House prices in Croatia are now rising
June 29, 2018
Though prices have risen most in popular coastal areas - Istria's largest city, Pula had the highest annual apartment price growth among Croatia's large cities during the year to February 2018, with prices rising by more than 12%, according to the property portal Njuškalo - house price increases are not confined to the coast.
In Zagreb new dwellings have had an extraordinary spurt, with prices rising by 15.8% y-o-y (14.4% inflation-adjusted) in 2017 to HRK 12,098 (€1,630) per sq. m. In contrast, the average price of new dwellings elsewhere only rose by 1% (-0.2% inflation-adjusted) to HRK 9,679 (€1,304). Nationwide, existing dwellings rose most, by 8.3% y-o-y (7% inflation-adjusted).
- On the Adriatic coast, the house price index rose by 7.2% (5.9% inflation-adjusted) y-o-y to the last quarter of 2017.
- House prices in Zagreb City surged by 9.8% y-o-y (8.5% inflation-adjusted).
- Elsewhere the house price index went up by 4.1% (2.8% inflation-adjusted).
During 2017, the average price of new dwellings sold in Croatia was HRK 10,734 (€1,446) per square metre (sq. m.), up by 7% (5.7% inflation-adjusted).
Croatia's most expensive properties are in Dubrovnik, with average apartment prices of €3,374 per sq. m., and houses at €4,600 per sq. m. Property is expensive in Split (apartments: €2,563 per sq. m., houses: €2,799 per sq. m.), Rovinj (apartments: €2,488 per sq. m., houses: €2,078 per sq. m.), and Zadar (apartments: €1,898 per sq. m., houses: €1,482 per sq. m.).
Recent property price movements in Croatia (changes in the index):
- 2009: down 5% y-o-y (-7.21% inflation-adjusted)
- 2010: down 6.33% (-7.28% inflation-adjusted)
- 2011: up 0.17% (-2.05% inflation-adjusted)
- 2012: down 1.56% (-4.81% inflation-adjusted)
- 2013: down 3.95% (-6.03% inflation-adjusted)
- 2014: down 1.58% (-1.37% inflation-adjusted)
- 2015: down 2.89% (-2.44% inflation-adjusted)
- 2016: up 0.89% (2.04% inflation-adjusted).
- 2017: up 3.83% (2.65% inflation-adjusted).
About 45% of the new dwellings sold in 2017 were located in Zagreb, while the remaining 55% were sold elsewhere.
This year, Colliers International predicts that "prices will continue the upward trend", boosted by the elevated demand and high growth of tourist arrivals and overnights.
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 10% to 15% 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 5% but does not apply to the first sale of new buildings. Instead, the sale 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.
Croatia's economic outlook still positive in 2018The Croatian economy expanded by 2.8% in 2017, down from 3.2% in 2016, according to the Croatian Bureau of Statistics (CBS). While the economy had a strong start during the first three quarters of 2017, its growth softened during the second half of the year.
From 2009 to 2014, Croatia's economy lost more than 12% of GDP, Europe’s second-biggest contraction after Greece. Croatia's economy began to turn around in 2015 and gained momentum in 2016, expanding by 2.3% and 3.2%, respectively, according to the CNB.
Croatia is expected to expand by 2.8% in 2018, according to the European Commission (EC). The economy's main engine of growth is private consumption, supported by rising wages and employment. Investment, whose growth was limited in 2017 due to the debt restructuring of a major food-processing and retail company Agrokor, is expected to recover in 2018.
Croatia’s most serious problem is high unemployment, the fourth highest in the European Union (EU), following Greece, Spain and Italy. Croatia is also hailed as one of the EU countries with the highest decline in unemployment, based on the Eurostat's data in March 2018. Unemployment rate in the country stood at 11.5% in March 2018, down from the previous year's rate of 14.4%.
In March 2018, Croatia's annual inflation stood at 1.1%. Prior to last year, the country was under deflation for three years, posting rates of -0.2% in 2014, -0.5% in 2015, and -1.1% in 2016, according to the CNB.
A stable government, credit rating upgrades, and EDP exit
In April 2017, the governing coalition of Croatian Democratic Union (HDZ) and Bridge of Independent Lists (MOST) collapsed. MOST left the coalition after Finance Minister Zdravko Marić allegedly withheld of information related to Agrokor's financial woes.
However HDZ regained its parliamentary majority after partnering with five turncoat Croatian People's Party (HNS) MPs, who formed a new political party called Civic Liberal Alliance (Glas).
During the first quarter of this year, Croatia's credit rating was raised by two ratings agencies ― Fitch ratings agency and Standard & Poor's (S&P). Both upgraded Croatia's credit rating to 'BB+' with a stable outlook from its earlier 'BB' rating. Fitch cited economic growth, improved public finance, and a strong tourist season.
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. However, the country, along with Portugal, was able to exit the EDP in June 2017, upon the recommendation of the European Commission (EC) a month before.
Croatia's public debt stood at 78% of GDP in 2017, down from 80.6% of GDP in 2016 and 83.8% of GDP in 2015, according to the European Commission. Aside from a steadily declining public debt-to-GDP ratio, the country saw a budget surplus at 0.8% of GDP in 2017, Croatia's first budget surplus since independence.