- In 2009, the national property price index dropped 4.8% y-o-y (-6.5% in real terms)
- In 2010, the index dropped 4.8% (-6.5% in real terms)
- In 2011, the national property price index dropped 1.3% (-3.3% in real terms)
- In 2012, the national property price index dropped 3.1%
- In 2013, the national property price index fell by about 4.9%.
In Croatia’s capital, Zagreb, the average asking price of flats fell by 3.7% during the year to end-Q1 2014, to €1,565 per square metres (sq. m.). When adjusted for inflation, the asking price declined by 3.3%.
Smaller house price falls were experienced on the Adriatic Coast, where the average asking price of flats declined by just 0.5% during the year to Q1 2014, to €1,600 per sq. m.
The latest quarter saw the lowest annual decline since October 2011, according to CentarNekretnina. So maybe Croatia is coming to the end of its long period of house-price declines? Maybe Croatia’s accession to European Union on July 1, 2013 will be the beginning of a new era?
Most districts suffered from house price declines, except for Novi Zagreb-Zapad (2.3%) and Trešnjevka jug (1.1%). Novi Zagreb-Istok had the sharpest price drop, declining by 9.7% to €1,260, during the year to March 2014, followed by Trnje (-7.1%), Podsused-Vrapče (-6.9%), Donja Dubrava (-6.4%) and Pešćenica-Žitnjak (-6%).
The upper town of Medveščak has the most expensive apartments, with an average asking price of €2,139 per sq. m. in March 2014. Apartments are also expensive in the Center, with an average price of € 2,003 per sq. m.
Residential construction remains depressed. In 2013, the total number of residential building permits issued fell 23.4% to 3,632 units, according to the Croatian Bureau of Statistics. The total floor area and volume of residential building permits also fell by 17.8%, and 19.7%, respectively.
In 2013, total housing loans in Croatia fell by 1.9% to HRK61.45 billion (€8.1 billion), according to the Croatian National Bank (CNB). In February 2014, total housing loans in the country amounted to HRK61.43 billion (€8.1 billion). Of the total, 57.8% were kuna-denominated indexed to the euro, 34.9% were kuna-denominated indexed to Swiss Franc, and 7.2% were kuna-denominated not indexed to any foreign currency.
With its accession to the European Union, the Croatian economy is expected to be more open. However, the benefits of the accession to the housing market will not be significantly felt immediately, especially since the country is still suffering from stagnation.
The property market has been adversely affected by the Euro zone sovereign debt crisis. In 2013, the economy contracted by 1%, after GDP declines of 1.9% 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 contract by 0.62% this year before returning to meagre growth in 2015.
Analysis of Croatia Residential Property Market »
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.
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, rather entered at a time when EU is struggling. The IMF expects the Croatian economy to remain in recession this year before returning to meagre growth in 2015. The Croatian government has revised its forecast down this year from 1.3%, first down to 0.2%, and now down to zero economic growth.
The Croatian government is expected to cut investments and subsidies and raise excise taxes on petrol and telecom operators to reduce its budget deficit by about HRK1.3 billion (€171 million) to meet the requirements set by the European Commission.
Moreover, in another attempt to slow Croatia’s budget deficit and public debt, the government moved to privatize its last state-owned bank last year.
The country’s budget deficit is expected at 4.5% of GDP this year, down from an estimated deficit of 5.5% of GDP in 2013, but up from 3.8% of GDP in 2012. The country’s public debt is expected to rise to 62% of GDP this year, up from 55% of GDP in 2013.
Fitch Ratings downgraded Croatia’s credit rating to junk last September 2013. Before Fitch, Standard & Poor’s already downgraded Croatia’s rating to junk status in December 2012, followed by Moody’s Investors Service in February 2013.
In March 2014, Croatia saw its consumer prices drop by another 0.1% from the same period last year, after falling by 0.2% in the previous month, according to Eurostat. 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 fourth highest unemployment rate among EU countries, following Greece, Spain and Cyprus. In March 2014, Croatia’s unemployment rate was 17.3%, up from 16.6% in the same period last year, according to Eurostat.