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Friday 14 Nov 2011
"Tremendosly Undeveloped" by the Financial Times

From the old pier in front of Saint Rok’s church, Donja Lastva appears sheltered from the 21st century. Venetian-style stone houses dot the jagged Bay of Kotor shoreline, with steep, forested mountainsides as a backdrop. But the Montenegrin fishing village of 730 people, just outside the summer holiday hub of Tivat, buzzes with imminent transformation, as nearby tourism developments promise to lift the whole bay out of the recession. 

 

The village stretches for a quarter of an hour’s walk, ending abruptly at a concrete wall – the edge of the old Arsenal ship repair yard. The former Austro-Hungarian naval base, which closed after the 1990s Yugoslav break-up, has given way to Porto Montenegro, a luxury yacht marina whose first 85 berths opened last June. 

 

Plans detail 650 berths, including 150 larger ones for super yachts. The moorings and their adjoining luxury residential community, with a first phase due for completion later this year, will soon outclass Monaco as the essential Mediterranean maritime stop, say Porto Montenegro’s owners. 

 

“What we are witnessing here ... is going to transform the perception of Montenegro in the world,” says Peter Munk, the Canadian gold miner and majority owner of Adriatic Marinas, the main investor in the project. “But what is more important, it will transform the overall local economy.” 

 

The development, also backed by British, French, Hungarian and Russian investors, partly aims to emulate the traditional architecture of Perast and Kotor, the renowned Venetian-era towns along the bay. 

 

Fragments from the naval site are also to remain, including two Soviet-built submarines whose rusted conning towers poke above the Arsenal wall. Cal Lane, a Canadian metal sculptor who specializes in reworking industrial detritus, has started carving one of the vessels – a compact, 62ft attack sub – with a lace pattern. 

 

Oliver Corlette, managing director for Adriatic Marinas, adds: “We will have one of the largest nautical museums in the Adriatic and historical artefacts will remain around the site as part of the landscaping.” 

 

Positive spin-off effects will extend around the bay, Corlette says. Tivat, a relatively modern resort town with a small international airport, has spruced up its central shopping zone in recent months. Porto Montenegro’s example, meanwhile, could help villagers appreciate the value of their traditional stone architecture, he says. 

 

Two more major tourism projects are also in the works. An Egyptian-owned company, Orascom Development, in October announced plans for a marina, hotel, golf course and residential villas covering 6.8m square metres at Lustica, directly across an inlet from Donja Lastva, without specifying the cost. Russia’s Metropol Group is building a €450m villa and bungalow complex on Sveti Marko, an island off Tivat. (Montenegro has adopted the euro, although it is not officially part of the eurozone.) 

 

“I had clients coming to buy because of Porto Montenegro’s realisation,” says Leila Calic, director of Resido Montenegro, a French-owned estate agency. “And now the Orascom project will increase the value of the real estate market even further.” 

 

Residents – particularly native-born Bokelji (bay people) – view the investments with a mix of wariness and optimism. “It will increase the cost of living around here but we hope the owners of those yachts will buy or rent our houses as their base for exploring this area,” says Miroslav Marusic, director of Donja Lastva’s Radio Duks and owner of Café Mar Mar. 

 

Others are more suspicious of change. “Where Arsenal employed seven generations of skilled workers, Porto Montenegro will only produce waiters, maids and receptionists,” says Zoran Nikolic, a historian living in Tivat. 

 

Non-governmental organisations have warned of environmental risks because the state is too lax about regulations. High-end projects such as Porto Montenegro, however, have their own interest in ecological sustainability, Munk says. 

 

From an investment perspective, no one doubts that proximity to big tourism developments will raise prices in the area in the long run. “We love Munk’s marina,” says Justin Faiz, managing director of Pluto Capital, a UK-backed property development group. “First of all, they’re really doing it, both in terms of building the infrastructure and building a brand. But we also like it from our own business point of view.” 

 

Medium-sized developers can take on more ambitious plans with a strong anchor project nearby. “Companies like us, who can build a good-quality product, can come in just below the marina’s minimum price level [of about €4,000 per sq metre] with houses and apartments less than a 15-minute drive from the marina,” Faiz says. 

 

From out on the water, the coast looks “tremendously undeveloped, despite the best efforts of us and all the other developers for the last five years,” he adds. Pluto’s latest project is to refurbish an entire ruined village called Lucici, which was abandoned 30 years ago except for “someone keeping a few goats in one building”. 

 

Unlicensed construction has not scarred the area as badly as Budva, the notoriously overbuilt beach town to the south. With the walled town of Kotor enjoying United Nations Educational, Scientific and Cultural Organisation World Heritage Site protection, the surrounding municipalities have seen the sense in preserving their old buildings, even if minor code violations are common. 

 

Property prices took off in 2006, when Montenegro broke away from Serbia through a peaceful referendum. As returns on investment in Croatia peaked, some developers saw the neighbouring state as the next emerging destination. Russians with cash flocked to the tiny ex-Yugoslav country, preferring new-built apartments. Half-wrecked stone houses caught the imaginations of British and Irish buyers. 

 

Prices in Donja Lastva reached €1,700 per sq metre for run-down buildings, and €2,600 per sq metre at the top end, says, Aleksandar Djurovic, sales representative for Savills Montenegro. Tivat town dwellings reached €4,000 at the peak. 

Then, late in 2008, Russians became more cautious, while easy credit ran out for the British and Irish. Now, the typical price for old stone houses in the village would be €1,300 per sq metre or less but the rate of actual transactions is only one-tenth of what it was, Djurovic says. He is confident the market will regain its pre-crisis levels. “The question is whether this happens in two years, five years or 10 years,” he says. 

 

The area has weathered difficult times before. Marusic recalls that during his childhood Donja Lastva thrived as a separate municipality with its own shops and cinema. Café Mar Mar occupies a former school building, first opened in 1898 for the 50th year of Emperor Franz Josef’s reign.  

 

But disaster struck with Montenegro’s 1979 earthquake. While traditional stone structures often survived, little was left of their interiors. “After the 1979 earthquake, all of the bay area was dead,” Marusic recalls. “Really old settlements were totally ruined. But then people from around the former Yugoslavia started buying real estate here, until the war in the 1990s.” 

 

Many fishermen sold their properties, often to Serbs from Belgrade, who wanted summer residences by the sea. But properties often became sub-divided, so that old stone houses now contain multiple cramped apartments of limited appeal.  

 

Only when an investor buys all the fragments and reassembles them can such properties be restored to their former glory. Earth tremors since 1979 have been relatively minor and building codes now call for quake resistance equal to eight or more on the Richter scale, developers say. 

 

Properties can be bought by bank transfer or cash, with the process taking no more than two weeks to complete, unless the buyer and seller have worked out a deal for payment in stages, Calic says. Although Montenegro has eliminated any legal obstacle to foreign ownership, he also recommends purchasers to hire a local lawyer. 

 

New zoning rules have stimulated interest among developers for Donja Lastva’s empty fields, which lie on the inland side of the highway around the bay. 

 

Demand could also rise for properties in Gornja Lastva (Upper Lastva), a tiny neighbouring mountaintop village that recently celebrated the 600th anniversary of its Saint Marija church. “Buyers don’t come asking about Gornja Lastva but those who discover it like it and want to find a property there,” Calic says. 

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