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 Croatia Real Estate Market
Speculative property investment in Croatia has begun
in earnest as this emerging real estate market moves towards EU
acceptance. The Republic of Croatia is a former Yugoslav republic; it
achieved Candidate Status for EU Membership in 2004 and open accession
talks began in 2005 between the EU and Croatia in a bid to bring the
country within the European Union fold by 2010. Real estate buyers are
seeking to cash in on the world’s growing confidence in the country.
Since talks have begun it has become clear to the
wider world that the Croatian government are determined to do everything
within their power to meet the tough criteria for EU membership and this
has boosted the country’s profile and appeal to overseas investors.
With almost 6,000 km of largely untouched
coastline bordering the Adriatic Sea, Croatia is a country of stunning
natural diversity and rugged beauty. You have mountains, plains,
forests, lakes and seaside areas to explore in a country that is as
undeveloped as it is beautiful - and the beauty of the country has a lot
to do with its fledgling but burgeoning tourist market which has boosted
the country’s economy quite significantly in recent years.
Until 1991 when Croatia declared independence it
formed part of the federal independent communist state of Yugoslavia and
it wasn’t until 1998 that the country finally managed to free itself
from communist dominance, war and violence. With UN intervention and
ongoing support and supervision the country finally became independent,
stable and secure in 1998 and since then it has rebuilt its economy so
successfully that it is now poised on the brink of
full EU membership - quite a notable
feat in such a short time.
Since 1998 the parliamentary democracy of Croatia
has gone from political strength to economic strength and Croatia is
heralded as an Eastern European success story. When
the Croatian government began the
implementation of the
EU Stabilisation and Association Agreement
in 2005, foreign investors saw this as the final sign they needed
pointing to the future long term economic success of the country, and
since February 2005 foreign direct investment into Croatia has begun
flowing freely.
Investors in many sectors are aware that there is
significant long term investment potential in Croatia as it grows in
attraction for large overseas and international trading companies. A
number of these international companies have already begun taking
advantage of the liberalised opportunities available in Croatia and the
cheaper and well educated local labour force. They have moved
production plants, service centres and operations to the country already
and this has boosted employment, raised personal spending power and
naturally added welcome inflation to the economy.
There is still a long way to go in Croatia though
as unemployment remains high and some politicians and sectors of society
are resistant to change. With the push towards EU entry however it’s
expected that slowly but surely the ongoing issues will be resolved and
the country will continue to offer more and more in the way of
investment potential and solid returns to overseas individual and
corporate investors in all market sectors including real estate.
In the property sector speculative investment is
currently being made particularly along the coastal areas and in
greenfield areas where the opportunity to create fantastic residential
and holiday property units is massive. As stated earlier the tourist
market in Croatia is beginning to boom and as a result of this there is
demand for quality short term rental accommodation and also for villas
and town houses in the more desirable parts of the country. Second home
buyers are also being attracted to Croatia by all it has to offer in
terms of the country’s beauty, the low land and housing costs and the
incredibly affordable cost of living.
International property developers are working on
the creation of various projects to suit the tourist market and foreign
property investors are being attracted to the potential rental yields
already on offer and by the projected long term returns on capital
investment made in property in Croatia.
Croatia Property Buying Process
Any foreign buyer considering purchasing
investment property in Croatia should be aware that their right to own
real estate in Croatia is based on the reciprocity principal whereby
theoretically a Croatian has to be entitled to freehold ownership of
property in the foreign purchaser’s country of origin.
For citizens of the US, UK and most European
nations this stipulation is automatically satisfied; for anyone else
wishing to purchase it is possible to incorporate a local Croatian
company and buy investment property via the company structure. This
article is a complete guide to the Croatia investment property buying
process for non-resident purchasers.
As with many emerging property markets there is a
requirement in
Croatia
for all foreign purchases of property to be approved by the Ministry of
Foreign Affairs and this process can actually take up to a year which
would suggest that an individual has to wait for approval for up to
twelve months before any investment can actually be made. This is not
actually how the process works as it is possible for an investor to make
his purchase and then apply for permission afterwards - of course if
permission is denied then the investor can resell his property assets.
In reality permission is seldom ever declined as
long as the principles of the reciprocity agreement are adhered to.
As stated earlier, where an investor is aware that
there is no reciprocal arrangement between his country and Croatia for
the foreign freehold ownership of property, that individual can
incorporate a company in Croatia, be the sole shareholder of that
company and buy real estate through the company structure. This action
avoids the need to fulfil the reciprocity principle but it does mean
that the company has to submit annual accounts and adhere to various
legislative regulations which can be an annoyance.
The first step of the
Croatian investment property buying process for any investor, whether they purchase through a company or as an individual, is to find
land or real estate that matches specific investment objectives and to
that end many property hunters employ the services of an estate agent in
Croatia. Local agents have the best working knowledge of the property
market across the country and can be called upon to give complete
assistance and advice throughout the buying process.
An overseas investor should also employ a local
solicitor to translate key documents, run title searches and basically
represent their interests throughout the buying process.
Once property has been located and found suitable,
an investor can choose to have a structural survey done on the
property in Croatia if that property is
a resale. There are a number of architects and surveyors in the main
towns who can perform such a function although it is not a usual local
practice. Once a property has been checked and a property investor
decides to buy, an offer should be submitted to the vendor and if
accepted the pre-contract is signed by the buyer and seller.
The pre-contract - or preliminary contract - is
conditional to the satisfactory title searches that the property
investor’s solicitor will run against the land and real estate. A
deposit of between 5 and 10% of the final purchase price is usually paid
upon the signing of this contract and it is usual to have as a condition
of the contract a stipulation that states the vendor will make payment
of the same amount as the deposit if they withdraw. Of course if the
buyer pulls out for any reason they lose their deposit.
As soon as the pre-contract is signed
it’s usual for the property buyer’s solicitor to apply to
the
Ministry of Foreign Affairs in Croatia for the
investor’s permission to purchase.
The final contract of sale is signed when all
conditions for the sale have been satisfied. This contract is signed in
front of a public notary and subsequently all documents are submitted to
the Land Registrar for registration.
It is at this stage that the final balance of the
property purchase price is transferred to the vendor and all taxes and
fees are due. In terms of the additional costs facing a property
investor in Croatia they include but are not necessarily restricted to
the following - property purchase tax of 5% and legal fees of around 1%
of the purchase price.
Anyone who wishes to resell their investment
property in Croatia within three years of initial purchase will be
subject to 35% capital gains taxation and anyone who derives an income
from their property will have to pay 25% tax on their profits.
Vit Klima
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