Property Futures

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Avoid Investing in Rental-Income Real Estate in Croatia

Article: Rental yields are moderate on Croatian property with no immediate prospect of capital gains.

Foreigners like Croatia and there are more than 70,000 foreigners owning property there, mostly along the Adriatic Coast.  Because of complications about taxation and the rules for foreign ownership, most of them are held through companies.  Real estate on the Adriatic coast is to be the most actively traded while the Northern peninsula of Istria is seeing a boom driven by buyers from Germany.  <intro>

Over 50% of the permits for foreign property acquisition were given to Germans followed by Austrians, the British, the Dutch and the Hungarians.

  • Of the 20 counties in Croatia, the most popular destinations for foreign investment are the Adriatic coast, Istria,Primorje-Gorski Kotar, Split-Dalmatia, Zadar, and Dubrokniv-Neretva.
  • Only a handful of people have chosen to buy in Zagreb.

OLYMPUS DIGITAL CAMERA

The housing market in Croatia

The market remains depressed because of the worsening economic conditions.

  • In the capital Zagreb, the average prices for flats were down by almost 5% in December 2012 year on year at EUR €1,665 per square meter.
  • The most popular tourist destination, the Adriatic Coast, saw an even sharper decline of 8%, with prices falling to EUR €1,671 during the year to December 2012.
  • House prices declined in most places with the biggest decline of 8.5% registered in Maksimir.
  • The most expensive apartments can be found in the upper town of Medveščak, at an average price of EUR €2,310 per sq. m. in December 2012, followed by the Center, where the average apartment price is EUR €2,086 per sq. m.

Property prices have been declining for the last 4 years and the national property index declined year on year by:

  • 4.8% in 2009
  • 4.8% in 2010
  • 1.3% in 2011
  • 3.1% in 2012

For the first 3 quarters of 2012, residential building permits declined 46% to 2,443 compared to the same period in the previous year.

The property market is expected to remain depressed in 2013, according to local experts, and may even be adversely affected by a new property tax.

The economy of Croatia, according to the IMF, has contracted by:

  • 6.9% in 2009
  • 1.4% in 2010
  • 0.01% in 2011
  • 1.5% in 2012

Both demand and supply of housing have been increasing since 2001, but the erratic price movements can probably be attributed to speculative activity.

  • Rich Croatians traditionally invest in property in times of economic uncertainty.
  • For example, demand for new housing increased when the economy started to show signs of weakness in 1998, and prices rose almost 20% in 1999 when the economy contracted and President Fradjo Tudjman died.

The rental market in Croatia

  • The long-term rental market is miniscule because of the focus on short-term holiday rentals for foreign visitors and tourists.
  • Long-term rental properties are found predominantly in the metropolitan cities of Zagreb, Dubronik, and Split.
  • In Zagreb, an apartment of 120 m² rents for about HRK9,290 (EUR €1,250) per month while an apartment of 200 m² would rent for about  HRK16,945 (EUR €2,280).
  • Gross rental yields in Zagreb are modest at around 5.5% to 6.0% and there is no connection between size and yields.

The bottom line

You should invest in property in Croatia only if you intend to occupy it for your long-term use.  Otherwise the uncertainty of any capital appreciation and the modest rental yields should deter you from any form of investment.

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