Just a little more than a decade ago, Croatia was just one of the provinces of Yugoslavia embroiled in a ferocious civil war. Few could have guessed that Croatia would become a popular tourist destination once the confict ceased. Now, with the slogan, “The Mediterranean as it once was,” the country bills itself as an alternative destination to its more developed and better known Western European counterparts, such as Greece and Italy.
Tourists seem to have gotten the message and are flocking to the country. Second home buyers and property investors have taken note too and have their eyes on Croatia’s unspoiled coast. In recent years, locals have taken seriousy the preservation of the stunning beauty of coastal towns, such as historic Dubrovnic, and the classic architecture of larger cities—which ranges from medieval to art nouveau in the capital, Zagreb. As the market slows and developers and speculators become scarce—and perhaps less scrupulous—it will be interesting to see if this commitment to preserving the country’s character will persist. Local pride and optimism about the country’s future will certainly help keep this charactr intact, but so could the considerable obstacles in the property market—which could unfortunately deter even the most responsible foreign buyers.
Croatia at a glance
Set in Central Europe, the small country of Croatia covers 21,851 square miles—approximately the same size as the state of West Virginia—and shares borders with Bosnia and Herzegovina, Hungary, Montenegro, Serbia and Slovenia. Its population is about 4.6 million, according to UN’s 2008 statistics.
Croatia applied to become part of the European Union in 2003 and hopes to be approved by 2011. Before it can obtain membership, however, the country must stamp out mafia-related organized crime activities in the country.
Shipbuilding dominates Croatia’s industrial sector. Lumber and mineral fuels account for some of the country’s more notable exports, in addition to fish to East Asia and organic foods to the European Union. However, the economy is still strongly service-based to accommodate the over 10 million visitors that visit the country each year. Tourism is expected to grow for the foreseeable future.
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Most foreign buyers in Croatia come from Western Europe because of its proximity as a vacation home destination. It is no wonder then that the credit crisis has severely affected the property market and caused a significant sales slowdown. “As in many Mediterranean countries, the property market in Croatia is a bit slow at the moment. There aren’t many sales and purchases being made these days. We believe it is due to the current financial crisis that has hit our West-European target markets,” said Ivana Nesic from Adriatic Estate Consulting, a real estate company located Zagreb, the capital of Croatia.
There are many reasons why international buyers may find Croatia an interesting property market. For one, prices are lower than most comparable European destinations with similar natural and cultural resources, which leaves substantial room for growth.
“Property prices are still much lower than in Western European [countries such as] Italy, Spain and France. Prices of properties in the aforesaid countries are not likely to rise much in the future, whereas in Croatia they are expected to rise,” said Nesic. The fact that the country remains relatively underdeveloped is another big draw. “The Croatian coast is considered to be least affected with overbuilt areas and it still has that old Mediterranean charm.”
Relatively affordable properties notwithstanding, buying can be difficult for foreign investors. Croatia was a new addition to the Jones Lang LaSalle 2008 Global Real Estate Transparency Index and ranked as only a ‘semi-transparent’ market. The real estate sector is not well developed, according to Nenad Dracevac, a lawyer and a legal consultant at Adriatic Invest, a company specializing in real estate investment consulting in Croatia, and there is still much red tape involved in acquiring property in the country. However, there remain many opportunities for buyers who can endure the delays and hassles of the buying process.
“In coastal areas and islands prices are going up very rapidly. For example land can be sold for many times the original price after just one or two years. Croatia will enter the EU in the next several years which will raise [real estate] prices,” said Dracevac. Still, current prices are not cheap by any means. “A typical two-bedroom flat with the average surface of 70 square meters costs about 160-170 thousand Euros,” said Nesic.
Buying real estate in Croatia
As of February 2009, a new law makes it possible for non-citizens to buy property in Croatia in their name, according to Property Wire. However, confusion remains regarding whether the new law applies to all international buyers or to European Union citizens exclusively.
“As of [February first], only EU citizens can freely buy real estate in Croatia. For other citizens there is [a] special procedure at state offices before they are entitled as owners in land books,” said Dracevac.
Under previous restrictions, only foreigners whose countries allow Croatians to buy property were allowed to purchase real estate in the country. Even then, they had to found a company under which the property must be registered. It is predicted that freeing the market from such restrictions will encourage growth.
Dracevac recommends that people who want to buy property in Croatia, “be familiar with the market and have knowledge about it to avoid loss of money and time.” He notes that, “There is a substantial number of properties that don’t have valid building permits,” and it is best, “to hire an estate agency that will make sure the documentation of the property…is in order.”
Nesic adds that, “The estate agency can also take care of the agreement on sale and purchase of the property and all other legal issues.”
Croatia may be, “The Mediterranean as it once was,” but now the question is what the country “will be” as it develops. The market is quiet for now, according to Nesic. As in most real estate markets worldwide, the number of international buyers has dwindled during the global economic crisis. However, long-term growth seems assured to many, Nesic being one.
“We believe that as the financial crisis diminishes and as the process of Croatia becoming an EU member enters its final stage, the prices of properties will be on the rise again.”