Construction companies seek abolition of taxes of unsold real estate

Construction companies seek abolition of taxes of unsold real estate


By Adnan Prekic – Podgorica

Government’s decision to tax the finished residential facilities that have not been sold seriously threatens the construction sector. Construction companies are asking from the state to record their completed dwellings and business premises as inventories of unsold goods.

Although the tax laws do not define precisely how to apply taxes on unfinished apartments, municipal tax office are sending tax accounts to constraction companies and are forcibly collecting taxes. Construction companies therefore demand from the Ministry of Finance that the Law on Property Tax clearly defines that they are not required to pay tax on homes and commercial spaces that did not sell, because they are recorded as inventories of unsold goods.

Constructtion companies do not agree to paying this tax, which is why they have started a litigation. These lawsuits, ie tax solutions for which the companies complained, were annulled and sent back for retrial. Some market analysts believe that the real estate taxation of unsold flats will revive the real estate market. They believe that the builders will be forced to release the completed dwellings, which would lead to a reduction in real estate prices.

Property prices on the Montenegrin coast are quite high. Depending on the location and quality, the price of a square meter varies from €1,200 to €2,500. Montenegro’s construction industry is faced with a huge insolvency. Many builders are struggling to rescue their companies from debts, many projects have been left unfinished for years or are doomed to fail. Regardless of all this, the construction business in Montenegro is the branch that still makes the most profit.

Shortly after Montenegro regained its independence, in the period between 2006 and 2009, it achieved the highest economic growth. The improvement was a result of foreign direct investment, mostly in the construction sector. During this period, every Montenegrin municipalities had a large income tax for the building plot. These fees then reached astronomical values, but at a time when there was a steady flow of money from abroad for construction, no one questioned the feasibility of such high costs. Now that the economic growth has slowed down, the construction sector is in crisis and these fees have become a huge business barriers that slow down economic growth in the construction sector.

The fees that municipalities charge for utility construction in Montenegro is one of the highest in the world, said the report of Montenegrin Council for improvement of the business environment. The existence of such fees is rated as the highest burden for investors and the main obstacle for improving the investment climate at local level.

The golden period of the property market in Montenegro took place just after the restoration of independence in 2006. At that time, the prices were very high and wealthy customers, mainly Russians were buying everything they could get. During this time most real estate and building plots were sold at the seaside. With the advent of the global economic crisis, sales have almost stopped and a steady decline in prices has been recorded.

Just the last year, official statistics registered a decrease in the sales of real estates by 10%. With weak demand, prices of real estate have also declined. So now, in the capital Podgorica, a square meter of an apartment in a new construction costs between €1,000 to €1,300. This is still a relatively high price compared to the rest of the region. By comparison, a square meter in Zagreb costs €1,500, but it is possible to find an apartment at a much lower price.