The determination of the capitalization rate for apartments in the Canton of Sarajevo, Bosnia and Herzegovina

Abstract

In recent years, enormous steps have been made in terms of developing and solidifying the property industry in Bosnia and Hercegovina, especially with the establishment of the Bosnian & Herzegovinian Property Association (BHPA). However, despite the association's efforts, there remains a lack of publicly available data that can be used by investors to evaluate the yield a property can produce. Having this in mind, this work aims to determine the capitalization rates for apartments in the Canton of Sarajevo. This was done by gathering data for 400 apartments in the Canton of Sarajevo from February 2023 to January 2024, and classifying the apartments into four groups, based on predefined criteria established by the author. An additional analysis was conducted to assess the difference between the initial asking prices and the final selling prices of the apartments, to determine the “real” market value of the gathered properties. Subsequently, the Net Operating Income (NOI) for each apartment was calculated by determining the rental yield each apartment could produce and applying benchmark percentages to evaluate the operating expenses that would arise. The results show that the property characteristics immensely affect the capitalization rate, as higher quality properties have lower capitalization rates compared to lower quality ones. Also, capitalization rates are lower for properties in better locations within the Canton Sarajevo. The further the properties are found from the city center, the higher the capitalization rates.