With the recent Hague Tribunal judgment, Bosnia and Herzegovina (B&H) can at last draw a line under its turbulent past and look to the future. Political, social, economic, and legal stability are imperative for the country to seek and secure international investment, especially in relation to real estate.
The country’s great potential for real estate investment is there for all to see. It enjoys a stable macroeconomic climate, a favorable tax regime, a competitive labor force, and clear prospects for entry into the European Union. There is reform momentum across the region, and B&H has started implementing the reform Agenda prepared with the help of the European Commission and international financial institutions (IFIs).
The real estate market in B&H is very similar to that of other Western Balkan countries: acquisitions and developments occur between multinational companies or foreign individuals who have access to external financing. Properties are, in general, a much better value for money than in other countries of the region. The cost of living is also much cheaper, and yet access to beautiful cities such as Dubrovnik and Split is very easy.
The most important point to note is that foreign investors have the same rights of ownership in B&H as B&H citizens. However, permission from the government is required if there is no reciprocity between B&H and the investor’s country of origin. The reciprocity exists, for example, with the UK, France, Germany, Spain, Russia, Australia, Italy, Norway, and Denmark – which means that investors from these countries, including companies registered in them, can buy property in B&H with no restrictions.
With this in mind, acquiring real estate in Bosnia can be much easier (and therefore less expensive!) than in some other Western Balkan countries.
Purchasing Freehold in B&H Directly
A brief summary of the steps involved is as follows: (1) The vendor and purchaser enter into a sales contract (this contract can be signed for the purchaser by a representative who is resident in B&H). The contract confirms the agreed price and that both parties are legally obliged to complete and register the transfer; (2) No permission to purchase is required for foreign investors; (3) The purchaser pays a deposit of 3-5% of the agreed selling price to the vendor; (4) The property is registered with the local court and recorded with the local municipality cadaster (unification of both is now also required, according to a law that has only just been implemented); and (5) The property title registration is split into three: the proprietor; the description of the property; and details of any charges/encumbrances such as mortgages.
As is the case with the whole of the Western Balkans region, ensuring clean title is essential, and working closely with local lawyers is necessary for this to happen.
Purchasing Real Estate Through a SPV
It is also possible to acquire real estate in B&H via the incorporation of a company. The average cost of acquiring real estate this way is approximately EUR 3000 – which includes public notary fees, certified court interpreter translations, taxes, and all other relevant disbursements (including an initial capital contribution of EUR 1000 which can be withdrawn the day after incorporation). An investor would then have similar duties to those that exist in other countries around the world, such as maintenance of accounts, etc. The incorporation process is relatively quick in B&H and can be done within a three-week time frame.
As one would expect, the property transfer has to be registered with the appropriate local authority and each party to the contract must fulfill the conditions set out in the contract and, most importantly, the purchaser must pay the outstanding balance. There is also a property transfer tax of 5% that is payable on completion. The obligation to pay this tax is generally with the purchaser but can be passed on to the vendor if stipulated and agreed under the contract of sale.
Whether an investor purchases real estate directly or via an SPV, ensuring clean title is paramount, and working closely with local lawyers is essential for this to happen.
The fact that all of the region’s economies – including B&H’s – grew last year is encouraging, and commentators expect further growth in most Western Balkans countries in 2016, albeit still at levels below their potential.
The backing of global investors such as the EBRD, which is one of the largest institutional investors in the country, shows that confidence and stability are slowly returning to B&H, which can only help the country to realize its potential.
B&H can attract much more real estate investment. To ensure it does, it is imperative that structural and legal reforms carry on and the country continues to have economic and political stability. Let’s hope now that we are able to showcase B&H’s many strengths, and let’s invite real estate investors the world over to join us in realizing its potential!
By Petar Orlic, Partner, and Josip Stajfer, Associate, Faegre Baker Daniels LLP
This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.