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Buying property in Montenegro: scams and pitfalls

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Everything you need to know is included in our Montenegro Property Pack

Montenegro's stunning Adriatic coastline and growth potential make it an appealing destination for foreign real estate investments.

Navigating the local property market can be a bit of a puzzle though, especially for non-residents. There are several hurdles and surprises that you should be ready for.

Our community of property buyers and local collaborators have communicated several issues to us. We've listed them all in our Montenegro Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in Montenegro?

Montenegro is relatively safe, but it's not exempt from real estate scams.

Take, for example, the coastal town of Budva, which has seen exponential growth as a tourist hub. With such rapid development, there have been instances where opportunistic sellers have tried to sell properties with unclear titles or even land under government protection, making any further development illegal.

Such situations make it imperative to ensure that the property one is buying isn't earmarked for public projects or environmental conservation.

Unlike countries with digitized, centralized land registries, Montenegro still relies on a somewhat fragmented system.

There have been situations in places like Bar and Tivat where multiple people claimed ownership of the same plot due to inheritance disputes. This opacity can lead to unforeseen legal battles, emphasizing the need for thorough title checks.

Montenegro's legal environment, while robust on paper, can be inconsistent in practice.

The case of "Aman Sveti Stefan", a luxury resort, illustrates this. A long-standing dispute over land ownership between the government and a local family became even more complicated when a renowned developer entered the scene.

Such high-profile cases underline the importance of legal clarity and the potential complications that can arise in Montenegro's property scene.

In Montenegro, due diligence isn't just advisable; it's essential. Foreign buyers, for instance, once gravitated towards the Luštica Peninsula, attracted by its unspoilt charm. However, many were unaware of local zoning laws, leading to halted constructions and hefty fines

The Montenegrin government, aiming to boost foreign investment, has introduced initiatives like the Citizenship by Investment Program. This allows property investors meeting specific criteria to gain Montenegrin citizenship. While this is a lucrative proposition, it also brings with it increased scrutiny and regulations, potentially affecting property transaction fluidity.

While many foreign buyers have found their slice of Adriatic paradise, others have faced bureaucratic hurdles.

For instance, in Herceg Novi, some investors were left waiting for extended periods, sometimes years, for utility connections due to administrative bottlenecks.

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Potential real estate buying mistakes in Montenegro

"Katastarski" and the "Urbanistički" plan

When buying residential property in Montenegro, one specific mistake you should be cautious about is overlooking the "Katastarski plan" and the "Urbanistički plan."

These are unique land and urban planning documents specific to Montenegro. The "Katastarski plan" is a detailed land registry document that provides crucial information about the property, including its precise boundaries, size, and legal status.

Not checking this document thoroughly can lead to disputes over property boundaries or legal issues related to land ownership.

The "Urbanistički plan" relates to urban planning and development regulations.

This document outlines what can and cannot be built on the property, and any future development plans that might affect your property.

Ignoring this could mean investing in a property where your plans for development or renovation are not feasible due to local regulations or upcoming projects.

This mistake is not uncommon among foreigners who may not be familiar with Montenegrin property laws and regulations. It's essential to involve a local real estate lawyer or a trusted property agent who understands these documents and can guide you through the process.

They can help you ensure that the property you're interested in has clear legal status and fits your plans in accordance with local laws and development projections.

Problems associated with "Zakon o planiranju prostora i izgradnji objekata"

Another specific mistake you should be aware of when buying residential property in Montenegro is not fully understanding the implications of the "Zakon o planiranju prostora i izgradnji objekata" (Law on Spatial Planning and Construction of Buildings).

This law, unique to Montenegro, contains specific regulations on construction, renovation, and spatial planning that can significantly impact your property.

For instance, if you plan to buy an older property with the intention of renovating or rebuilding, you must be aware that this law might impose certain restrictions based on the location, historical value, or specific zoning rules.

It's not uncommon for foreign buyers to purchase property and later find out they cannot make the desired changes due to these regulations.

Additionally, the law also stipulates the process for obtaining necessary permits for construction and renovation. Failure to comply with these regulations can lead to legal complications, fines, or even the demolition of unlawfully built structures.

This mistake is frequently encountered by foreigners who might not be familiar with the intricacies of Montenegrin building laws.

To avoid this pitfall, you should engage with a local architect or legal advisor who can provide detailed insights into how this law applies to your specific property and what steps you need to take to comply with it.

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"Komunalna Naknada" or Municipal Contribution

A unique and often overlooked pitfall when buying residential property in Montenegro is the potential complication involving "Komunalna Naknada" (Municipal Contribution).

This is a fee that property owners in Montenegro are required to pay to the local municipality for infrastructure and communal services. The key issue arises when this fee has been unpaid by previous owners, which can frequently be the case, especially in properties that have been unoccupied or under dispute for a long period.

As a buyer, you might not be immediately aware of outstanding Komunalna Naknada on the property.

This can lead to unexpected and sometimes significant additional costs post-purchase.

Moreover, unpaid fees can cause legal complications in transferring property ownership and might delay or complicate the process. This pitfall is particularly common for foreign buyers who might not be fully versed in the administrative and bureaucratic aspects of property ownership in Montenegro.

To avoid this, it's crucial to conduct a thorough due diligence process.

Ensure that your legal representative or real estate agent checks for any outstanding Komunalna Naknada and includes the settlement of any such dues in the purchase agreement.

The concept of "Agrarni Fond"

A specific and often overlooked issue when purchasing residential property in Montenegro as a foreigner is not adequately verifying the property's status with respect to the "Agrarni Fond" (Agricultural Fund).

In Montenegro, certain land and properties are part of or adjacent to areas designated for agriculture and are under the management or regulation of the Agrarni Fond.

This designation can significantly impact your rights and possibilities for property development.

For instance, if you purchase a property that is part of the Agrarni Fond or is located on agricultural land, you may face severe restrictions on construction, modification, or use of the land. There might be limitations on the types of buildings that can be erected, the percentage of land that can be built upon, or specific agricultural obligations that must be maintained

This issue often catches foreign buyers by surprise, especially those attracted to rural or semi-rural properties in Montenegro, envisioning them as ideal spots for holiday homes or development projects.

To prevent this pitfall, it is imperative to conduct a thorough check on the property's status in relation to the Agrarni Fond.

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Risks related to "Zona Kulturne Baštine"

When buying residential property in Montenegro, a particularly unique and often overlooked mistake is not being aware of the specific challenges related to "Zona Kulturne Baštine" (Cultural Heritage Zones).

In Montenegro, certain areas are designated as Cultural Heritage Zones to preserve the historical and cultural integrity of the region.

These zones often include cities like Kotor, which is a UNESCO World Heritage site, and other historic towns and villages.

If the property you are interested in falls within a Cultural Heritage Zone, you will face strict regulations regarding renovation, construction, and even maintenance. These regulations are in place to preserve the architectural and historical character of the area.

For instance, you might be limited in your choice of materials, colors, or even architectural designs to ensure that any alterations are in keeping with the historical surroundings.

This issue is particularly relevant for foreign buyers who may be attracted to the charm and beauty of Montenegro's historic properties but are unaware of the stringent regulations governing these areas. Failing to comply with these regulations can result in hefty fines and legal complications, including being ordered to reverse unauthorized alterations at your own expense.

"Neformalni objekti" or informal (unregistered) buildings

An often-overlooked but critical aspect when purchasing residential property in Montenegro, especially for foreigners, is the potential issue surrounding "neformalni objekti" or informal (unregistered) buildings.

In Montenegro, there's a notable presence of properties that have been built without proper permits or haven't been registered with the local authorities. This situation is more common in rural areas and smaller towns but can also be found in cities.

The main risk with buying an unregistered property is that it may not be legally recognized, which can lead to significant legal and financial issues.

For example, you might face challenges in obtaining ownership rights, accessing utilities like water and electricity, and even risks of demolition orders by the government. Moreover, unregistered properties can be virtually impossible to resell legally.

This problem is particularly acute for foreign buyers who may not be familiar with the local legal system or may assume that all properties listed for sale have been properly registered and approved.

To avoid this pitfall, it's crucial to verify the legal status of the property before proceeding with any purchase.

Ensure that the property is officially registered in the "Real Estate Cadastre" (Katastarski Ured) and that all necessary building permits and occupancy permits are in order. Hiring a local real estate lawyer or agent with experience in dealing with property legalities in Montenegro is essential to navigate this complex area.

They can conduct the necessary checks and guide you through the process to ensure that the property you're interested in is legally compliant and safe to purchase.

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The issue of "Zakonska Prečeprava"

A unique and often overlooked challenge when buying residential property in Montenegro, particularly for foreigners, is the issue of "Zakonska Prečeprava" (Legal Pre-emption).

This is a legal right in Montenegrin property law that allows certain individuals, usually close relatives or co-owners, to have the first right of refusal to buy a property before it is sold to someone else.

This legal pre-emption right is particularly relevant in cases where you are buying property that was previously part of a larger estate or is being sold by multiple owners.

For example, if you are purchasing a property from one member of a family, other family members may have the right to purchase the property at the same conditions you were offered. If this right is exercised after you have made an agreement to buy the property, it can lead to complex legal disputes or even nullification of your purchase agreement.

Foreign buyers might not be familiar with this aspect of Montenegrin property law and may overlook it during the purchase process.

To avoid this, you should ensure that your real estate agent or legal representative conducts a thorough check on the property's ownership history and clarifies if any Zakonska Prečeprava rights are applicable.

It's also advisable to have a clause in your purchase agreement that addresses the possibility of legal pre-emption being exercised, to protect your interests.

The concept of "Konverzija Zemljišta"

Another unique and often-overlooked issue for foreigners buying residential property in Montenegro is the challenge related to "Konverzija Zemljišta" (Land Conversion).

In Montenegro, land is classified under different categories such as agricultural, forest, or construction land. The process of converting land from one category to another, especially from agricultural to construction, can be complex, time-consuming, and laden with bureaucratic hurdles.

If you are purchasing a property with the intention of developing or changing its use, it's crucial to verify the current land status and understand the implications of the Konverzija Zemljišta process.

For instance, if you buy what appears to be a potential construction site, but it's categorized as agricultural land, you may face significant obstacles in obtaining permission to build, leading to delays and additional costs.

This issue can be particularly perplexing for foreign buyers who might not be familiar with the nuances of Montenegrin land law.

They might assume that owning a piece of land automatically grants them the right to develop it as they wish, which is not always the case.

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"Pravo Korišćenja" and its risks

An additional unique and often-missed aspect when buying residential property in Montenegro, particularly relevant to foreigners, is the complexity surrounding the "Pravo Korišćenja" (Right of Use).

In Montenegro, some properties, especially older ones or those in certain rural or heritage areas, may not be fully owned in the traditional sense but instead held under a Right of Use agreement.

Pravo Korišćenja often applies to properties that were allocated during the Yugoslav era under a different property regime. In these cases, the individual holds the right to use the property but does not have full ownership rights as understood in many other legal systems.

This can lead to complications in transferring the property, securing mortgages, or making significant alterations.

For foreign buyers, this can be a particularly tricky situation, as the distinction between full ownership and the Right of Use may not be immediately apparent or understood. It is crucial to ensure that the property you intend to purchase is not just under the Right of Use but is fully owned and that the title can be transferred without any legal impediments.

To avoid this pitfall, you should engage with a knowledgeable local real estate attorney or agent to conduct a thorough investigation into the property's title.

They can confirm whether the property is under Pravo Korišćenja or full ownership, and advise on the implications for your intended purchase.

The risks related to "Cokotar" rights

A unique and often overlooked challenge in buying residential property in Montenegro, especially for foreign buyers, is understanding and dealing with the "Cokotar" rights.

"Cokotar" is a traditional Montenegrin term referring to a unique form of shared property ownership or usage rights, often seen in rural or agricultural properties.

In this arrangement, multiple parties may have different rights to the same piece of land or property. For example, one person may own the land, while another has the right to use part of it for agricultural purposes. This can be particularly confusing when buying property, as there might be undisclosed Cokotar rights that could affect your usage of the property.

This issue is not always clearly documented in property records and may only come to light through local knowledge or during the transaction process.

As a foreign buyer, you might not be aware of these arrangements or their implications for property ownership and use.

To navigate this, you must conduct thorough due diligence on the property.

This should involve not just a review of official property documents but also consultations with local residents, authorities, and possibly even historical records.

A knowledgeable local real estate attorney or agent can be invaluable in this process.

They can help you uncover any Cokotar rights associated with the property and advise on how these might impact your purchase and future plans for the property.

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