The implementation of Montenegro’s revised construction law is causing a slowdown in the issuance of building permits and the legalization of properties along the coast. This development has resulted in decreased revenue from infrastructure fees, posing additional challenges for developers in the country’s most dynamic real estate sector.
The state-owned company Regionalni vodovod reported that the adaptation process to the new legislation has hindered both new permit approvals and the legalization of numerous unregistered buildings. Consequently, this has weakened collections from the special fee imposed on coastal construction projects.
Revenue from this levy dropped to €4.33 million in 2025, down from €5.10 million in 2024, representing a decrease of approximately 15%. Collections for the first half of 2026 amount to €2.20 million.
This decline is concerning as the fee is essential for financing regional water infrastructure at a time when coastal tourism and property development are straining supply networks.
The situation creates a cyclical problem: developers are facing extended approval timelines while reduced collections limit available funding for crucial infrastructure necessary to support ongoing development.
Montenegro’s coastal regions are currently experiencing capacity challenges in essential services such as water supply, wastewater management, roadways, and parking facilities.
During the 2026 tourism season, Regionalni vodovod noted exceptionally high demand, with parts of the main coastal transmission system operating near full capacity. This underscores the growing importance of revenue from development fees.
The levy is designed to ensure that a portion of value generated by new constructions contributes to public infrastructure needs. Municipalities currently receive 20% of this revenue, with plans to increase their share to 40% by 2028, thereby enhancing the connection between local development and municipal finances.
However, this mechanism relies on efficient project progression through the permitting system, which appears to be disrupted by the transition to new regulations.
Delays in permitting result in direct financial implications for property developers. Costs associated with land acquisition and financing persist even when construction activities are halted, necessitating adjustments to contractor schedules and sales timelines.
For larger tourism and residential developments, even a few months’ delay may jeopardize timely completion before peak selling or tourism seasons.
This uncertainty also affects foreign investments; while Montenegro continues to attract significant capital into coastal real estate, investors are increasingly evaluating regulatory execution alongside property prices and market demand.
A law aimed at enhancing construction governance could undermine investor confidence if administrative procedures remain opaque during its implementation.
The legalization process presents another bottleneck as thousands of properties exist outside the formal planning and registration framework. Ensuring compliance is crucial for property values, municipal revenues, mortgage financing, and utility planning.
This issue is particularly pronounced in Budva, one of Montenegro’s major property markets, where the necessary legalization commission has yet to be established. This contributes to further uncertainty for owners seeking to regularize their properties.
For financial institutions, delayed legalization can diminish collateral quality. Properties lacking clear planning or legal status pose challenges for financing, refinancing, or selling, thereby increasing transaction risks across the market.
The implications extend beyond construction firms to encompass broader real estate and financial sectors. Data from Regionalni vodovod indicates an early economic impact, with fee revenue declining by approximately €770,000 in 2025 and remaining subdued in early 2026.
While this decline may seem minor at a national level, the infrastructure funded by these fees is increasingly vital as Montenegro’s coastal tourism economy relies on dependable water supply during peak demand periods.
If private development progresses faster than infrastructure enhancements like pipelines and reservoirs can keep pace with demand, it could ultimately restrict future investments due to system constraints. Conversely, if permitting processes remain sluggish, overall development may stagnate.
The government faces the challenge of addressing both aspects effectively. Although the new law aims to enhance planning discipline, its transitional costs are evident through prolonged permitting times, delayed legalizations, and diminished fee collections.
The immediate concern for developers revolves around approval times. For coastal municipalities and Regionalni vodovod, the pressing question is whether these delays will start impacting infrastructure revenues essential for supporting upcoming construction cycles.
The effectiveness of this new regulatory framework will hinge not only on its written provisions but also on Montenegro’s ability to restore timely permitting processes without reverting to previous planning deficiencies that necessitated reform.
