If you are a foreigner (a natural person having only foreign citizenship), you have several scenarios when buying real estate in Serbia:

–        Directly buying agricultural land

–        Buying apartments and buildings for non-commercial purposes

–        Buying real estate for commercial purposes

–        Buying real estate via a Serbian company

The first scenario is just theoretical – ownership over agricultural land is reserved for Serbian citizens, and the exceptions are minimal (but please consult the last scenario).

Buying apartments and buildings for non-commercial purposes is only limited by Reciprocity with the acquirer’s home country. Either contractual or factual Reciprocity is established for 78 countries (a list is set out on the Ministry of Justice website – in Serbian), including Australia, Canada, USA, UK and France.

Buying real estate for commercial purposes is not only limited by Reciprocity but also by the need to establish the commercial necessity of owning such real estate. Last time I checked, this was issued by the Finance Ministry.

A standard way to avoid any issue with agricultural land, reciprocity, etc., is to open up a Serbian company, which would in turn buy up the real estate. This, of course, is feasible for commercial projects, and not for buying real estate intended as a residence.

STEP 2: DUE DILIGENCE

Aside from the inheritance scenario, one should really undertake due diligence on the property. This should include: 1. Physical inspection, 2. Property/encumbrance rights review, 3. Inspection of debts, 4. Background check of the seller and 5. Review of price.

While most real estate is bought in “as is” condition, one should take the time to at least make a cursory inspection. Also, this will help to determine if the real estate has tenants – as evicting them is not simple at all.

The other step is property/encumbrance rights review. This can be done online, as information on real estate and ensuing rights is available on the website of the Real Estate Cadaster (again, in Serbian). Most information can be acquired through public review; however, information on any encumbrances (mortgages, pending procedures) is only available on pay-per-view.

A big issue is a lack of permits – this is a historic problem, and while it is being slowly rectified by legalizing such buildings, for the time being, sale and purchase of such buildings is prohibited. It is best to stay clear of property that does not have relevant permits.

Enforcement on the real property is never (ever) a good sign. However, mortgages do not necessarily have to be an issue – sometimes they are linked to the housing loan given to the previous owner by a bank, in which case they are indeed a positive sign – the bank has done its due diligence, and found the real property adequate.

Inspection of utility and tax debts should not be neglected – the buyer should inspect the status of such bills. They are linked to the real property, and any owner of the said property can be liable for their payment – both the old and the new owner.

One should definitively make a background check on the seller. One can do a limited check on private persons and companies through the Serbian Business Registers Agency and the National Bank of Serbia. Blocked accounts, liquidation/bankruptcy, being on prohibited lists, review of their recent (2015-on) construction projects status, etc. Of course, this check is more limited in the case of private persons, but one can still determine if they are on prohibited lists. Also, one must determine if the seller is/was married, and if they acquired the real property while married, and this information must be determined from the documents provided by the seller.

Finally, one should also make inquiries regarding the going price for similar real estate.

STEP 3 – DRAFTING THE PUCHASE AGREEMENT

There is a more-or-less market standard on these, unless you are looking to buy some commercial real estate, in which case, the due diligence should include zoning regulations, and the seller’s warranties should be more extensive. For apartments, small buildings, etc., the agreements tend to be formulaic.

Some things to bear in mind:

–        The purchase price can be payable in foreign currency;

–        Anything above EUR 15.000 must be paid via a bank account;

–        The Sellers provide Warranties related to Title and Lack of Encumbrances, but very little in terms of physical state – properties tend to go in “as is” condition;

–        While the Seller is legally liable for the property transfer tax (2.5%, but in some cases, VAT might apply instead), contractually, this obligation is almost invariably transferred onto the Buyer;

–        The property transfer tax amount is determined by the Tax Authority, and the Tax Authority works in mysterious ways – the actual amount tends to be above 2.5% of the transaction value, because the Tax Authority is authorized to determine the “actual” transaction value. This is to prevent any funny business that would result in less tax being paid, but the results can sometimes be funny – don’t expect to pay less because the property is in a sorry state.

–        In case the building/apartment is new, Value Added Tax applies instead;

–        It is always recommended to have the seller’s spouse sign off the agreement;

–        Be careful when buying apartments or buildings that are in construction – there is a price discount involved, but the sellers rarely provide any kind of guarantees (either bank or personal). It’s a bit of a gamble.

A few words on pre-agreements: they are an option, and they force parties to conclude the main/actual agreement in due course. Pre-agreements are used when something needs to be done or fixed, to conclude the main agreement. Typically, this is done when the buyer needs to procure a bank loan.

STEP 4 – VISIT TO THE NOTARY

When all is prepared, the parties can visit the notary.

This is a mandatory step, as only notaries are entitled to certify real estate transfer agreements – and only in their respective jurisdiction zones.

Notaries are very handy for the buyers, as they:

–        Perform limited due diligence of the title and cadastral information on the real estate;

–        Review previous real estate transfers through their intranet;

–        Issue warnings to the parties on various aspects of Serbian law;

–        Submit the registration filing to the Real Estate Cadaster;

–        Submit the property transfer tax filing to the Tax Authority.

Of course, there is a notarial fee involved, but this is about 1% of the real property value – give or take.

STEP 5 – REGISTRATION WITH THE REAL ESTATE CADASTRE

This was historically a major hurdle, but thankfully, due to various reforms going back 10-20 years, this is now much more efficient. The registration filing is done by the notary, and the Cadaster has (in most cases) 5 business days to perform the registration.

However, the Real Estate Cadaster has many sub-units, and it is not as efficient as the Business Registers Agency – sometimes it is required to be a bit annoying, and file requests for speedier resolution.

STEP 6 – PROPERTY TAX FILING AND DEALING WITH UTILITIES

This is not exactly a fun step, but alas, is inevitable.

The buyer needs to register all utilities in its name and submit a filing for property tax.

Now, there is an issue in case the buyer is a foreign citizen (meaning no dual citizenship, etc.), since that buyer needs to procure a resident Tax Identification Number (TIN). And for that, the buyer will need a local tax representative.

Now, being someone’s tax representative isn’t exactly a dream job, but is necessary for the buyer to procure a local TIN. Once that is procured, the Tax Authority should be notified, and they should issue the property tax decision.