Property insurance market in Serbia hindered by dropping sales of apartments; Croatia and Montenegro less affected

23 March 2012 — Daniela GHETU
Property insurance market in Serbia hindered by dropping sales of apartments; Croatia and Montenegro less affected
prop-insurance_imgSince the middle of last year, the number of commercial mortgage loans approved in Serbia has plunged by 15.3%. Consequently, apartment sales fell by 30%, apparently also pulling back the household insurance business which recorded an over 30% negative change in the first three quarters of 2011, as compared to the same period of 2010. Thus, after registering a small y-o-y nominal increase in 2010, of almost 3%, the 3Q2011 statistics show a 36% fall in premium, to RSD 3.67 billion (EUR 36.3 million). Similar situations of the apartment sales in Croatia and Montenegro didn't have the same impact on the dwelling insurance sector.

A press article recently published by SETimes reveals that Serbia lacks 20,000 to 30,000 new apartments per year, but builds less than 10,000. According some sources, one of the main reasons for this situation is the National Bank of Serbia's policy of forcing buyers to put 20% down of the total amount of loan in cash, rather than 10% as before. As an immediate consequence, the sale of apartments fell by nearly 30%. Recently adopted decree on relief for the purchase of subsidized housing, offering a lower interest rate to everyone, including couples over the age of 45, did not produce a significant change. Serbian bankers claim that not the high interest rates, or the restrictive lending conditions for housing loans are the real issue, but the "obscene price per square meter" asked by the developers.

The average cost of an apartment in Belgrade is of EUR 2,000 per square meter, which makes even small apartments "untouchable" for most Serbians. With an average wage of EUR 400, they can not afford paying over EUR 500 per month - installments without interest - for 20 years, which is the price of a modest 70 square meters apartment.

In Croatia, apartment sales are also down, although the situation in what the offer is concerned is quite the opposite: more than 50,000 apartments find no buyers, even if prices have dropped by more than 15. For example, in Zagreb, the price per constructed square meter has decreased from EUR 2,050 to EUR 1,750. Meanwhile, in Montenegro, the apartments sales are almost completely frozen, although prices lowered by up to 30%, compared to the 2007 peak. The number of new apartments sold is down by more than 60%, as buyers simply don't afford them, even for an average price of EUR 1,200 per square meter.

Still, the household insurance business didn't felt the same strong impact as in Serbia. In Croatia, although recording a negative change, the "fire and other perils" class didn't outpace the average market downsize trend. Moreover, in Montenegro, the household insurance business reported in 2011 a spectacular double digit positive growth rate, of 28% which came after a flat evolution in 2010. In terms of volume, one should yet observe that among the three markets in discussion, the Croatian market is a much more developed one, less dependent on external drivers, as the mortgage loans, meaning that the fall of the business volume was mainly a consequence of the lowered purchasing power determined by the crisis. In Serbia and Montenegro, two very young markets, with a very low insurance penetration and density, two concurrent characteristics are combining: on the one hand, the low penetration leaves plenty of space for growth, whatever the external conditions, on the other, the low insurance culture of population needs an external impulse, as the requirement of insuring the houses bought with a banking loan.



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