In 2014, the average price of new dwellings sold in Croatia was HRK10,524 (€1,378) per square meter (sq. m.), up slightly by 0.9% (1.4% inflation-adjusted) from a year earlier, according to the Croatian Bureau of Statistics (CBS).
The recovery was primarily led by Croatia’s capital, Zagreb, where the average price of new dwellings sold climbed by 7.7% (8.2% inflation-adjusted) y-o-y to HRK11,958 (€1,566) per sq. m. in 2014. The upper town of Medveščak has the most expensive apartments, with an average asking price of €2,029 per sq. m. in March 2015. Apartments are also expensive in the Center, with an average price of €1,921 per sq. m. On the other hand, Sesvetama Su has the least expensive houses, with an average asking price of €1,129 per sq. m.
In contrast, in other settlements, the average price of new dwellings sold continued to drop by 2.2% (-1.7% inflation-adjusted) y-o-y to HRK9,280 (€1,215) per sq. m. over the same period.
This trend was supported by the latest figures released by CentarNekretnina. During the year to end-Q1 2015, the average asking price of flats in Zagreb increased 1.1% to €1,582 per sq. m. On the other hand, the Adriatic Coast remains depressed, with the average asking price of flats falling by 1.4% y-o-y to €1,577 per sq. m. in Q1 2015.
Most districts still saw house price declines, with Pešćenica-Žitnjak registering the biggest price fall of 17.1% y-o-y in Q1 2015, followed by Črnomerec (-5.5%), Medveščak (-5.1%) and Trešnjevka jug (-5%).
Croatia’s property market experienced a long gloomy road in the past several years, as the global financial crisis, coupled with the eurozone sovereign debt crisis, badly affected the country’s tourism-oriented economy.
- In 2009, the national property price index dropped 4.32% y-o-y (-6.16% inflation-adjusted)
- In 2010, the national property price index plummeted by 8.91% (-10.55% inflation-adjusted)
- In 2011, the national property price index dropped 1.59% (-3.6% inflation-adjusted)
- In 2012, the national property price index fell by 4.37% (-8.64% inflation-adjusted)
- In 2013, the national property price index plunged by 14.36% (-14.6% inflation-adjusted).
In 2014, the economy contracted by another 0.8%, after real GDP declines of 0.9% in 2013, 2.2% in 2012, 0.24% in 2011, 2.3% in 2010, and 6.9% in 2009, according to the International Monetary Fund (IMF). The economy is expected to finally return to growth this year, with a real GDP growth forecast of 0.5%, according to the European Commission.
Analysis of Croatia Residential Property Market »
Gross rental yields in Croatia’s capital, Zagreb, are moderate, at around 6.0% to 6.3%. There is no particular connection between size of apartment and yields.
Apartments and houses in Central Dalmatia seem to have fallen in price, and are now around 2,000 Euros per square metre.
Apartments in Istria seem something of a bargain, at around 1,600 Euros per square metre.
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 levied at progressive rates, from 12% to 40%.
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.
Unlike other new European Union members which experienced an economic boost after their accession, Croatia, which joined the EU on July 1, 2013, entered when the EU was struggling. The Croatian economy is expected to grow by 0.5% this year and by another 1% in 2016, according to the European Commission.
In an effort to boost the economy and revive private spending, the government raised the tax-free portion of salaries in January 2015. "For the first time since 2008, household consumption could provide a mild positive contribution to GDP, mostly because of salary tax changes," said central bank Governor Boris Vujcic.
Moreover, the central bank is also planning to lower the mandatory reserve requirement rate to boost liquidity. Currently, the country’s mandatory reserve rate stood at 12%.
The country’s budget deficit stood at HRK12.8 billion (€1.68 billion) in 2014, according to Finance Minister Boris Lalovac, equivalent to about 3.8% of GDP in 2014, and down from a deficit of 4.6% of GDP in 2013. Since the beginning of 2014, Croatia has been in the European Commission’s Excessive Deficit Procedure (EDP), which envisages that the deficit should be reduced to 3.5% of GDP in 2015 and to 2.7% in 2016.
The country’s public debt was estimated at 81.4% of GDP in 2014. It is expected to reach 84.9% of GDP this year and 88.7% in 2016.
The nationwide inflation rate was -0.2% last year, according to the Croatian National Bank (CNB), the country’s central bank. The CNB expects inflation to average 0.2% this year. From 2009 to 2013, the country’s average annual inflation rate was 2.3%, according to the IMF.
Croatia’s most serious problem is its very high unemployment. Croatia had the third highest unemployment rate among EU countries, following Greece and Spain. In January 2015, Croatia’s unemployment rate stood at 20.3%, up from 19.3% in the previous month but down from 22.4% in the previous year, according to the CBS. In February 2015, there were about 329,890 job-seekers in the country, according to the Croatian Employment Service (HZZ).