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Tourism is (not) to blame for the rise in real estate prices
In recent times, the public has been increasingly receiving information that tourism is to blame for the increase in real estate prices in major cities and the shortage of rental apartments.
We can gullibly fall for this "bait" if we follow media news that on the one hand talk about the increase in tourist demand for apartments and on the other hand about the rise in real estate prices.
From this meager information, one could conclude that tourist demand is to blame for the increase in real estate prices as well as for the increase in real estate transactions.
However, when one expands a little and searches for information in more detail, the reality becomes quite different, although not prettier.
"Domestic investments"
In the traditionally emigrant countries of the Western Balkans and the wider Mediterranean area, the most common buyers of real estate are economic emigrants with longer experience in developed countries. Apartments are bought on the Mediterranean coast and islands as well as in big cities because of the proven model of preserving the value of money, but also a safe return on invested money.
That's how we get interesting data. For example, according to well-informed sources, housing units are built annually in Skopje for as many as 13.000 people, although the real need for apartments is at the annual level of 7.500 new tenants. This "surplus" of apartments remains empty. Only a small part is rented out to tourists and an even smaller part to tenants. It is similar in other capitals of the Western Balkans, but also in Croatia in larger cities.
Disinformation against tourism
The news was recently published that Zagreb has even 50.000 empty apartments. Not long before the publication of this news, accusations appeared in the public according to which the growth in tourist demand for accommodation in households/apartments is to blame for lack of apartments on the real estate market, especially in the subtenancy segment. Then it was established that there are no empty apartments because all such apartments are rented out to tourists.
The same could be read in our media about the situation in Portugal. Portugal's sudden turnaround after attracting digital nomads speaks volumes wandering in locating the source of the tenant problem and the absence of a real, sustainable strategy. Suddenly, digital nomads are no longer welcome in Portugal because they allegedly raise the price of real estate and affect the lack of apartments on the market, especially in the landlord segment.
Real estate bubble
A real estate bubble is created in a completely different way. The already described trend of long-term investment of saved money in real estate in attractive areas is caused by the constant rise in real estate prices. Prices are rising for several reasons. In times of crisis, the value of money is stored in real estate. In inflation, money retains value in real estate. You can use, rent and always sell real estate at the same or higher price. "Domestic investments" in all the aforementioned countries attract real estate buyers to their native country where they buy - to have. They do not rent these properties to subtenants for fear of long and complicated disputes with the subtenants due to debt.
In all these Western Balkan and Mediterranean countries, the legal and judicial solutions are not exactly the most effective in the protection of private property from misuse.
For tourist purposes, only a small part of those properties that are entrusted to the management of companies or trusted relatives are rented out. Banks that have a large real estate portfolio in apartments behave similarly, and the state is no better. So a large number of newly built apartments are empty. As demand continues to exceed supply (because a large number of apartments are "frozen"), real estate prices continue to rise.
Money laundering
Rising prices encourage new investors, new real estate buyers and create new empty apartments. Building apartments is one of the best ways to "launder" money, this is a known fact for decades. Here in Rijeka, the "stories" about the first skyscraper in Rijeka, which was allegedly built with Al Capone's money, are still told today. When you unregistered money is invested in real estate construction it usually comes through a bank or investment fund from a reputable country. Cash transactions are also common. This was especially evident when changing currency, Croatian kuna to euro. Only occasional "system crashes" bring to the surface traces of money.
The war in Ukraine
Additional pressure on the growth of real estate prices, for which Belgrade has become a record holder in the region, is creating a war in Ukraine. Because of the war, tens of thousands of Ukrainian and Russian refugees found their refuge in the cities of the Western Balkans and in Croatia, but the largest number of them found their new residential and business environment in Belgrade. Such a sudden pressure on the purchase of real estate by financially well-off new buyers further triggered an increase in real estate prices.
Real estate sale or rent
There is no doubt that selling real estate is the only serious real estate business. That's where the big money turns. For the value that is realized in one purchase transaction, the property should be rented for an average of 20 years or more. The sales and rental yield is incomparable because it is real estate long-term and cost, especially if it is rented.
Depopulation of rural areas
The strong trend of depopulation of rural areas and the outflow of population towards regional urban centers is an additional "drop of fuel on the fire" of the "real estate boom" in urban centers. Polycentric development and the introduction of all vital social contents into a modern village in a rural area should be the answer to this situation, which threatens to "burst the bubble".
Tourism is a solution, not a problem
The development of family tourism in rural areas can slow down, stop, and finally reverse the trend of depopulation of rural areas. The recipes are known from the alpine area of the developed countries of the European Union.
As for big cities and the booming construction of apartments that will remain empty, maybe I can think about tax scissors for such investments?
A higher tax for an empty apartment and a lower one for a full one, even for tourists, would be a stimulating solution. An occupied apartment brings multiple benefits to the local self-government unit and the entire community. Maybe from "this end the ball should start unraveling"? Before making ill-considered statements and superficial remarks, it is necessary to "immerse" well in the problem and understand what is actually happening.
Nedo Pinezić, www.nedopinezic.com
