The Borik neighbourhood of Banja Luka on the river Vrbas

Banja Luka has had its share of calamities and misfortunes over the past five centuries, since it first cropped up in the historical record. But the city of about 250,000 people, the administrative and financial centre of the Serb-run area of Bosnia and Herzegovina, is now enjoying more prosperous times again.

In the 17th and 18th centuries the town – then under Ottoman Turkish rule – suffered the ravages of epidemics and imperial wars. But Austro-Hungarian rule from 1848 until the first world war brought material prosperity: roads, bridges and rail services, hospitals, schools, parks, cultural institutions and significant industry, from a mill and brickyard to tobacco, fabric and pasta factories.

The second world war saw the city bombed and occupied, with many residents interned or killed in the nearby Jasenovac concentration camp. In 1969 an earthquake struck, killing fewer than 20 people but destroying numerous dwellings and leaving tens of thousands homeless. With contributions from all over Yugoslavia, Banja Luka was repaired and rebuilt. In that period, a large Serb population arrived from surrounding villages.

While the city was spared direct combat action in the 1992-1995 war, it felt the accompanying ethnic upheavals. Upon the declaration of Bosnian-Herzegovinian independence, ethnic Serb areas broke away from the control of Sarajevo. International sanctions, combined with sniping along Banja Luka’s supply route by Muslim and Croat forces, ensured that food and medical supplies became increasingly scarce and expensive. Refugees or displaced people are now thought to make up about a quarter of the city’s postwar population. Bosnian Serbs tend to regard Banja Luka, more than Sarajevo, as their “capital city”, yet other ethnic groups in the country continue to dismiss Republika Srpska (the “Serb Republic”) a semi-autonomous “entity” governed from the city, as a product of the 1990s conflict.

Regardless of the lingering controversy, Banja Luka appears determined to shake off its traumatic past. The local brewery and other businesses that collapsed during the war have attracted fresh foreign investment.

Positioned in the middle of the Balkans and crossed by east-west and south-north highways, the city has become increasingly attractive to businesses and young professionals.

The mayor, Dragoljub Davidovic, has adopted a fledgling green agenda, including an annual spring cleaning programme, which he marked this year by planting a maple tree in a schoolyard. He also led a Vrbas river canyon clear-up before the World Rafting Championships in May and has joined with other European localities in a pledge to reduce carbon emissions by 20 per cent by 2020.

Multinational companies such as Siemens, PepsiCo and Serbia’s Delta group, the largest retail chain in the Balkans, have set up operations in Banja Luka. And cultural events such as the Demo Fest rock music festival and the Djecje Carstvo Tamaris children’s poetry festival are helping to restore the city’s international image.

At the same time the property market has thrived. Before the global economic crisis, a miniature “financial district” of new glass and steel bank and brokerage buildings sprang up just a short walk from the central square. Government officials say streamlined planning rules have helped to speed up new development, although licences can still take some time to obtain.

Gospodska, Banja Luka’s main artery

House prices doubled from 2004 to 2008, when the top cost for a new-build flat in the town centre reached €1,900 per sq metre (in Bosnia and Herzegovina property prices are routinely quoted in euros). Values have since fallen back to €850-€1,500 per sq metre for new apartments and €700-€1,100 per sq metre for older ones but mortgages from local banks remain difficult to secure.

But the Republika Srpska has weathered the crisis better than the rest of Bosnia-Herzegovina thanks to privatisation revenues and tighter fiscal management. Manojlo Popovic, director and owner of Senzor Estate Agents, says the market has stabilised. “The sellers who initially kept their asking prices high have now reduced them about 20 per cent, attracting buyers who were waiting for them to fall,” he says. “The major banks followed by starting to approve more applications for mortgages, which resulted in a steady rise in the number of sales of residential properties over the past couple of months.”

The most expensive district in the city is the central area, which features clean, wide, tree-lined pavements along its main artery, known as Gospodska, a pedestrian walkway that connects its two main squares and cultural institutions such as the Republika Srpska National Theatre. Properties on sale through Senzor include a 60 sq metre flat in an old apartment block in Milan Tepic Street, priced at €170,600 and an older, 70 sq metre house on a 390 sq metre plot at €120,000.

But in leafy, low-rise Nova Varos, new-build flats sell for about €1,400 per sq metre while older flats are about 20 per cent less, with a 55 sq metre space in Jovan Ducic Street on sale for €160,500. Next door in Borik, home of the state university and a new swimming pool complex set to open this summer, many flats are student rentals and prices are slightly lower. In historic Mejdan, now called Obilicevo, stretching from the Kastel castle over the river Vrbas and boasting attractive small businesses such as the Patisserie Triangolo and the Hotel Villa Vrbas, the bargains are even better.

The Kastel castle in Obilicevo

Natasha Stosic and her husband, Slobodan, both surgeons, moved to Banja Luka from Belgrade in the early part of this decade after struggling for several years to find jobs in the Serbian capital. They now work in the Dea Medica private medical centre, live in Nova Varos with their two daughters and run the city’s children’s poetry festival. “Moving to Banja Luka changed our lives for ever,” Stosic says. “Our younger daughter feels at home here and has started writing poems, entering competitions and going to festivals.”

They chose Nova Varos for its quiet, ­family-friendly atmosphere; its varied businesses, from markets to corner shops, banks to bakeries; and its location, between the city centre and the suburb of Rosulje and the motorway. “We’re within walking distance from the surgery and all amenities are literally round the corner,” Stosic says. “The centre and surrounding quarters are so compact and well connected that one can’t distinguish clearly where one begins and another ends.”

Milko Bogdanovic, proprietor of the Hotel Villa Vrbas, is one business owner who has benefited from the influx of newcomers. A Bosnian Serb who spent 13 years in Germany, he moved back to the city with his family in 1984 and opened his restaurant two years later. In 2006 he expanded into a bed-and-breakfast, which he plans to increase by five apartments this autumn. “We bought a home in the same neighbourhood so we can walk to work [and] both our daughters, now married, live in Mejdan, so we spend lots of time with our grandchildren,” he says.

Zoran Sankovic at the local tourist organisation sees this influx as a reason for optimism. “What better proof of the city overcoming its historic problems then the steady trickle of young people returning from exile back to Banja Luka, bringing back home experience, expertise and enthusiasm,” he says.

Real Estate Senzor, tel: +387 51-211 684

Tatjana Mitevska is an editorial assistant in the FT’s London office