The Central Europen division of Global Principal Investment (GPI), Merrill Lynch's commercial real estate investment arm, plans to invest 550 million euro in real estate in Serbia, jointly with local firm MPC Properties, in which Merrill Lynch holds the minority stake, Reuters reported.

Residential property market on the Balkans was blooming after the region's recovery from the war and the subsequent stagnation in 1990s. Nonetheless, large corporate investment will come only after real political stability is achieved, Robert Schweizer, GPI vice-president for Central European region, which covers all east of Germany, including Russia and Turkey, told Reuters.

The residential segment did not enjoy a lot of investment over the past 15 years in the Balkans, but the recent remarkable growth was expected to continue, outperforming the rest of Central Europe, Schweizer noted.

Residential prices in Balkan countries rose significantly over the last few years due to a number of factors, such as investment inflows, which spurred employment and economic growth, keen demand for housing space and short supply.

The land market, however was still under-developed because of the insufficient number of foreign players, who demand political stability. In light of this, the current situation in Kosovo serves as a deterrent, diverting a large chunk of foreign resources, Schweizer said.

Despite that, Merrill Lynch is extending its already established partnerships with local companies and has concluded deals for the development of commercial centres in Belgrade, Sarajevo, Zagreb and Skopje. The company's strategy is to become a leading retail centre investor in the region, he noted, given the tangible effect of household income rise in the country's capitals.

Serbia, being the largest country in Western Balkans, has a good investment potential but entrepreneurs will have to wait until they see how it will develop in political aspect, especially with regard to EU accession. Local analysts think that the 880 million dollars direct investment in business property in 2006/2007 is only a small part of Serbia's potential.

Currently, Bulgaria and Romania are the Balkans' front-runners in terms of foreign investment, owing to their EU membership, which renders political stability and a certain security of investment, Schweizer said.