Bone-white Mountains and Sapphire Seas

International Living Postcards-- your daily escape

Monday, Nov. 7, 2005
Kotor, Montenegro

Dear International Living Reader,

We almost didn't make it across the border. No signs, no arrows, no indication where to go or what to do...we halted, waited, looked around... We could see two guards inside the glass house to the right, but neither was paying us any notice...so Lief began to pull ahead.

Not so fast, buddy, said the looks on the guards' faces as one, finally, came out from their booth. Our forward motion, I guess, had been interpreted as disrespectful and aggressive. Lief reversed and rolled back to where the immigration officer stood jabbering angrily. Lief tried to respond, but his English was incomprehensible to this Montenegrin, who eventually retreated back inside his little house.

"What now?" Lief wondered aloud.

"I think we wait," I offered.

A few minutes later the guard reappeared, looked over our passports and rental car papers, then motioned us onward. Welcome to Montenegro.

No doubt you've crossed a line. Immediately, the road is older and less well cared for. Driving along it, you pass piles of garbage and old abandoned cars. This postage stamp of a country is just this side of its most recent years of conflict, and its 650,000 inhabitants seem to be struggling for direction. Not quite an independent nation (Montenegro is loosely confederated with Serbia)...using the euro as currency but not yet part of the European Union...speaking a language that is almost Serbian but that they haven't yet named (though for the past year they've been calling it the "Mother Tongue")...and not so sure these current circumstances are an improvement on rule under Tito, a time remembered as a golden age of relative prosperity, certainly of tourism.

It's important to note, though, that, back in the day, the tourists in this region were not West Europeans (as in Croatia)...but, mostly, East Europeans and Russians. In other words, the tourist infrastructure, like all the infrastructure, isn't to Western standards. We stayed in a "de-luxe" hotel on the coast south of Budva, one of the most developed resort towns in the country. The hotel was big and clean, and the staff tried hard...but Michelin would be generous to award the place three stars.

Montenegro is greatly blessed by Nature, nestled at the foot of the bone-white Balkans and punctuated by inlets, bays, coves, and mirror lakes. And, in the centuries since it was settled, the Romans, the Venetians, and others have invested in architectural treasures here that make good use of the extraordinary natural setting. But, in more recent years, the landscape has been mightily marred.

However, my objection with Montenegro is not that it's poor and struggling (certainly not...I'm sympathetic sincerely on those scores)...or that it bears the scars, architecturally and otherwise, of decades of communist rule...or that its roads are rugged.

My complaint is that Montenegro can be expensive, at least more expensive than I expected. These are early days. Whither this country economically? Politically? The answers to these questions are not clear...yet prices, in particular real estate prices, have risen steadily the past several years and sharply the past 18 months, driven mostly by Russian buyers, but also, most recently, by sun-seekers from Britain and Ireland.

I'm speaking relatively, and I should clarify. Real estate in Montenegro is less expensive than in Croatia...but not a lot less. You can buy an old stone house for renovation in Montenegro for $1,200 per square meter. That's roughly the same price as the ones we viewed in Croatia's Istrian countryside. The difference is that the renovation project going for this price in Montenegro would be sitting first line to the sea.

When you play out the math, though, you realize that a modest stone building of, say, 200 square meters (or, 2,000 square feet, like some we viewed), comes with a price tag of $200,000 to $250,000...and then you've got to make the place habitable.

Still, the buyers are coming in growing numbers. One real estate agent we met with reported that tourism this past season was up 30% over the season before...and that there are more Brits in Kotor, the second of the two primary destinations in the county (the first being the "Riviera" around Budva), this month than, until this year, would have been typical in peak season.

Montenegro is the next logical step from Croatia, and some of the tourists this little country is seeing are coming down for day-trips from Dubrovnik, which sits just across the Croatian border in the north.

This flurry of attention and activity, Lief believes, will push prices up 100% (in key areas) in the next 18 months. He made a similar prediction about Bucharest, Romania, 18 months ago. We're selling right now the apartment we bought in that town at that time...and just about doubling our money. In other words, I've learned to listen to these kinds of predictions from Lief. And, indeed, $1,200 per meter for a house at the sea's edge is cheap enough that it's not hard to imagine that number doubling.

What...and where...should you think about buying in Montenegro today? Beachfront is always the safest bet, but we didn't have time to research coastal buys this trip. Instead, we focused on historic houses in Kotor. As I said, this is one of the two spots in the country attracting tourists in good and growing numbers. Plus, it appeals to us personally. It's a walled city, a UNESCO-named World Heritage Site dating back to the days of the Byzantine Empire. Built entirely of the white stone carved from the mountains that form its backdrop, Kotor boasts three gates, five churches, and innumerable open-air cafes surrounding its tidy squares known still by their original designations (Square of Flour, Square of Milk, Square of Wood, and so on), all perched over the Bay of Kotor, which put me in mind, when I first glimpsed it, of the lakes of Austria.

The locals compare Kotor favorably with Dubrovnik. That's a stretch. But Kotor is a special place, in a way more charming than Dubrovnik because it's not yet been packaged for the tourist trade.

One house in particular caught our eye in Kotor. It sits on a small courtyard, with other renovated and soon-to-be-so stone houses all around. Adorable outside and configured inside to include six rental apartments, the fully refurbished 180-square-meter (1,900-square-foot) structure is on the market for about $300,000. Current rental rates would translate to a 7% or 8% return annually...on top of the capital appreciation Lief expects.

Kathleen Peddicord
Publisher, International Living

P.S. Our hotel outside Budva seemed second-rate to us but charged First World prices. We paid $90 per person per night (in other words, $180 a room). On the other hand, you could travel in Montenegro on next-to-nothing. Locals rent out rooms in their homes for as little as 6 bucks a night. Our party of five had dinner one night, with drinks and dessert, and the bill came to $60...before the proprietor applied the 15% off-season discount.

P.P.S. This concludes your editor's family road trip, taken earlier this month...from Zagreb, then along the peninsula of Istria and the coast of Dalmatia, until, finally, south across the border into Montenegro. You can recap on our full itinerary below, but members of Lief Simon's Global Real Estate Investor group can expect an in-depth debriefing soon. If you're not yet a member, check out this special offer, which expires tonight.