Could you make money from property in Montenegro?

It was the playground of Hollywood stars like Sophia Loren, Richard Burton and Elizabeth Taylor in the days of Tito. Now, the tiny Balkan state of Montenegro has hit second-home radar screens yet again following a narrow vote for independence from Serbia last month. With its 117 beaches, ski resorts, 240 days of sunshine per year and the Unesco-protected Venetian city of Kotor, no one doubts that the country has a lot to offer the discerning tourist. But can you seriously make money from buying property there?

Property in Montenegro: price increases

Pando Dinkovski of Surrey based sales office of Adriatic View Properties certainly seems to think so. He reckons that in the last 12 months there has been a 20-30% increase in property prices as British, Irish, Scandinavian and wealthy Russian buyers move into the market. "Since the referendum there has been a tremendous response among Britons," he says, "and we have had a lot more enquiries." He reckons that for those looking for investments, the coastline between Budva (pictured) and Petrovac offer the best opportunities.

Jonty Crossick of Ready2Invest, an estate agency and property consultancy specialising in Montenegro, among other countries, is even more optimistic. He tells The Mail on Sunday that "the property market is increasing at 30-50% a year in coastal regions", where "the high mountains close to the sea protect it from overdevelopment".

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Property in Montenegro: infrastructure issues

That last fact may be true, but it also means that the country has a limited capacity for dealing with tourists, whether through sophisticated seaside resorts or quality hotels. And that's a problem for a country that believes the tourism industry and booming property prices will lead GDP growth in the future. As The Washington Post points out, "the tiny Adriatic country must [first] confront problems it has never fully addressed: chronically bad infrastructure and endemic corruption".

At present, there is still no direct year-round airline service to Montenegro from the UK. Instead, most visitors must fly to Dubrovnik in Croatia, then drive to Montenegro. "Not the stuff of easy, impulsive weekend visits to a holiday home", says Graham Norwood in The Independent. Jack Grimston and Maja Dragovic in The Sunday Times are equally scathing. Not only is the drive around Kotor Bay's narrow road a "hair-raising" one, but "water and electricity supplies can be unreliable in summer, while telephone and internet connections are often ropey". "It's all part of the charm, but Montenegro's definitely a rough diamond," says Andrea Marston of Dream Property Montenegro.

Charm or madness, buying property there is undoubtedly a risk. The black market is as vibrant as it was in the heady days of the 1990s when it kept the economy ticking over during the Balkan wars, and that's made many developers and investors wary of putting their money there. Indeed, it's still not possible to get a Montenegrin mortgage, meaning that anyone wanting to buy there must do so by borrowing against their first property, or somehow finding the cash in other ways, always a dangerous option.

Property in Montenegro: reasons to be wary

But surely its separation from Serbia gives it a greater chance of joining the EU, an advantage so often sought by property hunters. Dejan Filipovic, of Budva-based property agency Spektar Nekretnine, tells The Daily Telegraph that it will happen in "the next four or five years". Not likely, says David Webb, first secretary at the British Embassy in Belgrade. He thinks that Montenegro has a smaller chance than it has ever had of getting a seat at the top table in Brussels. "If people think they are buying into the EU, probably they are very much mistaken," he tells The Sunday Times. "If anything, independent Montenegro is further from the EU than Serbia and Montenegro'. Is the EU really the place for a country with a lot of Russian connections and only tourism to keep it up?"

However, as property agents are at pains to point out, prices are still a third lower than in neighbouring Croatia, itself a burgeoning property hotspot. That may well be the case, but according to Dinkovski, locals make up about 15% of the entire property market. That suggests a high degree of speculation, unless that other 85% are preparing to move permanently to the country. More likely is that many buyers are gearing up for the tourist season, but with the state of the country's infrastructure, it's anyone's guess how they'll get there.

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You may also like to read fund manager Alex Ross's views on investing in European commercial property: Should you buy into European property? See also: Is the East European property bubble set to burst? Or go to our section on investing in property for a full list of articles on property in the UK, Europe and beyond.