Croatia's housing market battered by the COVID-19 pandemic
Lalaine C. Delmendo | April 11, 2021
In 2020, the average price of new dwellings in Croatia rose by 3.1% to HRK12,724 (€1,678) per square meter (sq. m.) from a year earlier, following y-o-y rises of 7.6% in 2019, 6.8% in 2018 and 7% in 2017, according to the Croatian Bureau of Statistics (CBS). When adjusted for inflation, prices increased 2.8%.
- In Zagreb, Croatia's capital and largest city, new dwelling prices rose by 9.2% (8.9% inflation-adjusted) to an average of HRK 14,013 (€ 1,848) per sq. m., according to the CBS.
- In Split, the country's second largest city and one of Adriatic's most vibrant port cities, asking prices rose by 3.6% to HRK22,640 (€2,985) per sq. m., according to Njuskalo.hr and eNekretnine.
- In Rijeka, Croatia's third largest city and a principal seaport located on Kvarner Bay in the northern Adriatic Sea, asking prices increased 9.1% to HRK13,099 (€1,727) per sq. m.
- In Osijeck, a Drava River cruise port and Croatia's fourth largest city, asking prices rose by 6.6% to HRK8,017 (€1,057) per sq. m.
- In other areas of the country, new dwelling prices fell by 4.6% (-4.8% inflation-adjusted) to an average of HRK 11,198 (€ 1,476) per sq. m.
Before the recent surge there was a long period of declining house prices - 2.13% in 2015, 1.44% in 2014, 1.68% in 2013 and 5.88% in 2012, according to the CBS.
Croatia's property market is expected to strengthen again in the second half of 2021, as the economy returns to growth.
The Croatian economy slumped by a record 8.4% in 2020 from a year earlier, in contrast to an annual expansion of 2.9% in 2019. This was worse than the 7.3% fall seen during the global crisis, according to the CBS. The European Commission expects Croatia to have real GDP growth of 5.3%.
On January 1, 2017, Croatia lowered real estate transfer tax from 5% to 4%. On VAT-charged property transactions, the VAT rate remains 25%.
The right of non-EU foreign nationals to buy a property in Croatia depends on reciprocity agreements between Croatia and the foreign buyer's home country.
Croatia: reasonable prices, reasonable yields
How much can you earn? Gross rental yields in Croatia’s capital, Zagreb, are moderate to good, at around 5.4% to 6.0%.
In Split, rental returns are less good, with gross rental yields of 3.6% on larger apartments, 4.7% on smaller apartments
Round trip transaction costs are quite high in Croatia. See our property transaction costs analysis for Croatia and property transaction costs in Croatia, compared to the rest of Europe.
Effective tax rates are moderate in Croatia
Rental Income: Rental income, of nonresident foreigners is considered ordinary taxable income and is taxed at 12%.
Capital Gains: Capital gains are taxed at a flat withholding rate of 24%. Capital gains realized from properties held for more than three years are not subject to capital gains tax.
Inheritance: Theinheritance of the spouse and descendants are exempt from inheritance tax.
Residents: Personal income tax for residents is levied at progressive rates, from 24% to 36%.
Total transaction costs are high in Croatia
Total roundtrip transaction costs are high, ranging from 8.01% to 13.05% for old properties. The bulk of the cost is accounted for real estate agent's fees, at 3% to 6%, split between buyer and seller. The real estate transfer tax is 3% but does not apply to the first sale of new buildings. Instead, the sale of new buildings is subject to 25% VAT on the net construction value.
Croatian laws are neutral between landlord and tenant
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.
Economy contracts by a record 8.4% in 2020The Croatian economy slumped by a record 8.4% in 2020, according to the CBS, but the European Commission expects the economy to partly recover this year, projected GDP growth of 5.3%.
“It is expected that in the course of 2021 the pandemic will be relatively successfully controlled and, if an effective vaccine is deployed, a gradual recovery of economic activity might begin in the second quarter,” said the CNB in its December 2020 Macroeconomic Developments and Outlook.
From 2009 to 2014, Croatia’s economy lost more than 12% of GDP, Europe’s second-biggest contraction after Greece. Since the beginning of 2014, Croatia has been in the European Commission’s Excessive Deficit Procedure (EDP) due to its high budget deficits and public debt.
Croatia’s economy began to turn around in 2015 and gained momentum in 2016, expanding by 2.4% and 3.5%, respectively. The country exited the EDP in June 2017. The economy grew by an annual average of 2.9% from 2017 to 2019.
The country’s budget deficit climbed to about 8% of GDP in 2020.The budget shortfall is projected to narrow to 3.5% of GDP this year and to 2.2% of GDP in 2021, according to Fitch Ratings.Croatia’s public debt increased to 87.7% of GDP in 2020, up sharply from 73.2% of GDP in 2019.
High unemployment remains one of Croatia’s most serious problems. In January 2021, unemployment stood at 9.8%, up from 9.5% in December 2020 and from 8.4% a year earlier, according to the CBS. It was the highest jobless rate since April 2018, as many businesses remained temporarily closed amid the extension of lockdown and travel restrictions.
In January 2021, inflation stood at -0.3%, from 2% in the same period last year.
The presidential elections in December 2019 and the parliamentary elections in July 2020 placed Prime Minister Andrej Plenkovic at the head of a stable majority led by his right-wing Croatian Democratic Union (HDZ), with the presidency in the hands of his political rival ZoranMilanovic. This has resulted in an uneasy power sharing between the two leaders, and animosity is rapidly intensifying.