Montenegro is experiencing significant financial losses, ranging from €220,000 to €700,000 daily, primarily due to the government’s failure to collect revenue from the legalization of illegally constructed properties. Željka Krivokapić-Milićević, director of the Centre for Legalization of Real Estate, emphasized that this situation is not a result of crime or corruption, but rather a long-standing issue that the state has neglected for years.
According to data from the 2023 Census, Montenegro has a population of 623,633 and approximately 392,909 residential units. Official estimates suggest that around 62,000 buildings lack permits, with the total potentially reaching 100,000. The ongoing reform and new legalization law aim to address illegal construction issues within the next five years, with a deadline for applications set for February 2026.
The available data indicate significant discrepancies in municipal fees for legalization. In rural areas, such as the sixth zone in Podgorica, fees can be as low as zero euros, while in central urban zones, they can reach €141.5 per square meter. A similar model is applied in Kotor, Budva, and other coastal municipalities. Taking into account zoning, discounts, and basic housing exemptions, the average effective rate is estimated to be between €30 and €60 per square meter, with a central estimate of around €45.
Between 7.5 million and 15 million square meters of illegally built space exist in Montenegro, an area equivalent to the combined size of the cities of Niš and Kragujevac, yet without any fees collected. This situation is described by Krivokapić-Milićević as a scandal that has been overlooked for the past eight years.
She stated, “The responsibility lies with governments from 2017 to 2025, municipalities, inspections, the Real Estate Administration, urban planners, and architects.” Montenegro currently lacks a unified database, verified owner contacts, a digital GIS system, or satellite tracking for these properties. Planning documents take between three to five years to prepare, and each municipal secretary applies their own rules. This fragmented system results in annual losses between €80 million and €250 million, culminating in over €1 billion in uncollected revenue over the last eight years, with no political accountability or institutional response.
As of December 31, 2024, Montenegro’s public debt is projected to range between €4.12 billion and €4.57 billion, depending on whether gross or net debt is considered. This represents approximately 55% to 61% of the country’s GDP. The planned budget deficit for 2025 is around €278 million, or about 3.5% to 3.7% of GDP, according to the International Monetary Fund (IMF). In this fiscal context, the lost revenue from legalization presents an even more serious issue.
The Centre for Legalization has developed a quantitative model based on public data, as a precise inventory of illegal structures by municipality does not exist. The model uses official population figures, adjusted for the risk of illegal construction. For instance, Podgorica, being the largest city and a migration zone, is assigned a factor of 1.8, while coastal tourist municipalities are rated at 2.0. The estimates suggest three scenarios: a low scenario with 62,000 properties averaging 120 square meters, generating approximately €223 million in revenue; a central scenario with 80,000 properties and potential revenue of €468 million; and a high scenario involving 100,000 properties at €900 million.
The analytical model at the municipal level shows similar trends, with Podgorica leading with a potential of €161.2 million in revenue, followed by Bar, Nikšić, and others with varying amounts. Krivokapić-Milićević acknowledges that while these revenues cannot completely eliminate the foreign debt and deficit in five years, reform could reduce debt by 10% to 20% and generate new revenue from property taxes, value-added tax (VAT), and profit taxes.
She proposes the establishment of a special fund for legalization and development, pooling resources from municipalities, and limiting their use strictly for investments, debt repayment, and co-financing EU and international projects. The investment board, comprising the Ministry of Finance and other relevant entities, would oversee allocations based on clear criteria.
Under the central scenario, it is suggested that 40% of the total revenue be invested in energy and green infrastructure, 25% in transport and logistics, and 20% in sustainable tourism and spatial planning. The expected outcomes over the next five years include an increase in investment value to approximately €656 million, interest savings of around €30 million, and additional property tax revenue between €80 million and €160 million. The total fiscal contribution could range from €700 million to €850 million, potentially reducing the debt to around €3.7 billion to €3.8 billion.
To ensure long-term sustainability of these reforms, consistent application of fiscal rules, modernization of the Tax Administration, digital property records, improved spatial planning, and efficient use of EU and international development funds are essential. “The reality of illegal construction in Montenegro ranges from 60,000 to 100,000 properties, representing 7.5 million to 15 million square meters. The revenue potential is between €220 million and €900 million, making it the most significant economic opportunity for the country in the 21st century,” Krivokapić-Milićević concludes, asserting that the state must collect what is rightfully its own.
She emphasizes that Montenegro does not need to raise taxes, sell state assets, or take on more debt; it simply needs to collect what is already owed. Legalization is not a penalty; it is the greatest economic opportunity for Montenegro this century.
