Montenegro’s coastal municipality of Herceg Novi plans to raise its 2026 budget to €34.9 million as property-related tax revenue outperforms expectations, but it is simultaneously cutting planned capital expenditure by about €1.8 million, highlighting another gap between municipal revenue growth and infrastructure delivery.
The proposed budget revision increases expected property-tax revenue by €1.3 million to €14.7 million.
Revenue from real-estate transfer tax is being raised by another €500,000 to €4.2 million.
Together, the figures point to a strong local property base and continued transaction activity.
But other development-related revenues are weakening.
Communal land-development charges are expected to fall around 17% to €2.9 million, while urban-rehabilitation charges are being reduced from €1.5 million to €1 million.
The municipality is also cutting planned capital expenditure from €10.06 million to €8.26 million.
That represents a reduction of roughly 18%.
Debt repayment is set at €5.26 million.
The revised figures are significant because Herceg Novi combines a growing property market with substantial infrastructure needs.
The municipality includes some of Montenegro’s most active coastal tourism and residential zones, including areas around the Bay of Kotor entrance.
New hotels, apartments and second homes increase the tax base but also place additional pressure on roads, parking, water, wastewater and other municipal services.
The budget revision suggests that revenue from existing property wealth is growing faster than some of the fees linked directly to new construction.
Property tax is expected to contribute more than €14 million, making it one of the municipality’s most important revenue sources.
That provides fiscal stability.
Unlike one-off development charges, property tax can generate recurring income every year.
But stronger revenue does not automatically produce higher investment.
The reduction in capital spending indicates that some projects are moving more slowly than originally planned or that spending priorities have shifted.
That pattern has appeared elsewhere in Montenegro.
Bar entered 2026 with a large cash balance but had spent only a relatively small portion of its capital programme by mid-year.
Municipalities frequently cite expropriation, incomplete documentation, procurement and property disputes as reasons for delays.
Herceg Novi’s revised budget points to a similar broader execution problem even if individual project reasons differ.
The development-charge figures deserve particular attention.
Communal land-development fees generally move with construction activity and project approvals.
A 17% decline to €2.9 million could reflect slower permitting, changes in the timing of payments or weaker-than-expected new development.
Urban-rehabilitation revenue is also being revised lower by €500,000.
Those movements contrast with stronger property-transfer revenue.
That suggests the existing real-estate market can remain active even while new development-related collections slow.
For investors, the difference matters.
Transaction taxes reflect sales of properties already in the market.
Development charges provide a better indication of the pipeline of projects moving through construction and planning.
A municipality can therefore experience strong real-estate turnover without an equally strong new-building cycle.
The revised budget does not by itself prove construction is weakening.
Project timing can cause large year-to-year fluctuations.
But the divergence is worth monitoring.
Herceg Novi has attracted renewed tourism and residential investment, including luxury projects around Portonovi and smaller developments across the municipality.
Infrastructure needs are rising alongside that investment.
Road congestion is a particular problem during the tourism season.
Water and wastewater systems also require continued investment.
Cutting capital expenditure while the property tax base expands creates a risk that public infrastructure falls further behind private development.
The €1.8 million reduction is modest at national level but material for a municipality with a total budget below €35 million.
Capital spending after the revision will account for less than a quarter of the budget.
Debt repayment of €5.26 million also absorbs a significant share of available resources.
That illustrates the trade-off facing local governments.
Strong revenues provide room for investment, but legacy obligations and project-execution constraints can limit how much reaches construction.
The municipal assembly is due to consider the budget revision on Sept. 30.
Until then, the figures remain proposed rather than final.
If adopted, the budget will leave Herceg Novi in a relatively strong revenue position.
Property taxes alone are projected at €14.7 million, while transfer taxes are expected to reach €4.2 million.
The question is what the municipality does with that expanding revenue base.
Higher recurring property collections should, in principle, create more capacity for infrastructure investment.
But the current revision moves in the opposite direction.
For Herceg Novi, that makes execution the central fiscal issue.
The municipality is collecting more from the property market while planning to spend less on capital projects.
If that pattern persists, the constraint on local development will not be revenue.
It will be converting revenue into infrastructure quickly enough to support the market generating it.
