Croatia on an uptrend, housing market strong
Lalaine C. Delmendo | April 17, 2019
In 2018, the nationwide price index for all dwellings rose by 4.69% (3.77% inflation-adjusted) from a year earlier, after y-o-y increases of 7.64% in 2017 and 0.79% in 2016. During the latest quarter dwelling prices increased 1.09% (1.48% inflation-adjusted).
The house price index in Zagreb, Croatia's capital and largest city, soared 8.47% (7.51% inflation-adjusted) in 2018, according to the CBS. The average price of new dwellings in Zagreb, which accounts for more than 45% of all sales transactions in the country, stood at HRK 12,749 (€1,712) per square metre (sq. m) in 2018.
On the Adriatic Coast, house prices rose by 4.44% (3.52% inflation-adjusted) y-o-y in 2018.
In other areas of the country, house prices fell slightly by 0.25% (-1.14% inflation-adjusted).
- New dwellings: the price index rose by 2.8% y-o-y (1.88% inflation-adjusted)
- Existing dwellings: the price index rose by 5.02% y-o-y (4.08% inflation-adjusted)
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 Croatian Bureau of Statistics (CBS).
Croatia's property market is expected to remain strong in the coming years, thanks to robust demand supported by healthy economic growth.
“We expect the prices will continue (slightly) increasing in the short to medium term in Zagreb and on the coast, providing the interest rates and economic cycle remain stable,” said Colliers International.
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.
The Croatian economy expanded by a modest 2.6% in 2018, according to the Croatian Bureau of Statistics (CBS), mainly driven by strong private consumption, supported by rising wages and employment. The economy is expected to grow by 2.7% this year and by another 2.6% in 2020, based on European Commission estimates.
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.
Modest economic growth; improving national financesThe Croatian economy expanded by a modest 2.6% in 2018, according to the Croatian Bureau of Statistics (CBS), mainly driven by strong private consumption, supported by rising wages and employment.
“Private consumption is expected to remain the main driver of growth, supported by improving labour market conditions, positive consumer sentiment, low interest rates and subdued inflation,” said the European Commission.
Croatia’s economy is expected to expand by 2.7% this year and by another 2.6% in 2020, according to the European Commission.
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 2.3% and 3.5%, respectively. The country exited the EDP in June 2017.
Croatia’s public debt stood at 74.5% of GDP in 2018, down from 84% in 2014. There was a budget surplus in 2018 for the second year in a row since independence, supported by higher tax revenues and expenditure savings.
Standard & Poor’s (S&P) raised Croatia’s credit rating to 'BBB-/A-3' from 'BB+/B' in March 2019, putting the country back into the investment category after six years.
Croatia’s most serious problem is high unemployment, the fifth highest in the European Union (EU), at 10.2% in February 2019, down from the previous year’s rate of 12.3%. Unemployment is expected to continue falling to 9% this year, according to the IMF.
In February 2019, Croatia’s inflation stood at 0.5%, from 0.2% in January 2019 and 0.8% in December 2018.