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Business EnvironmentMacroeconomic Outlook

Capital MarketsBanking Sector

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In the Spotlight

January 2011

From the consultancy perspective, we’ll continue to expand our offer to ensure that our clients are receiving the full shopping list of services to allow them to formulate the right strategic business and investment decisions. And from the sales perspective, we’re continually inventing new methodologies in which to attract end users to Montenegro in an ever increasing competing global market place. We like to see ourselves as setting the pace of change and innovation in Montenegro.

Besides the traditional real estate sales model, Savills Montenegro together with Savills is currently retained by some of the top projects in Montenegro to provide planning, strategic development and research advice to the relevant State authorities in Montenegro and to typically international developers, as well as to local and

international media on the market and trends. Under consultation at the moment are clients from the Middle East, Russia and the UK and include some of the highest profile projects in Montenegro.

Savills Montenegro is an international associate of Savills - the Premier Property Services Company and Sales Brand globally with a tradition of more than 150 years, and 259 offices in 27 countries, and one of the top 4 real estate companies globally, and listed on the London Stock Exchange.

Company PresentationJanuary 2011

Company Presentation

Holiday home buyers are drawn to Montenegro for its attractive Mediterranean climate and natural beauty above all.

Residential demand profile:

The volume of property transactions in Montenegro peaked in 2007 at which point the onset of the global credit crisis saw UK and Irish buyers withdraw from the overseas property buying market as financing dried up, prices turned negative and confidence waned across Europe. In 2009, transaction levels shrank dramatically compared to their 2007 boom, however 2010 data for H1 only suggests a slight recovery in sales numbers.Buyers from eastern Europe have instead become the dominant force in the housing market, responsible for the vast majority of sales recorded by Savills Montenegro in 2008 (90%), 2009 (88%) and in 2010 (95%). This perceived dearth in supply

Business and the most trusted brand in Montenegro, and offers comprehensive and professional services in the area of sales and marketing, market research, project consultancy, development management and such services, combining local market knowledge and global expertise. Savills Montenegro was established in 2004, with a goal of developing a company that would lead the way in the emerging market of Montenegro as regards providing confidence to all levels of investors, offering a wraparound service and providing a partnership model to clients whereby our business is an extension of theirs, with the expected strength and quality of service and expertise.

Savills Montenegro is an international associate of Savills - the Premier Property Services Company and Sales Brand globally with a tradition of more than 150 years, and 259 offices in 27 countries, and one of the top 4 real estate companies globally, and listed on the London Stock Exchange.

AD, project company and the subsidiary of Orascom Development Holding AG on market research as well as the masterplan/detailed design of Orascom Premium Holiday Resort in Lustica.

From the consultancy perspective, we’ll continue to expand our offer to ensure that our clients are receiving the full shopping list of services to allow them to formulate the right strategic business and investment decisions. And from the sales perspective, we’re continually inventing new methodologies in which to attract end users to Montenegro in an ever increasing competing global market place. We like to see ourselves as setting the pace of change and innovation in Montenegro.

Besides the traditional real estate sales model, Savills Montenegro together with Savills is currently retained by some of the top projects in Montenegro to provide planning, strategic development and research advice to the relevant State authorities in Montenegro and to typically international developers, as well as to local and international media on the market and trends. Under consultation at the moment are clients from the Middle East, Russia and the UK and include some of the highest profile projects in Montenegro.

A sample of our client base in Montenegro is the Russian development company Metropol and the island of Sveti Marko, in Tivat Bay. Here, Savills plays the role of development manager, advising on the master plan, and coordinating partners’ activities such as builders Bovis Lend Lease, engineering firm ARUP, architects Woods Bagot and cost consultants Davis Langdon. In turn, Savills and Savills Montenegro also introduced and brokered the hotel deal with the six star Banyan Tree Hotels & Resorts and is the exclusive global sales agent for the project – That’s what we call our wraparound service. We also advise Lustica Development

RESIDENTIAL

BEST REAL ESTATE AGENCY EUROPE

Savills Montenegro

is the largest international Real Estate S e r v i c e s

In September 2010 Savills Montenegro won a prestigious 5 star award in the category of Best Real Estate Agency in Montenegro and was chosen to be the Best Real Estate Agency in Europe by the selection committee of the prestigious International Property Awards – Europe & Africa Property Awards 2010.

Nationality of buyers 2006-2010, Savills Montenegro transaction data

Savills Montenegro achieved average price/sqm (€/gross area)

befitting buyers’ demand requirements is an important opportunity for potential new development coming to the market. It will be vital for developers to understand demand trends in the local area in order to effectively target buyers.

At present, almost all demand is focussed on coastal locations. Current budget constraints and the fact that most buyers presently active in the market are not using mortgage financing to increase their spending power, mean that most demand is concentrated

on compact apartment properties. Properties with proximity to the beach, with access to shopping areas, restaurants and bars are most sought after. In addition, property features such as balconies and terraces and parking provision are important in targeting today’s second home buyers.

Residential pricing:

The Montenegrin housing market has witnessed robust price appreciation in recent years, supported by a mixture of increased local demand and overseas interest in holiday homes in particular. Properties located in coastal areas lead the market in terms of values.According to Savills Montenegro data, prices peaked on average in 2007 at around €3,000/sqm. Similar to most overseas property destinations, the subsequent two years saw prices lose approximately a third of their value during the global credit crunch. However, both transaction

MONTENEGRIN 2ND HOME MARKET - short overviewlevels and prices have seen some recovery in 2010, with transactions achieving almost €2,200/sqm (gross area) on average in 2010.

ContactResearch & ConsultancyBul. Sv. Petra Cetinjskog 1/A, 81000 PodgoricaT/F: +382 (0)20.243.515 E: info@sav-montenegro.com

Sales & MarketingP.C. Marinović, 85318 Radanovići, KotorT/F: +382 (0)32.302.308 E: info@sav-montenegro.com

www.sav-montenegro.com

Savills Montenegro is the largest international Real Estate Services Business and most trusted brand in Montenegro and offers comprehensive and professional services in the area of sales and marketing, market research, project consultancy, development management and such services, combining local market knowledge and global expertise. Savills Montenegro was established in 2004, with a goal of developing a company that would lead the way in the emerging market of Montenegro as regards providing confidence to all levels of investors, offering a wraparound service and providing a partnership model to clients whereby our business is an extension of theirs, with the expected strength and quality of service and expertise.

Contact:

Research & ConsultancyBul. Sv. Petra Cetinjskog 1/A, 81000 Podgorica

T/F: +382 (0)20.243.515 E: info@sav-montenegro.com

www.sav-montenegro.com

Sales & MarketingP.C. Marinović, 85318 Radanovići, Kotor

T/F: +382 (0)32.302.308 E: info@sav-montenegro.com

www.sav-montenegro.com

In September 2010 Savills Montenegro won a prestigious 5 star award in the category of Best Real Estate Agency in Montenegro and was chosen to be the Best Real Estate Agency in Europe by the selection committee of the prestigious International Property Awards – Europe & Africa Property Awards 2010.

A sample of our client base in Montenegro is the Russian development company Metropol and the island of Sveti Marko, in Tivat Bay.

Here, Savills plays the role of development manager, advising on the master plan, and coordinating partners’ activities such as builders Bovis Lend Lease, engineering firm ARUP, architects Woods Bagot and cost consultants Davis Langdon.

In turn, Savills and Savills Montenegro also introduced and brokered the hotel deal with the six star Banyan Tree Hotels & Resorts and is the exclusive global sales agent for the project – That’s what we call our wraparound service. We also advise Lustica Development AD, project company and the subsidiary of Orascom Development Holding AG on market research as well as the masterplan/detailed design of Orascom Premium Holiday Resort in Lustica.

Montenegro Officialy Becomes an EU Candidate Country

On Friday, December 17th, 2010, at a two-day summit in Brussels, the European Council backed a recommendation made by the European Commission to grant candidate status to Montenegro. However, this decision does not guarantee an easy journey towards joining the Union, since no date for the opening of membership talks has been set yet. This is a signal that the country, which has a population of just 630,000, needs to speed up reforms. Montenegro is the fifth candidate country in line for membership, together with Croatia, Iceland, Macedonia and Turkey.

To obtain a date for launching membership negotiations, Montenegro must meet seven conditions:

- Harmonize Electoral Law in line with the recommendations of the OSCE-ODIHR and the Venice Commission; - Strengthen its administrative capacity and independence of the judiciary; - Fight corruption and organized crime; - Boost media freedom; - Increase co-operation with the civil sector, mostly NGOs; - Prevent discrimination; and - Find sustainable solutions to close the refugee camp on the outskirts of Podgorica.

Montenegrins have also been told that lots of work remains before they join the EU. Passing laws is good, says the European Commission, but implementation matters more. Such criticism has not ruffled feathers in Podgorica. Officials assessed the Commission’s opinions and comments as “quite fair”. The European Parliament expects the negotiations to start at the latest after the publication of the 2011 commission progress report, provided Montenegro makes good progress in fulfilling the benchmarks set by the commission.

Key findings of the opinion on Montenegro:

Political criteria

Montenegro has continued to make progress in addressing the political criteria. It has improved its legal framework and has strengthened its administrative and institutional capacity. Regarding human rights and the respect for and protection of minority groups, the legal and policy framework is largely in place and broadly corresponds to European and international standards. The institutional framework is largely adequate. However, there are gaps in implementation. Montenegro needs to effectively implement and enforce legislation in all fields. The main concerns relate to the following areas: effectiveness of anti-discrimination policies, freedom of expression and government relations with the civil society as well as the situation regarding displaced persons from Croatia, Bosnia and Herzegovina and Kosovo. Furthermore, Montenegro needs to intensify its efforts to consolidate its rule of law, in particular in the fight against corruption and organised crime, which still remain a serious problem. Montenegro plays a constructive role in maintaining regional stability and in fostering good neighbourly relations with other Western Balkan and EU countries.

Economic criteria

Montenegro has taken important steps towards establishing a functional market economy. To be considered as a functional market economy, Montenegro needs to further address internal and external imbalances, as well as weaknesses, notably in the financial sector and in the functioning of labour markets.Montenegro has achieved a good track record in the implementation of economic reforms and in implementing a broad domestic consensus on the fundamentals of economic policy. The free interplay of market forces has developed over the last decade through privatisation and the abolition of controls on prices.

Foreign investments have been attracted by the improved business environment. The Montenegrin economy remains very open and the level of trade and investment integration with the EU and the Western Balkan region is high. However, the global crisis unveiled significant internal and external imbalances which exposed the country and threatened its macroeconomic stability. The crisis also revealed vulnerabilities in the regulation and supervision of the banking sector, calling for the critical recapitalisation of banks. Persistent unemployment points to weaknesses in education and in vocational training systems, as well as to some problems regarding rigidity in the labour market. The country still has inadequate and insufficient energy and transport infrastructures. Persistent weaknesses in the rule of law and in the large informal sector have a negative effect on the business environment.

EU legislation

Montenegro has made further progress in aligning itself with European standards, particularly in certain areas of its internal market, in trade-related provisions, and in customs and taxation. However, additional efforts are needed for Montenegro to become aligned with EU legislation and to implement it effectively in the medium term, particularly regarding freedom of movement for workers, services and capital, public procurement, competition, financial services, information society and media, transport policy, energy, economic and monetary policy, consumerism and health protection. The country faces major challenges in implementing and enforcing legislation. Administrative and judicial capacities still remain very limited. The country needs to make sustained efforts to strengthen these in order to assume its obligations of membership during the medium-term.

Access to larger EU funds enabled

Candidate status provided Montenegro with the possibility of making greater use of EU pre-accession funds. This means that it now has the right to use all five IPA components instead of just the two that have previously been used:

• Support for transition and institution-building;• Cross-border cooperation. The other three components are aimed at candidate countries only and include: • Regional development;• Human resources development;• Rural development.