Montenegro is reportedly losing between €220,000 and €700,000 daily due to uncollected fees for the legalization of illegally constructed buildings, according to Željka Krivokapić-Milićević, director of the Centre for Legalization of Real Estate. She highlighted that this loss is not attributed to crime or corruption but is a consequence of the government’s failure to enforce existing laws over several years. The country has missed out on over €1 billion in potential revenue within the last eight years, which could have been collected without imposing new taxes or increasing costs to citizens.
Statistics from the 2023 census indicate that Montenegro has a population of 623,633 and approximately 392,909 residential units. However, it is estimated that around 62,000 structures were built without the necessary permits, a figure that could rise to 100,000 when accounting for all unauthorized constructions. The new legal framework aims to address this issue within the next five years, with a deadline for applications set for February 2026.
Economic Impact and Proposed Reforms
The current legal landscape shows a stark contrast in municipal fees for legalization, varying from zero euros in rural areas to as much as €141.5 per square meter in central urban zones. For instance, in Podgorica, the average effective rate is projected to be around €45 per square meter after factoring in discounts and zoning regulations.
Krivokapić-Milićević’s analysis reveals that Montenegro has between 7.5 million and 15 million square meters of illegally constructed space. This unregulated area is comparable to the combined size of the cities of Niš and Kragujevac, yet the government has collected no fees from these properties. She criticizes the lack of action from various government bodies, including municipal authorities and the real estate management office, stating that the absence of a unified database and proper oversight has led to annual losses ranging between €80 million and €250 million.
The public debt of Montenegro is projected between €4.12 billion and €4.57 billion as of December 31, 2024, representing approximately 55% to 61% of the gross domestic product (GDP). The anticipated budget deficit for 2025 is around €278 million, or 3.5% to 3.7% of GDP, according to estimates from the International Monetary Fund (IMF). Against this fiscal backdrop, the unutilized revenue from legalization becomes increasingly significant.
Path Forward: Legalization as a Solution
The Centre for Legalization has developed a quantitative model based on public data, considering the lack of an accurate registry of illegal buildings. This model uses official population figures weighted by the risk of unauthorized construction. For example, Podgorica receives a risk factor of 1.8, while coastal municipalities such as Bar and Budva are assigned a factor of 2.0.
The estimated revenue scenarios indicate that if 62,000 illegal structures averaging 120 square meters each are legalized, the state could generate approximately €223 million at a rate of €30 per square meter. In a central scenario with 80,000 properties, the revenue could reach about €468 million based on an average fee of €45. The high scenario, involving 100,000 properties of 150 square meters each, could yield nearly €900 million at a rate of €60.
Although the income from legalization alone cannot fully eliminate Montenegro’s foreign debt, it has the potential to significantly reduce it by 10% to 20%. Krivokapić-Milićević suggests creating a dedicated fund for legalization, with strict limitations on fund usage to ensure investments focus on debt repayment and infrastructure development.
The expected outcomes over the next five years include an increase in investment value to approximately €656 million, savings on interest of around €30 million, and additional property tax revenues in the range of €80 million to €160 million. Overall, the fiscal impact could reduce the public debt to approximately €3.7 billion to €3.8 billion.
Krivokapić-Milićević concludes that reforming the legalization process could act as a catalyst for fiscal consolidation and sustainable economic growth. She emphasizes that Montenegro does not need to increase taxes, sell state assets, or incur further debt; what is required is the collection of owed fees. Legalization, she argues, represents a significant economic opportunity for Montenegro in the 21st century.
