Can a Multinational Company Create a Real Estate “Bubble” at the Local Level? The Case of Fiat and City of Kragujevac

Abstract

The aim of the paper is to analyze the recent dramatic increase in housing prices in Kragujevac, related to the opening of a multinational company facility. The main question is whether increasing house prices have been driven by market fundamentals or by speculative behaviour of the market players. We have decomposed variables influencing house prices in Kragujevac into supply and demand driven fundamentals to explore speculative ‘bubbles’ and detected the evidence of irrationally exuberant investors (constructors and buyers). The findings show a lack of rational behaviour among market players, absence of fundamentaldriven influence on real estate prices and expectancy-driven prices. The main characteristic is a strong relationship between price and rental price with no significant change in price-rent ratio.