An opinion of Dejan Krajinović, Beobuild Core d.o.o., EECFA Serbia
The news that Budapest is entering an investment partnership with the Abu Dhabi based property developer Eagle Hills echoed in the Serbian media since the company has been building a similar project in Belgrade for 11 years now. Their ambition to expand in the regional market has been pronounced in recent years with ongoing initiatives in Albania and Croatia as well. Although Belgrade was the maiden project in Europe for the developer, all projects seem to be arranged in the same way. They are particularly interested in large-scale multi-billion redevelopment projects with bilateral government agreements assuring state support and exclusive market position.
Abandoned railway site put into new use
Just like Budapest, Belgrade had a vast redevelopment area on a former train station covering some 100 hectares of exclusive riverfront property. The area was abandoned by the Serbian Railways after the completion of the new railway node, so it was largely unused, except for some storage and distribution facilities that remained. The Serbian government already had close relationship with the UAE, so negotiations began with Mohamed Alabbar, founder of Emaar Properties. To have a powerful investor taking on the entire redevelopment sounded perfect, the government was on board, and soon the initial deal was signed valued at EUR 3.5 billion, including the construction of around 1 million sqm of multi-purpose facilities. Belgrade Waterfront project was thus born: a core cluster of residential and commercial high-rises on the banks of the Sava River.
Dubious from the start
Controversies included the lack of transparency, broken procedures, redacted contracts and no public or professional debate. The governmental measure to suspend legal procedures for the project by adopting ‘lex specialis’ proclaimed it to be a project of national interest, enabling mandatory land expropriation and suspending tender procedures where procurements are impossible to control. The government was behind the project in full force, ready to remove obstacles for its smooth realization. So, the monumental project left public domain and the country’s legal framework, leading to dissent and public protests for months. The government decided to force realization, which created division in the capital city, fueling a long-lasting political conflict. More than 10 years later, various public organizations and activist groups are still fighting to stop the expansion of the project and are seeking legal conclusion.
Big-league urban renewal project
The initial phase of the project is now largely completed, but in the meantime, Eagle Hills acquired two more plots in Belgrade (50 hectares combined). The commercial success of the initial phase includes around 8000 residential units sold, so UAE investors are here to stay. And why wouldn’t they? Land may be acquired without competition; urban planning rules don’t have to be respected; and there’s massive municipal assistance on infrastructure. Such a large-scale urban renewal project requires enormous financial commitment for new infrastructure from the municipal government: hundreds of kilometers of new piping, dozens of kilometers of new boulevards, energy infrastructure, not to mention the related public transport investments and other indirect expenses. It can also affect the development of existing and older neighborhoods, their need for improved infrastructure since the city budget needs to commit resources in the long term to this new project. Additionally, these massive projects encompass a major share of commercial function (hotels, shopping centers, offices and other related facilities), which can affect commercial investments in other parts of the city. A project of this size creates a new center that can relocate activities and impact demand for both space and services in other locations.
Without having to pay the initial cost of land, Eagle Hills is in a competitive advantage to other investors. Their initial investment appears to have been relatively small, and through the years the project development was mainly funded by reinvested profit from residential sales. In that sense, the bombastic titles of the influx of massive billions are a bit deceiving; however, it will create a new construction hotspot in the city that will stimulate local economy for years to come. It is still unknown how much they invested in Belgrade so far, but it certainly surpassed the initial value of the contract. And if announced expansion plans materialize in Belgrade, the initial figure of EUR 3.5 billion could easily double in the coming years. The speed of its development can depend on market conditions and demand, but if commercially successful as Eagle Hill’s Belgrade Waterfront, the Budapest project will certainly expand as well, particularly if state and municipal governments are ready to fully accommodate the process.
The experience of Belgrade with the Waterfront project has been altogether nightmarish, though. It became a political divide, represents a dubious legal precedent, and created local resentment that still lingers. Many Belgrade citizens cannot consider it positive for valid reasons, so it may remain politically and legally contested for years to come. Although Belgrade Waterfront achieved a relative market success, when a commercial project creates long lasting negative social and political consequences, its benefits diminish. Let’s hope Budapest will do better than Belgrade.