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Montenegro attracting investment interest but infrastructure is below par

But red tape associated with owning property and the lack of proper road, electric and water infrastructures are still off-putting. But these could be rectified in the coming year.

According to James Gonzalez, an expert on emerging markets for investment firm Obelisk, the country's government is making a huge effort to improve infrastructure as it seeks to present Montenegro as a luxury-style destination.

'Montenegro is in fact trying to position itself as a high-end, south of France-style destination, which reflects the type and income of the property buyers,' he said. Indeed property in some prestigious resorts now commands prices of more than €7,000 (£5,450) per square metre.

Although the nation's central bank expects that 2008 will see at least a temporary end to the growth in the property market, Mr Gonzalez believes that government spending and the reduction of red tape means that Montenegro's economy is set to grow at seven per cent year-on-year for the foreseeable future.

There is a robust demand for authentic stone houses, plots along the coast and newly-built apartments and the interest in agricultural farms near seaside towns is rising, according to Kapital weekly. Residential prices in prime locations hover in the €2,500 – €2800 a sq m price range.

Local real estate agencies claim that property prices have not peaked yet and will see another 30 per cent growth in 2008-2009.

However, Montenegro is not exactly the investors' "promised land." The communist and war heritage, and shortage of electricity and water can be off-putting. There are hardly any direct flights to Montenegro from most European and United States locations, and even low-cost air-carriers have not stepped on the local market yet. Roads are in poor condition and quality of life is still low for a large number of Montenegrins.

Foreigners, whether companies or individuals, are allowed to buy real estate, but when it comes to purchases of land, foreign individuals are not allowed to own land if they do not plan to build on it right away. Therefore, very often foreigners buy real estate through local companies, which become owners of the land until building works are completed. Only then do they transfer the plot ownership to the foreign person.

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