted to €491, while total costs per employee averaged €849. However, a sharp increase in labor costs was heavily due to local currency appreciation against euro. Over the same period, average monthly net salaries in RSD grew by 5.91% in real terms.

4,117

High school

2,646 14,587

44

Real Estate Trade

Highly qualified 1,343

2,406

Semi-qualified 1,408

Source: Statistical Office of the Republic of Serbia

2-year college 2,132 Unqualified

Office Market Trends The following market overview was prepared by the Colliers International office in Serbia. At present, their reports cover the Belgrade office market trends only. Supply The total supply of speculative office space in Belgrade has increased by 40% since the end of 2005, bringing total speculative office inventory of Class A and Class B office space to nearly 270,000 sqm. Compared to the Class B market segment, the growth in Class A inventory was significantly higher in 2006 and currently totals around 145,000 sqm.

Office yield in Belgrade was roughly 9% in 2006higher than in other CEE countries

Selected Office Buildings to Be Delivered in 2007 Building Name

Airport City Belgrade

Vacancy Rates The Class A vacancy rate for multi-tenant/speculative developments is 9%, while the overall Class A and B vacancy rate in Belgrade is 11.7%. The slight increase in 2006 compared to the previous year is the result of several lease expirations and the continuing increase in overall market inventory. Available Class A and B office space for rent at the end of the year totaled slightly over 20,000 sqm.

Grawe Belgrade Office Park

7,0%

Area (sqm)

CBD

18,000

Broad Center

17,000

CBD

11,400

Broad Center

8,000

Source: Colliers International, Serbia

Rental Rates The actual average weighted rent for Class A office space recorded a 7.5% decrease over the last year. The most expensive Class A space in the city is still in the central portion of New Belgrade, where the average net rent is €22/sqm/month. Class B office buildings command rents between €11 and €17/sqm/month, depending on the building age, location, parking availability, and other amenities. Converted space averages €10/sqm/motnh.

2006

Broad Center

Location

Average Rental Prices for Class A Premises in Belgrade (EUR/sqm/month)

Class A Vacancy Rates in Belgrade (End 2006)

Total Market

Forecast As a result of the continuing economic recovery in Serbia, the supply of office space is expected to remain robust during 2007. Along with the expected increase in demand, more and more office projects are being announced for the coming years.

19 Avenue

Urban (re)development in the downtown city area remains on a low side with New Belgrade being the primary choice for new office development. During the past year, New Belgrade alone accounted for almost 90% of new Class A and 80% of Class B developments.

CBD

munication and IT companies, along with the expansion and market positioning of existing banks. Demand for small and medium size premises remains robust.

13,5% 9%

Source: Colliers International, Serbia

Demand During the past year, demand for high-quality office space was driven by financial and legal services, telecom-

2005 2004 2003 2002 2001

18 20 21 22 23 25

Source: Colliers International, Serbia



Residential Market Trends The following market overview was prepared by the Colliers International office in Serbia. At present, their reports cover the Belgrade residential market trends only. Sales Supply The residential market in Serbia began its recovery after the political and economic changes in 2000. The period between 2001 and 2005 marked the beginning of the new residential development cycle, especially in major cities such as Belgrade, Novi Sad, and Nis. In spite of the large increase in residential inventory recorded during this period, capital investments are yet to occur on the construction scene.

Belgrade yields for mid-end category apartments vary between 4% and 5%, whereas for high-end apartments their level is between 6% and 7% Construction of multi-family homes has increased by roughly 50% every year since 2003, underpinned by the strong market demand. The most recent detailed study of residential apart-

ments in Belgrade took place in 2002, at which time Belgrade’s residential inventory was 553,307 units (33,935,224 sqm) with an average unit size of 61 sqm. Residential construction has remained balanced in terms of unit types in recent years. The breakdown of apartments in terms of size reveals that 2-bedroom apartments make up 32% of the supply, making this the most popular size; other sizes (Studio & I BR, 3 BR, and 4 BR or more) make up almost equal shares of the remaining stock. Belgrade Residential Construction 2006

10,000

2005

7,000

2004 2003 2002

5,000 3,000 2,000

Source: Colliers International, Serbia

Sales Demand As a result of the general supply increase and an expansion of housing credit options, the residential market has seen a further increase in sales demand. With only a slight difference in price levels of old and new middle-class apartments, many potential buyers are focused on new buildings that offer quality finishes and facilities appropriate for today’s lifestyle. Smaller apartment sizes are in the strongest demand. Rental Supply Over the past year, the rental supply of high-quality units in Belgrade continued its growth. The supply was mostly concentrated in the areas of New Belgrade, Dedinje, Vracar, and downtown, comprising mostly 2- and 3-bedroom units. Rental Levels With a slight decrease noticed on a yearly level, the average prime rent in Belgrade is €11/sqm/month as of the end of 2006. In the most prominent areas of Vracar, Dedinje, and Senjak, rental levels showed a slight decrease in light of the continually growing supply of quality apartments in those areas. Demand for rental apartments in New Belgrade has increased along with the supply over the last few years, keeping rental rates steady. Only in rare cases are the most luxurious, large furnished



apartments able to achieve rents from €17 to €19/sqm/month. These apartments are most often situated in the green areas of Dedinje or Senjak featuring beautiful yards or in downtown close to the pedestrian zone–Knez Mihailova Street. Average Rental Rates in Belgrade in 2006 (EUR/sqm/month) New Belgrade

10

Vracar

12

Stari Grad

11

Dedinje

11

Rental Demand Rental demand for high-quality apartments and housing units remained steady in 2006. Demand continues to be driven by embassy staff and personnel of international companies and organizations. The most desired apartment unit sizes range from 100-120 sqm with New Belgrade and downtown being the most preferred areas.

Retail Market Trends The following market overview was prepared by the Colliers International office in Serbia.

Source: Colliers International, Serbia

Price Levels The Statistical Office reported a price increase of 5% in the first six months of 2006 compared to 2005 levels. The recorded growth can be mostly attributed to constantly improving credit conditions, which keeps residential demand at a high level. Price levels are expected to continue increasing until large-scale developments start to appear on the market. Including both mid-end and high-end category apartments, the sales prices have recorded the following ranges: €1,650-2,500/sqm in Dedinje (Belgrade’s residential area), €1,500-2,400/sqm in Stari Grad and Vracar (downtown Belgrade), and €1,300-2,100/sqm in New Belgrade.

Supply The most concentrated retail concepts are still to be found along high-street locations and within the expanding network of retail warehousing. Numerous shopping malls are under construction or in the planning phase. The city of Belgrade continues to be the main investment destination, followed by the second largest city–Novi Sad.

Gross Sales Prices of New Apartments in Belgrade in 2006 (EUR/sqm) New Belgrade 1,400 1,900 Vracar 1,700 2,200 Stari Grad 1,700 2,200 Dedinje 1,600 2,300 Mid-end

High-end

Source: Colliers International, Serbia



projects scheduled for opening, predominantly in the capital city. New projects will be located in both downtown and suburban locations. High Streets High streets of Serbian major cities are still the most desired way of entering the market. The biggest expansion in today’s high street market is coming from international banks. Among the international fashion retailers, Zara entered the Belgrade and Novi Sad markets in 2006. In the coming years, high streets of Belgrade are expected to experience an increase in retail opportunities because of the asset disposal of several state-owned companies.

Shopping Malls In 2006, the supply of modern shopping malls in Serbia remained limited with less than 30,000 sqm of leasable space existing in the capital. Over the past year, the market situation improved slightly with the opening of two shopping malls–one in Belgrade and another one in Novi Sad. Concerning other parts of Serbia, only major cities feature shopping centers, which are mostly of smaller sizes and out-of-date.

Retail Warehousing The retail warehousing market in Serbia developed rapidly and was among the best performing market sectors in 2006. The existing international retailers Metro (Germany), Agrokor (Croatia), Mercator and Merkur (Slovenia), Interex (France), and Veropoulos (Greece) steadily expand their networks. In 2006, the focus extended beyond Belgrade to other large Serbian centers, such as Nis, Novi Sad, and Kragujevac. At the end of 2006, the capital saw two major openings–Serbian Delta launched the largest cash-and-carry facility in the Balkans (18,000 sqm on the route towards the Belgrade Airport), while Croatian Idea opened another hypermarket of 12,500 sqm in New Belgrade.

Retail Warehouse Developments Year of Entrance

No. of Outlets

Rodic MB

1998

6

Mercator

2002

3

Yields for retail units in Belgrade’s high-street locations are in the range of 6%-7%

Interex

2004

4

Tempo

2004

4

In 2007/2008, the next mall scheduled for completion is DeltaCity 67, which will bring an additional 30,000 sqm of gross leasable area to the capital. In Novi Sad, two shopping malls are in the pipeline to bring approximately 45,000 sqm of GLA to the city. In the mid term, development is expected to continue at a rising pace with various

Merkur

2005

1

METRO Cash&Carry

2005

5

Super Vero

2005

2

Agrokor

2006

2

10

Name

Source: Colliers International, Serbia

Two major events that marked 2006 are the merger between Delta and Agrokor, which is due to conclude in 2009 and is to enable further investment in local and regional markets, and the acquisition of local Rodic company by Slovenian Mercator. Demand As Serbia’s macroeconomic recovery maintains a strong pace, accompanied by increasing purchasing power of the population, the country is experiencing a rising interest from international retailers and a consequently higher level of market activities. New and existing retailers are expressing a strong interest in both high-street locations and new shopping centers. The traditional high-street areas in Serbian major cities have witnessed demand primarily from well-known chains of fashion goods, fast food restaurants, and financial institutions. The increasing demand is expected to continue through the following period. Rental Rates The limited availability of space in the Serbian market coupled with rising interest from various retailers is keeping rental rates high for both high streets and shopping centers. In light of present and anticipated market conditions, there is a low probability of a decline in rental rates in the next few years. While the retail rents for the top capital locations reach levels between €50-150/sqm/month, secondary locations along the most prominent boulevards cost between €20-50sqm/month. With the exception of the anchor tenants, net rents within new shopping centers vary between €20-60sqm/month.

Retail Rental Levels in Belgrade (2006) Location

Rental Levels (EUR/sqm/month)

Shopping Centers

20-60

High Streets

50-150

Secondary Streets

20-50

Hypermarkets/Supermarkets

7-12

Source: Colliers International, Serbia

FDI in the Real Estate Industry Growing investment opportunities for international real estate developers in Serbia have been reflected in recent FDI figures. The total value of their projects in 2005 reached merely $14.6 million, while in 2006 they amounted to $90.6 million. International developers are led by Israeli investors–AfricaIsrael Corporation and Tidhar Group top the list with the €120 million first business park in Serbia, awarded by OECD as the largest Greenfield investment in South East Europe in 2005. They are followed by GTC International’s projects totaling €58 million and Austrian Hypo Alpe-Adria-Consultants pledging to invest €66 million by 2009. In addition, TriGranit Corporation is to start large-scale construction works estimated at €170 million upon finalizing the negotiations with the Government, whereas another Israeli company–Engel Group is expected to start the construction of its €160 million residential and business complex in fall 2007. Other key players in the local market are Austrian Raiffeisen evolution and Uniqa Real Estate Project Construction Company. 11

Africa-Israel Corporation/Tidhar Group in Serbia 12

Mr. Gili Dekel CEO, Airport City Belgrade Why did you decide to start a business in Serbia? Airport City Belgrade (ACB) is owned by Africa-Israel Corporation and Tidhar Group, one of Israel’s most successful construction companies. I came to Serbia around four years ago to explore real estate business opportunities, already having in mind the introduction of something different from the standard office building. Developers normally identify a piece of land, acquire it, build on it, and then lease or sell the property. However, our approach is to build a complete modern business and residential complex beyond the boundaries of the city center. Airport City Belgrade is currently the biggest real estate development in Belgrade with the first two buildings of around 20,000 sqm delivered in 2006 and another two of the same area to be completed in 2007. Altogether, it is a 120,000 sqm plot of land–the largest piece of land owned by a private company in Belgrade. Prior to arrival in Serbia, our company had completed developments in Russia, Ukraine, Czech Republic, Poland, and Hungary. We chose Belgrade after a thorough research of all other major sites in the region. Apart from Ljubljana, which is already well developed, our research included cities, such as Skopje, Zagreb, and Sarajevo. Among those cities, Belgrade seemed an apparent priority with its 1.5 million population, strong economic growth, rapid internationalization of business activities, and a highly developed construction industry. I

would also like to emphasize that Serbia boasts skilled and capable people and we are very satisfied with our Serbian staff performance and cooperation with local construction companies. What are your current and future projects in the country? Our development is situated in the part of the city called New Belgrade, in the close vicinity of the International E-75 Highway. Due to the lack of parking space and traffic congestion, an increasing number of local companies are now shifting their headquarters from the old part of the city to New Belgrade. I am confident that our company will be strong enough to face the rising competition in New Belgrade and erect a competitive real estate development, not only in terms of standards, but also in terms of pricing. One of the advantages of the Airport City Belgrade development is its largest ratio of parking space in Belgrade. We believe that in the future Serbian economy will experience steady growth, and the number of cars per 1,000 people will increase significantly. Our customers will be mostly foreign companies coming to Serbia that appreciate Class A office space, the right environment for their employees, and know the advantages of being located out of the city center. We are very optimistic about the future growth prospects, otherwise we would not be ready to invest €120 million in Serbia. How do you perceive the business climate in Serbia? Investors look for performance enhancement possibilities, and I see Serbia in terms of the future profit. At the moment, one can get better deals than those available in Serbia but conditions will certainly get better. Therefore, investors with long-term orientation could benefit well from great opportunities in this market.

13

Acquiring Construction Land Land Classification In Serbia, land is classified into two categories: • construction land, • agricultural land. Construction land is the land on which structures have been built and the land that serves for the regular use of these structures, as well as the land that is designated by the corresponding plan for the construction of structures and their regular use. Construction land can be: • public construction land, • other construction land. Public construction land is the land on which public structures of common interest (roads, schools, hospitals, infrastructure, etc) have been built, as well as the land designated for the construction of such structures. This kind of construction land is exclusively in state property. Other construction land is not classified as public construction land, and, as such, it is designated for the construction of other structures–residential, offices, industrial facilities, etc. Other construction land is transferable and can be found in all types of ownership. Construction land may be used as developed or non-developed land. Developed construction land is the land improved with structures which are constructed and intended for permanent use. Non-developed construction land is land on which: • No structures are erected; • Existing structures were constructed contrary to the law; • Temporary structures exist. Agricultural land is subdivided into: • cultivable, • uncultivable. Cultivable agricultural land encompasses fields, gardens, orchards, vineyards and grazing fields. A cultivable land user has the obligation to till the soil or use it in accordance with its purpose. Non-cultivable land encompasses all other unlisted types of agricultural land. 14

Leasing Municipality Land Other construction land under state ownership can be leased for up to 99 years under conditions prescribed only by the municipal authorities. The land is leased through either public bidding or a public tender. The duration of a leasing contract is being determined based on the land area, purpose, depreciation period etc. Before the expiry of the leasing period, a lessor and a leasee can extend the contract period by a mutual agreement. The right of use can be obtained through a direct bargain between the municipality in question and the interested party in the following cases: • Construction of structures for the purpose of carrying out activities of state administration and agencies, administration and agencies of autonomous provinces and of units of local self-government, and organizations in charge of public services who operate with state funds and assets, as well as other state-owned structures; • Leasing the land to an owner of a structure who has constructed that structure without a building permit, for the purposes of obtaining construction permission, if erecting such an object is in accordance with the provisions of the urban plan; • Correction of boundaries of adjacent cadastral or construction parcels. Agricultural land can be re-classified, i.e. it can be converted into construction land. Other construction land can be acquired in the following ways: • By leasing land–for the period of up to 99 years with a possibility of extension through a public bidding procedure (for land under 10,000 sqm) or a tender procedure (for building structures over 10,000 sqm); • By obtaining the “right to use“ land–by acquiring a legally built structure, an investor acquires the “right to use” land under that structure with a possibility to build new premises of even greater area, according to the master plan; • By acquiring land through the conversion of agricultural land into construction land–by acquiring agricultural land under private ownership with a possibility of conversion into construction land, an investor acquires the right to build a construction. 15

Apart from the land fee, pad only once, the user continuously pays a fee for land use, as a type of rental fee. The fee for using developed public construction land and other construction land in state property is paid by the owner of the structure. As an exception, when the object or a part of it is leased, the fee is paid by the lessee of the object or part thereof. The fee for the use of non-developed public construction land and other construction land in state property is to be paid by the user. The amount of the fee is determined depending on the scope and degree of the property’s development, its location, access to amenities, transportation connections to the local or city center, business areas, etc.

Most building land can be leased from a municipality for up to 99 years with a possibility of extension. A land fee averages from €10 to €60 per sqm The land fee varies heavily at the local level. There is an increasing number of municipalities offering building land for lease free-of-charge, while e.g. in Belgrade’s prime areas the fees can run up to €100/sqm. On average, the fee ranges between €10 and €60 per sqm. All city plots are under the state property regime. Even though the land itself is public, the structures built on it are private. A person, who owns real estate built on a city plot, automatically enjoys an exclusive “right-of-use” of the plot. Upon the sale of premises, all the rights on the land under the premises and the land that serves for the regular use of the premises are transferred as well.

Acquiring the Right to Use Land As opposed to long term lease (up to 99 years), the Law on Planning and Construction introduced the “right to use” land granted for an indefinite period of time, based on either: • The ownership of a building on urban land in accordance with the urban plan; • The intention to construct a building on urban land (the “right to use” is related to the ownership of a building located on urban land entitling users to permanently use the land for as long as they own the building). The “right to use” is irrevocable and permanently “attached” to the ownership of a building located on a particular land 16

lot–it is acquired, transferred and terminated automatically with acquisition, transfer or termination of ownership of the building. The “right to use” can only be acquired from previous holders of that right, including privatization. An investor may acquire the “right to use” on a plot of building land from the party who was initially allocated the “right to use” for a sole use or may enter a joint venture with the original holder of the “right to use”. In addition to the costs of acquiring the construction designated for deconstruction, as well as the costs of acquiring companies through privatization, an investor is obliged to pay the fee for the development of other construction land.

Conversion of Agricultural Land A plot of agricultural land may be converted into construction land with the consent of the competent bodies and the payment of a fee for a change of the land use, if approved. For a change of the land use, an investor must submit a formal application containing the following: information on the current and intended use of the land in question; a certificate of the title or the right of use; and an extract from the detailed urban plan detailing the possibility of obtaining a building permit. By acquiring privately owned agricultural land with a possibility of the conversion into urban construction land, an investor also acquires the right to build structures on it. Apart from paying the market price of land, an investor is also liable for the fee for converting agricultural land into construction land and the fee for the development of public construction land. 17

GTC International in Serbia Mr. Robert Snow Managing Director, GTC Serbia Why did you decide to start a business in Serbia? There are, of course, many reasons for entering a new market. Serbia presented both a challenge and an opportunity for GTC. Firstly, as it is an emerging market, one of the principle reasons is that we perceived a large gap in the real estate sector and a need for more offices, hotels, shopping malls, and quality mid-to-upper level residential buildings. Choosing to come here also reflected our confidence that Serbia is full of promise–everything exists here in terms of opportunity, resources, and skilled workers for the country to catch up to its more developed neighbors in a short time. The world of business buildings is one which has a very long-term vision of the future. The needs of today are of critical importance but those of tomorrow are paramount. GTC has seen in Belgrade a vision of a major European center of commerce, business, industry, and transport. Belgrade is in the very heart of the Balkans and at the epicenter of all movement throughout South East Europe. As the importance of Belgrade grows, so too will its requirements for office space and business parks.

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What are your current and future projects in the country? GTC HOUSE is the first of GTC International’s investment in Serbia. The building–completed in April 2005– appeared as the long anticipated building, offering Class A office facilities for leasing to the leading international companies in Belgrade. The modern building is fully equipped with all high-tech facilities, sophisticated telecommunications, and elegant double height entrance lobby leading into a covered central atrium. Our new office project 19 Avenue will consist of two 1st class office buildings with a unique design of 20,000 sqm. The 19 Avenue will be completely equipped with high-tech telecommunication devices, offering not only exceptional

working environment, but also facilities such as a restaurant, bar, storage, and underground garage. Other GTC International’s projects include GTC Square and Park Apartments. GTC Square is the newest innovative office project located in New Belgrade with ample parking space, an open interior courtyard overarched by translucent catwalks, and an expansive and majestic atrium. Park Apartments is a top of the range residential building, introducing a new concept of living, with 200 apartments, 2-level underground parking, retail stores, fitness center, 24-hour reception desk, security services, maintenance services on the spot, and a video interphone. How do you perceive the business climate in Serbia? This is a very exciting time to be doing business in Serbia. In the context of its

A Construction Procedure

transition, Serbia has launched itself resolutely onto the path of joining the rest of Europe in terms of its economy and business. Foreign investment continues to come into Serbia from across the spectrum of industry sectors: banking, telecommunications, and, naturally, construction. Investors continue to view Serbia not only as an important investment destination in itself, but as a gateway to the region, as well. We at GTC are committed to open and transparent business practices, and have been very encouraged by the country’s efforts to align itself with the best practices for business development, as witnessed in the EU and neighboring countries. In short, we are very optimistic about the business climate in Serbia and have already experienced many of the benefits of investing here.

An Assessment of Urban Conditions This assessment is being done based on the extract from the urban plan. The extract contains all requirements and data necessary for the elaboration of a general project and particularly for the development and building lines, as well as leveling requirements. This document can be obtained within 8 days from the date of submission of an application, on payment of the actual costs of their issuance. It is issued by the competent city/municipal authorities or the Ministry of Capital Investment. In Belgrade, the extract and other documents for structures with the area of up to 800 sqm can be obtained in the Department for Property Rights Relations and Construction of the city municipality where the structure is located. For structures over 800 sqm, necessary documents can be obtained in the Secretariat for Urban Planning and Construction. In other cities and municipalities in Serbia, the documentation is obtained in the office of the city or municipality, where the structure is erected. Lastly, for structures of national significance, the documents are issued by the Ministry of Capital Investment.

Acquiring Construction Land Construction land can be acquired by leasing land, obtaining the “right to use” land or converting agricultural land into construction land.

Obtaining a Construction Approval Prior to the construction of a structure, a potential investor is obliged to obtain a construction approval and prepare the technical documentation for the construction (general project, conceptual project, main project, execution project, and as-built project). As part of the application, the following should be submitted: • An extract from the urban plan, not older than 6 months; • A conceptual project, in compliance with the extract; • An evidence of ownership, or leasehold rights to the construction land, or property rights in an object, or the right to use undeveloped construction land; • The report on setting out the building plot and the regulation protocol issued by the Republic Geodetic Authority, including the appropriate copy of the plot plan; • Other evidence required in the urban plan. 19

The construction approval is issued within 15 days from the date of submission of the application. The approval for infrastructural works is issued by the Ministry of Capital Investment, while the issuance of the approval for other structures is the responsibility of the city or municipality. The approval is not obligatory for the construction of auxiliary structures, nor is it necessary for adaptation or renovation but it is required for the reconstruction of premises. Upon obtaining the construction approval, the consulting company will start elaborating other documents (e.g. main project) for the investor, whereby technical inspection of the design must be carried out by another licensed consultant.

A Notice of the Start of Construction After the completion of building documents, the investor should select the contractor who will be responsible for the whole building site and notify the city or municipality of the start of works. The investor is obliged to provide the office in charge of issuing the construction approval with the name of the contractor, construction start date, and completion target date within a period of 8 days before the construction starts. Also, an investor must submit: • a confirmed main project, • a report on completed technical control, • a construction approval, • an evidence of payment of compensation for the development of construction land, and • an evidence that the administrative fee has been paid. In addition, the investor must also report to the municipality office in charge of inspection that the construction of the structure has started. The investor can start construction works when the relevant municipal department confirms the receipt of the notification on the commencement of works. The receipt of documentation should be confirmed within 8 days provided the documentation is complete. Prior to construction, the surveyor should set out the building site, after which it will be possible to commence excavations for the foundation. Upon the construction of the foundation, the contractor should submit the geodetic survey of built-up foundation, so that the competent body can inspect its conformity with the main project. Within 3 days, if everything is in order, a written certificate will be received and the works can be continued. 20

Construction Throughout the construction stage, the investor must have construction documents (if the main project does not contain details required for the construction process) and provide supervision.

Technical Inspection A technical inspection of a structure is done upon the completion of construction, i.e. the completion of all the works specified in the construction approval and defined in the main project or upon the completion of a part of the structure for which an occupancy permit may be issued. Upon the submission of the investor’s request for the technical inspection, this assessment may also be carried out simultaneously with the construction process, if the verification of the actual condition of certain parts of the structure is not possible after its completion. The inspection includes the control of compatibility of as-built conditions with the construction approval and technical documentation on the basis of which the structure was constructed, as well as with the technical regulations and standards applicable to certain trades or materials, equipment, and installations.

Probation Occupancy To ensure the suitability for the use of a structure, an assessment and verification of installations, devices, machinery, stability or safety of structure, devices and equipment for environmental protection may take place. If envisaged by the technical documentation, the commission in charge of a technical inspection may propose to the relevant office to approve probation occupancy, provided the conditions are met. The probation period that cannot last longer than 1 year. Upon the expiration of a probation period, an investor is obliged to

submit the results of the probation occupancy to the relevant office.

Obtaining an Occupancy Permit To obtain an occupancy permit, the investor must submit the main project (with possible changes occurred during construction) which is compatible with the construction approval and the technical inspection of a structure. The structure may be put in operation only upon obtaining the occupancy permit. The office competent for issuing the construction approval issues the occupancy permit within 7 days from the date of receiving the commission’s findings which have established the structure to be suitable for use.

fertility, cadastral income, real rights and rights holders, as well as the data on encumbrances and limitations. Unlike the Real Estate Cadastre, the Land Cadastre contains no data on real estate property rights, featuring information on plots and structures built on land with respect to their position, shape, area, type of land, land fertility, class, cadastral income, and users. Lastly, the Land Book is a public record registering real estate (land and structures), real rights, encumbrances, and limitations related to such real estate. Once the unified Real Estate Cadastre is introduced, registration of real estate will be done in one place–with a local office of the Republic Geodetic Authority. Currently, the procedure is handled by a competent court.

Registration in the Cadastre The final stage in the construction process is the registration of a structure in the Real Estate Cadastre, after the occupancy permit is obtained. The process of establishing the Real Estate Cadastre on the entire territory of Serbia is under way. By 2010, a comprehensive system of tracking real estate and real estate property rights will replace the existing records on real estate–the Land Cadastre and Land Books. The project is aimed at boosting the security of ownership and real estate rights, while leading to a transparent and prosperous real estate market. At present, the Real Estate Cadastre covers 83% of cadastral municipalities, with the Land Cadastre and Land Books accounting for the remaining 17%. The Real Estate Cadastre contains the data on real estate, its shape and position, surface area, form of use, land

The Construction Procedure Assessment of Urban Conditions Acquiring Construction Land Obtaining a Construction Approval Notice of the Start of Construction Construction Technical Inspection of the Structure Probation Occupancy Obtaining an Occupancy Permit Registration in the Real Estate Cadastre 21

An Overview of Construction Loans Banca Intesa

Hypo Alpe-Adria-Bank

Raiffeisenbank

Volksbank

As agreed with client

5.5%-8.0% + EURIBOR

n/a

5.0%-6.0% + EURIBOR

Loan Limit

From €500,000

Depending on project value and construction period

Up to €45 mln

Up to €3 mln (local funds) or over €3 mln (international funds)

Repayment

Depending on sale pace

Up to 10 years

Up to 10 years

Depending on sale pace

Grace Period

Equal to construction period

1-2 years

Equal to construction and project implementation period

Equal to construction period

Loan amount up to 85% of project value; available in Belgrade and Novi Sad

Down payment from 30% to 35%, clear ownership relations

Down payment from 35% to 40%

Down payment from 25% to 30%, establishment of new company

Interest Rate

Other Conditions

Source: Commercial banks

Financing Options In response to the expanding market needs, project financing services are introduced by a growing number of local commercial banks. As indicated in the table, loan conditions tend to vary heavily and may be subject to the negotiations with a specific client. Based on the new Law on Mortgage, citizens are entitled to purchase real estate while in a construction stage or upon its completion. In the first case, banks will accept mortgage claim as collateral, while the funds from sale of the real estate will serve as collateral for loan repayment.

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Real Estate Transfer Real Estate Taxes Real estate property in Serbia is subject to three basic taxes: • property tax, • tax on transfer of title, and • capital gain tax. Property tax is payable by all legal entities and individuals who own or have rights over real estate located in Serbia. For a taxpayer who keeps books, property tax on the rights to real estate is 0.40% of the property’s book value, while for individuals and entrepreneurs, the rates are progressive. Tax on transfer of title over property is payable by all legal entities and individuals who sell rights in relation to real estate. The taxable base is the price stated in the contract or the market value of the property with the current tax rate set at 5%. Capital gain is determined as the difference between the sale price and purchase price of the real estate. The applicable rates for legal entities and individuals are 10% and 20%, respectively. Capital gains can be offset against capital losses occurring in the same period, and a capital loss can be carried forward for a period of 10 years.

Relevant Contacts

State Institutions

Real Estate Providers

Serbia Investment and Export Promotion Agency 3, Vlajkoviceva St. 11000 Belgrade Phone: +381 11 33 98 55 0 Fax: +381 11 33 98 81 4 e-mail: [email protected] www.siepa.sr.gov.yu

CB Richard Ellis GENEX Business Center A407 6, Vladimira Popovica St. 11070 Belgrade Phone: +381 11 22 23 64 7 Fax: +381 11 22 23 64 6 e-mail: [email protected] www.cbre.co.yu

Office of the Prime Minister 11, Nemanjina St. 11000 Belgrade Phone: +381 11 36 17 71 9 Fax: +381 11 36 17 60 9 e-mail: [email protected]

Colliers International Serbia 20, Blvd. Kneza Aleksandra Karadjordjevica 11000 Belgrade Phone: +381 11 26 63 86 3 Fax: +381 11 36 74 53 8 e-mail: [email protected] www.colliers.com

Business Registration Agency 5, Nikola Pasic Sq. 11000 Belgrade Phone: +381 11 33 31 44 4 Fax: +381 11 33 3 1 41 0 e-mail: [email protected] www.apr.sr.gov.yu National Bank of Serbia 12, Kralja Petra St. 11000 Belgrade Phone: +381 11 30 27 19 4 Fax: +381 11 30 27 39 4 e-mail: [email protected] www.nbs.yu Statistical Office of the Republic of Serbia 5, Milana Rakica St. 11000 Belgrade Phone: +381 11 24 12 92 2 Fax: +381 11 24 11 26 0 e-mail: [email protected] www.statserb.sr.gov.yu Republic Geodetic Authority 39, Blvd. Vojvode Misica 11000 Belgrade Phone: +381 11 26 50 88 6 Fax: +381 11 26 51 076 e-mail: [email protected] www.rgz.sr.gov.yu

EC Harris 87, Blvd. AVNOJ-a 11070 Belgrade Phone: +381 11 21 20 33 4 Fax: +381 11 31 32 25 8 e-mail: [email protected] www.echarris.com Forton 5, Zmaj Jovina St. 11000 Belgrade Phone: +381 11 26 35 43 2 Fax: +381 11 30 37 50 6 e-mail: [email protected] www.forton.bg King Sturge 6, Blvd. Mihajla Pupina, Usce Tower 11070 Belgrade Phone: +381 11 22 00 10 1 Fax: +381 11 22 00 10 2 e-mail: [email protected] www.kingsturge.com

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Serbia Investment and Export Promotion Agency (SIEPA) is a governmental institution committed to successfully helping foreign investors and buyers. Created as a one-stopinformation-shop, SIEPA has a mission is to support foreign companies, seeking to set up or expand in Serbia and Serbian producers when doing business internationally. Key services offered to potential investors are free-of-charge and readily available: • Providing statistical and economic data, as well as information on the investment-related legal framework; • Linking companies to Greenfield and existing sites opportunities, including site visit organization; • Assistance with registration, licenses, permits and other documentation; • Identifying local partners and suppliers; • Presenting ready-to-invest projects. Our assistance resulted in some of the largest recent investment projects in Serbia. The list of SIEPA clients includes companies, like US Ball Corporation, Austrian Knauf, Japanese Japan Tobacco International, as well as British Albon Engineering and Bianca Alena with almost €400 million worth investment. To help potential investors speed up the completion of their projects, SIEPA networks with all FDI-related public and private sector bodies, including ministries and other governmental bodies, municipal authorities and local self-government, building land agencies, tax and customs authorities, statistical bureaus, chambers of commerce, and the National Bank of Serbia. SIEPA publications and materials on doing business in Serbia, as well as detailed sector analyses and studies feature numerous business opportunities in our country. They are available in hard copy and can be downloaded from our web-site at www.siepa.sr.gov.yu. We would like to invite you to contact our expert staff ready in assisting you and your business interests. Our services are tailor-made to best match your company’s needs and requests. Working with us is simple, safe and costs nothing. 24

Serbia Investment and Export Promotion Agency Vlajkovićeva 3 11000Belgrade tel.: +381 11 3398 550 fax: +381 11 3398 814 [email protected] www.siepa.sr.gov.yu

Real Estate Industry in Serbia