The housing market in Croatia remains depressed. House prices are falling. Construction activity is declining.
In Zagreb, the capital, the average asking price of flats was down by 0.3% in January 2012 from the previous month, and down by 4.8% from a year earlier, at €1,738 per square metre (sq. m.), according to CentarNekretnina, the largest Croatian property portal.
On the Adriatic Coast, Croatia’s most popular tourist destination, the average price of flats was down by 1.7% from the previous month and down by 4.1% from a year earlier, at €1,787 per sq. m.
The most expensive apartments are in southern Dubrovnik-Neretva County, with an average price of €3,424 per sq. m. in January 2012, followed by Split Dalmatia, with an average apartment price of €2,525 per sq. m.
Property prices in Croatia have been falling for the past three years.
As of October 2011, the total number of residential building permits dropped by 2.8% to 5,080 from the same period in the previous year, according to the Croatian Bureau of Statistics.
House prices are expected to fall by another 10% in 2012, according to local property experts. In Zagreb, prices are projected to fall by about 10%, according to Domenico Devescovi of CentarNekretnina. “Prices will continue to drop also in other places," Devescovi adds.
The property market has been adversely affected by the country’s stagnating economy and the Eurozone sovereign debt crisis. Croatia’s economy is expected to shrink by around 1.3% in 2012, after registering 0.4% growth in 2011, after contractions of 1.2% in 2010, and 6% in 2009. Worse, the possible imposition of a property tax could exacerbate the already grim scenario.
In Zagreb, the capital, the average asking price of flats was down by 0.3% in January 2012 from the previous month, and down by 4.8% from a year earlier, at €1,738 per square metre (sq. m.), according to CentarNekretnina, the largest Croatian property portal.
On the Adriatic Coast, Croatia’s most popular tourist destination, the average price of flats was down by 1.7% from the previous month and down by 4.1% from a year earlier, at €1,787 per sq. m.
The most expensive apartments are in southern Dubrovnik-Neretva County, with an average price of €3,424 per sq. m. in January 2012, followed by Split Dalmatia, with an average apartment price of €2,525 per sq. m.
Property prices in Croatia have been falling for the past three years.
- In 2009, the national property price index dropped by 4.8% y-o-y (-6.5% in real terms)
- In 2010, the index fell by another 4.8% (-6.5% in real terms)
- During the year to end-October 2011, the national property price index dropped by 0.6% (-3.1% in real terms)
As of October 2011, the total number of residential building permits dropped by 2.8% to 5,080 from the same period in the previous year, according to the Croatian Bureau of Statistics.
House prices are expected to fall by another 10% in 2012, according to local property experts. In Zagreb, prices are projected to fall by about 10%, according to Domenico Devescovi of CentarNekretnina. “Prices will continue to drop also in other places," Devescovi adds.The property market has been adversely affected by the country’s stagnating economy and the Eurozone sovereign debt crisis. Croatia’s economy is expected to shrink by around 1.3% in 2012, after registering 0.4% growth in 2011, after contractions of 1.2% in 2010, and 6% in 2009. Worse, the possible imposition of a property tax could exacerbate the already grim scenario.
Analysis of Croatia Residential Property Market »
RENTAL YIELDS
Last Updated: Sep 30, 2011
Apartments in Zagreb are priced at around 2,000 Euros per square metre.
Gross rental yields in Croatia’s capital, Zagreb, are moderate, at around 5.5% to 6.0%. There is no particular connection between size of apartment and yields.
Both apartments and houses in Central Dalmatia tend to be more expensive, at around 3,000 Euros per square metre.
Houses in Istria seem something of a bargain, at around 1,700 Euros per square metre.
Gross rental yields in Croatia’s capital, Zagreb, are moderate, at around 5.5% to 6.0%. There is no particular connection between size of apartment and yields.
Both apartments and houses in Central Dalmatia tend to be more expensive, at around 3,000 Euros per square metre.
Houses in Istria seem something of a bargain, at around 1,700 Euros per square metre.
TAXES AND COSTS
Last Updated: Sep 14, 2011
Rental Income: Rental income, of nonresident foreigners is considered ordinary taxable income and is taxed at 15%.
Capital Gains: Capital gains are taxed at a flat withholding rate of 25%. Capital gains realized from properties held for more than three years are not subject to capital gains tax.
Inheritance: Inheritance tax is levied at a flat rate of 5% in Croatia.
Residents: Personal income tax for residents is at progressive rates, from 15% to 45%.
Capital Gains: Capital gains are taxed at a flat withholding rate of 25%. Capital gains realized from properties held for more than three years are not subject to capital gains tax.
Inheritance: Inheritance tax is levied at a flat rate of 5% in Croatia.
Residents: Personal income tax for residents is at progressive rates, from 15% to 45%.
BUYING GUIDE
Last Updated: Mar 06, 2007
Total roundtrip transaction costs are high, ranging from 13.6% to 21.5% for old properties. The bulk of the cost is accounted for real estate agent’s fees, at 6% to 12%, split between buyer and seller. The real estate transfer tax is 5% but does not apply to the first sale of new buildings. Instead, the sale is subject to 22% VAT on the net construction value.
LANDLORD AND TENANT
Last Updated: Jul 14, 2006
Croatian law is neutral between landlord and tenant.Rent: There is neither rent control nor a maximum deposit. One or two month’s deposit is customary.
Tenant Eviction: Evicting over-staying tenants can be difficult. Zagreb’s courts are clogged, and cases take time. Informal methods of using ‘agencies,’ i.e., thugs, are common and tend to be recommended by realtors.
ECONOMIC GROWTH
Last Updated: Feb 16, 2012
EU accession in 2013?
Zoran Milanovic, Croatia’s new Prime Minister, defeated Jadranka Kosor of the centre-right coalition Croatian Democratic Union (HDZ) during the 7th parliamentary elections held on December 4, 2011. The new government has promised to cut the budget deficit and trim the country’s welfare system and public sector, and plans to increase the value-added tax from 23% to 25%.Yet not all the government’s moves are negative. Pension taxes will be reduced for existing workers and suspended for new workers for two years, to encourage job creation and reduce the country’s unemployment rate, currently at 17%.
Croatia (pop, 4.4 million) had a GDP per capita of USD14,529 in 2011. Once a part of the now defunct Yugoslav Republic, it was ravaged by war from 1990-1995. It was then somewhat isolated due to the corrupt and authoritarian regime of Franjo Tudjman, ruler of Croatia from its separation from Yugoslavia in 1989 until his death in 1999.
The entry of a new regime in 2000 ushered in political and economic reforms and lifted Croatia out of international isolation. After becoming a member of NATO in April 2009, EU accession was expected as early as 2010, but was delayed by problems, including a border dispute with Slovenia, and a dispute over land purchases by Italians. Other unresolved issues include corruption and reform of the judiciary.
Croatia is now due to join the European Union in July 1, 2013, provided that all 27 member states ratify accession. EU membership is expected to bring foreign investment and stronger economic growth. Croatia’ GDP per capita is currently at 61% of the EU average.
Croatia’s economy expanded by an average of 4.6% from 2000-2007, but growth slowed to 2.4% in 2008 due to the global financial crisis. In 2009 Croatia fell into recession and its economy contracted by 6%. Then in 2010, the economy shrank by 1.5%. There was 0.4% growth in 2011, according to the country’s central bank.
Real GDP growth is projected by the government to be 0.8% in 2012. However, local economists and other private organizations are skeptical, expecting the economy to slip into recession in 2012, shrinking by 1.3%, due to the euro-area’s sovereign debt crisis and domestic spending cuts, according to the Croatian Banking Association. This is in line with the World Bank’s forecast of 1% economic contraction this year.
In 2011, the country’s budget deficit was about 6.2% of GDP, the highest level in the past 8 years. To slash the budget deficit to 4.2% of GDP in 2012, the new government proposes to cut spending by HRK4.6 billion (€604 million) this year.
In 2011, the country’s inflation reached 2.3%, according to the Croatian Bureau of Statistics. The inflation rate is expected to be 2.4% in 2012 and 2.5% in 2013.
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