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 Croatian 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. Croatia joins the European Union
in 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.
Property prices
The
CentarNekretnina website
(click
here)
publishes the Price index every month. The Index is based on the largest
monthly sample of current real estate asking prices in Croatia. The
Index tracks changes on a monthly basis and provides comprehensive
insight into the current state of the real estate market in Croatia.
CentarNekretnina only takes into consideration the real estate for which
the price was clearly marked in real estate ads published on the
CentarNekretnina.net website in the current month.
The Index is based on real estate asking prices. The advantage of this
way of calculating is the availability of a much bigger sample than if
alternate methods were to be used. Although it would be wrong to make
conclusions about the actual price of a square meter based on the asking
price, the fact still remains that the asking prices and realized prices
change in the same manner, and that the most popular indexes in the
world make calculations this way.
Croatia Property Buying Process
Property buying in Croatia is governed by the principle
of reciprocity. This means that until Croatia joins the EU as expected,
the right of an individual to buy property there is on the condition
that Croatian nationals are permitted to buy property in the origin
country of the purchaser. For citizens, this presents no real problem,
but if you are from a different country, it is worth bearing in mind.
However, as of February 2009, foreign nationals are able to buy in
Croatia with the same rights and opportunities as local Croats. Given
that to be awarded permission to buy previously it was often necessary
to form a private company, this change will free up the buying process
and attract many buyers who would otherwise have been reticent to buy in
the country. This change in buying rules is necessary as one of the
tenets of Croatia joining the EU, which is expected to happen in 2011.
As in all property transactions, the purchaser should always use the
services of an independent lawyer who acts solely for them. It is also
essential that the lawyer should speak both Croat and English fluently.
It is important for the lawyer to check that the property’s title is
clean. Because Croatian families traditionally handed properties down
from father to son for several generations, in some cases the paperwork
is either incorrect or non-existent.
Getting a survey done is somewhat unusual in Croatia, but it can be
arranged through surveyors located in the bigger towns. This service,
with a proper translation, should cost in the region of €500 should you
require it.
The stages of the purchase include:
• The reservation contract
• The preliminary contract. This will include the payment of a deposit,
usually of between 5 and 10 per cent of the purchase price. It is usual
for the contract to include a clause stating that should the vendor
withdraw the property from sale, he must pay an equivalent sum to the
purchaser
• The certifying of the contract by a notary
• The submission of the documents to the Land Registry for the recording
of the legal title
• The payment of Real Estate Transfer Tax and/or VAT, (known as PDV in
Croatia) as applicable. This must take place within two weeks of the
final approval for purchase being granted to an individual to make sure
that additional penalty charges are not incurred.
The first step of the
Croatian investment property buying process for any
investor 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.
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.
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Estate agents charge between 2.5 and 3 per cent of the
property’s sale price
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Lawyers will charge around 1 -1.5 per cent. This will
usually include the Land Registry search and the preparation of the
purchase contract
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The notary’s fee and that of the translator (officially
required) total approximately 500 kuna
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The fee charged by the Land Registrar is about 400
kuna. Check with your lawyer whether this has been included in his or
her fee
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Property transfer tax is currently set at 5 per
cent. This is paid by the buyer. Once the transaction has been
completed, the change of ownership should be registered within 30 days.
The tax can be paid by money transfer, and is then changed into kuna
VAT (PDV in Croatia) is currently 22 per cent and payable only on the
value of a newly constructed building or a resale for which the VAT
was already paid, if disposed of by a business VAT payer. It is also
charged on the services provided by both estate agents and legal
advisers.
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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