The construction sector in Montenegro is experiencing a strong recovery and growth, but it faces several challenges such as rising material prices, labor shortages and increased service costs. Construction costs have significantly risen, with the price of building one square meter of residential space in Podgorica now at around 800 euros, excluding project costs, utilities and land.
The demand for real estate remains high, driven largely by foreign nationals and the diaspora seeking to invest in property. Despite expectations of market stabilization, a significant decrease in real estate prices is unlikely in the near future, given current trends.
The construction industry in Montenegro is recovering after a decline in activity during the 2019/2020 COVID-19 pandemic. This recovery is particularly visible in sectors like road infrastructure and residential-commercial developments, as well as high-category hotels and other tourist-related buildings. However, this recovery brings new challenges, primarily the rising cost of building materials, labor shortages, and the sharp increase in service costs.
Montenegro’s construction sector is highly dependent on imports of building materials, as the country lacks a developed domestic industry outside of stone and wood production. This makes the sector vulnerable to global market disruptions, such as the price increases seen during the pandemic and following the war in Ukraine. The instability in energy supply, particularly oil, fuel, and gas, along with logistical chain disruptions, including container transport from China, has had a significant impact on the sector.
Demand for real estate in Montenegro remains high, driven by foreign buyers, especially those from Ukraine, Russia, Serbia, Turkey, and the Montenegrin diaspora. The offer of housing is insufficient to meet the demand, and the increased cost of materials, energy, and labor has contributed to rising real estate prices. While predicting the future of the real estate market is difficult, a significant decline in prices is unlikely unless there is a substantial increase in supply, a reduction in material and labor costs, and a more favorable environment in the banking sector, which plays a key role through interest rates and mortgage lending.
The cost of construction for a typical residential building in the capital city, Podgorica, is approximately 800 euros per square meter, excluding additional costs such as project design, supervision, permits, utilities, and land.
The demand for real estate varies across different regions of Montenegro, with prices rising due to the increased demand from foreign investors and a limited supply. Key factors influencing these price trends include the cost of building materials, energy, and labor, along with foreign and diaspora demand.
The shortage of qualified labor is a significant challenge for the Montenegrin construction sector. The local workforce is not sufficient to meet the demands of the industry, and although wages have risen, many local workers have moved to Western Europe. As a result, the industry has been forced to seek workers from abroad, further driving up costs and contributing to the increase in real estate prices.
The lack of domestic labor also affects construction dynamics and costs. Hiring foreign workers is costly, and their quality is sometimes uncertain. Necessary permits and accommodations for foreign workers further raise labor costs, which in turn increases the price of real estate.
Looking to the future, the construction industry in Montenegro is expected to continue its growth, particularly in road infrastructure, with the ongoing construction of the Bar-Boljare highway and other road projects. As Montenegro nears EU membership, the real estate market will become even more attractive to foreign investors.
To enhance the competitiveness of the construction sector, Montenegro needs to ensure a larger share of qualified domestic labor, improve public administration efficiency, implement a well-regulated tax policy, and establish clear urban and spatial planning guidelines that will serve as the foundation for future development.
