Croatia's housing market is still experiencing strong house price growth, despite weakening demand due to the continued rise in mortgage interest rates.

Table of Contents

• Housing Market Snapshot
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

In Q2 2024, the nationwide house price index soared by 9.96% from a year earlier, following year-on-year increases of 9.13% in Q1 2024, 9.48% in Q4 2023, 10.87% in Q3 2023, and 13.73% in Q2 2023, based on figures from the Croatian Bureau of Statistics (CBS). House prices have been continuously growing strongly in the past seven years.

Croatia's house price annual change

When adjusted for inflation, nationwide house prices increased by 7.33% over the same period - the strongest growth since Q2 2020.

Quarter-on-quarter, house prices were up by 4.29% (3.48% inflation-adjusted) in Q2 2024.

By property type:

• For new dwellings, prices were up by 5.44% (2.91% inflation-adjusted) in Q2 2024 from the same period last year and by 4.54% (3.73% inflation-adjusted) from the previous quarter.
• For existing dwellings, prices surged by 10.59% (7.93% inflation-adjusted) y-o-y in Q2 2024. Quarterly, prices were up by 4.24% (3.43% inflation-adjusted).

All major regions saw strong house price growth during the year to Q2 2024.

• In Zagreb, Croatia's capital and largest city, dwelling prices rose by an average of 9.41% (6.78% inflation-adjusted) in Q2 2024 from a year earlier, according to CBS. It was the 33rd consecutive quarter of y-o-y growth. Quarter-on-quarter, prices increased by 3.85% (3.05% inflation-adjusted).
• On the Adriatic Coast, prices of dwellings increased by 10.61% (7.95% inflation-adjusted) in Q2 2024 from a year earlier, following y-o-y rises of 8.9% in Q1 2024, 11.3% in Q4 2023, 8.2% in Q3 2023, and 12.8% in Q2 2023. Quarter-on-quarter, prices were up 4.14% (3.33% inflation-adjusted) during the latest quarter.
• In other settlements, dwelling prices rose by 9.16% (6.54% inflation-adjusted) in Q2 2024 from a year ago, and by 5.92% (5.1% inflation-adjusted) from the previous quarter.

In the first half of 2024, the average price of new dwellings in Croatia rose by 7.12% to €2,377 per square meter (sq. m) from a year earlier. In Zagreb, house prices averaged €2,830 per sq. m while it was €2,059 per sq. m in other settlements.

Before the housing boom, 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 CBS figures. The housing market started to show improvements since, with house prices rising by a cumulative 96.1% (50.8% inflation-adjusted) from 2016 to H1 2024.

Yet demand is actually weakening. In the first half of 2024, the total number of new dwellings sold in Croatia stood at 1,838 units, down by 8.9% from the previous period and far lower by 21.9% from the same period last year, based on figures from CBS. Prior to this, new dwelling sales reached 4,370 units in the whole year of 2023, up by 11.8% from the previous year and the second-highest level recorded in recent years.

During 2023, Croatia's economic growth moderated to 3.1%, following strong expansions of 7% in 2022 and 13% in 2021. Yet it remains among the highest growth areas in the eurozone.

The European Commission expects the Croatian economy to expand by 3.3% this year while the International Monetary Fund (IMF) is a bit more optimistic, projecting a real GDP growth rate of 3.4% this year.

"Croatia's GDP is forecast to grow by 3.3% in 2024 and 2.9% in 2025, largely driven by strong household consumption," said the European Commission. "The labor market is expected to remain tight, with employment continuing to grow and the unemployment rate reaching new lows. Inflation is projected to continue its gradual decline over the forecast horizon."

Croatia joined the Euro area on January 1, 2023.

The country's GDP per capita rose strongly by 12.2% y-o-y to €19,897 in 2023 and is expected to increase further to about €21,500 this year, based on IMF figures.

Demand Highlights:

Croatia's high-end residential market is thriving

Croatia's high-end residential market, which is primarily buoyed by foreign buyers, is growing again, amidst the recovery in the tourism sector. During 2023, tourist arrivals in the country increased by 9.7% y-o-y to 19.49 million visitors, following strong growth of 39.1% in 2022 and 82.5% in 2021, based on figures released by CBS.

Last year's figures are now at par with the record-high 19.57 million arrivals registered in the pre-pandemic year of 2019.

The tourism sector continues to grow this year, albeit at a slower pace. In the first eight months of 2024, tourist arrivals totaled 15.99 million people, up by 4.4% from the same period last year. Over the same period:

• Domestic: total arrivals reached 2.04 million people, up by 8.8% from a year earlier
• Foreign: arrivals totaled 13.95 million people, up by 3.8% compared to the same period last year

The main reason for its resilience is limited supply.

"There are only a few large-scale resorts with residential components on the entire Croatian coast," said Colliers International. "Most renowned mixed-use resorts on the coast are Sun Gardens in Orašac near Dubrovnik, Punta Skala in Petrčane near Zadar, and Skiper resort in Savudrija near Umag."

More than 70,000 foreigners own property on the Adriatic Coast. Only 3% of foreign buyers chose Zagreb City. The most popular locations for foreigners are Dubrovnik, Split, Opatija, Istria, the Island of Hvar, and the Island of Brač.

"The demand is strongest for the seafront properties. The most popular destinations are those in developed destinations with good infrastructure and relative vicinity to the airport," Colliers noted.

Most foreign homebuyers are Germans, Austrians, Britons, Slovenians, Slovaks, Czechs, Dutch, Hungarians, and Russians.

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.

Luxury properties in Istria are popular among Germans, Austrians, and Slovenians. In Dalmatia, most luxury demand comes from the Croatian diaspora: Sweden, Slovakia, and the Czech Republic. Luxury homebuyers in Opatija are mostly Russians.

Last August 2020, the Maslina Resort in Stari Grad was finally opened - only the second 5-star hotel on the island of Hvar in Maslinica Bay. The property offers private villas, a resort, and luxury hotel suites.

Petram Resort and Residences in Savudrija, Istria is one of the largest tourism projects in recent years. It offers 179 holiday apartment units, 55 luxury villas, and three apartment buildings with 18 flats, all of which will have a 4 or 5-star standard. The construction began in October 2020 and was officially opened in June 2023.

LIOQA Resort, located on the west coast of Ugljan, was recently finished this year. This modern, fully serviced resort is comprised of 21 deluxe villas, a private beach, and a marina.

There are also small-scale tourist resorts, usually waterfront developments with up to 10 units or less in Dalmatia (the islands of Brač and Hvar, Makarska Riviera, and Rogoznica) and in the Kvarner region's Krk Island.

The five-star Hyatt Regency Zadar Maraska Hotel is currently under construction in Zadar. The luxurious hotel will include 133 rooms, a bar, a spa, a conference hall, and restaurants. Behind the hotel, a 200-unit residential complex is also being planned. The €120 million development is planned to be completed this year.

The five-star Riva's Hotel, to be operated under the Marriott brand, is also currently being built in Ičići near Opatija. The project, which has an estimated cost of €70 million, will offer 180 rooms and 12 villas when completed this year.

More tourist resorts have been launched in recent months. In Suha Punta on the island of Rab, a new Valamar Collection resort is now being built. The first phase, with a total cost of €54 million, includes the renovation of 190 accommodation units of the former Hotel Eva and the tourist settlement Suha Punta, along with 24 new family rooms and various facilities. The hotel is scheduled to open in 2025.

The Kupari Dubrovnik Resort will also be built in a ruined military base outside Dubrovnik. This upscale tourist complex, which stretches over 170,000 sq. m, will offer guests their own private beach and pool complex with waterside cabanas and sports zones.

Overall demand is weakening

During 2023, the total number of new dwellings sold in Croatia rose by 11.8% to 4,370 units from a year earlier, in contrast to the 16.4% decline seen in 2022, based on figures from CBS. Similarly, the total area of new dwelling sales also increased by 7% y-o-y to 293,612 sq. m last year.

However, property demand seems slowing this year. In the first half of 2024, the number of new dwelling sales in the country plummeted by 21.9% y-o-y to 1,838 units and the total area dropped 23.5% to 121,015 sq. m.

In Zagreb, demand is also falling sharply. The number of new dwellings sold plunged by 20.7% y-o-y to 792 units in H1 2024 while the total sales area declined 26.4% to 49,916 sq. m.

In other settlements, property demand is also slowing rapidly despite strong tourism with its stunning coastline, clear waters, and historic towns attracting over 20 million visitors annually. In H1 2024, the number of new dwelling sales declined by 22.7% to 1,046 units while the area sold dropped 21.3% to 71,099 sq. m.

"Demand is primarily driven by buyers seeking permanent residences, followed by second-home and investment buyers," said Colliers International in its 2023 Overview and 2024 Outlook report for Croatia's real estate market. "After the housing loan scheme APN ended in 2023, discussions about new government measures in the housing market have begun."

Supply Highlights:

Residential construction activity remains stable

During 2023, the total number of dwelling completions rose by a modest 4.3% to 16,552 units from a year earlier, following annual growth of 26.9% in 2022, 4.7% in 2021, and 2% in 2020, according to the CBS. It was the seventh consecutive year of expansion and the highest number of completions seen since 2009.

Likewise, the total floor area of dwelling completions also increased by 2.5% y-o-y to 1,499,000 sq. m last year - also the highest recorded in fourteen years.

By no. of rooms:

• One-room dwellings: the number of dwellings completed for permanent residence fell by 2.2% y-o-y to 1,756 units in 2023 while the total floor area declined by 5% to 76,000 sq. m.
• Two-room dwellings: the number of dwelling completions rose by 2.1% to 5,206 units in 2023 from a year earlier while floor area fell slightly by 0.6% to 314,000 sq. m.
• Three-room dwellings: dwellings completed were up by 11% to 4,587 units while the total floor area rose by 9.8% to 380,000 sq. m.
• Four-room dwellings: the number and floor area of dwellings completed increased by 5.1% to 3,205 units in 2023 and by 2.4% to 383,000 sq. m, respectively.
• Five or more-rooms dwellings: the number of dwellings completed increased by a meager 0.2% y-o-y to 1,742 units in 2023 while the total floor area was steady at 340,000 sq. m.

The number of dwellings for which permits were issued actually fell slightly by 1% to 18,803 units during 2024, following annual increases of 14% in 2022 and 18.3% in 2021, according to CBS. But in the first eight months of 2024, dwelling permits rose by a modest 3.2% to 7,799 units as compared to the same period last year.

Despite this, construction activity remains below the previous peak seen before the Global Financial Crisis of 2008-9.

"Development activity has never recovered from the last recession. From 2004 to 2008, on average 22,000 apartments were built p.a.," said Colliers International.

Recent residential developments and projects in the pipeline

Some of the recent major upscale residential projects in Croatia include:

• VMD Park Kneževa - a high-end 125-unit apartment complex in Zagreb, with an estimated selling price of around €5,000 per sq. m. The project was completed in 2022.
• VMD Kvart Heinzelova-Darwinova - residential complex offering more than 400 apartments, with prices ranging from €2,600 to €3,000 per sq. m.
• Project Bužanova - Štrigina - an upscale development by Alfastan comprising 69 apartments. Selling prices range from €3,200 to €3,700 per sq. m.
• Vrtovi svjetla - a residential complex on former TEŽ site, in Sigečica, Zagreb. The first phase consists of 163 apartments and was completed in 2022. Prices start at €2,600 per sq. m. The entire project, which will offer a total of 463 units, is expected to be completed by end-2024.
• Lukoran Resort - an upscale tourism resort located in Ugljan Island on 7.7 hectares of seaside land. The said resort, which is set to be completed this year, will comprise 126 residential units, including villas, townhouses, apartments, a beach club, and a marina.
• Prim Bay Resort - an upscale resort to be developed in a secluded bay of Marina Lučica, with an unobstructed view of the Old Town of Primošten, near Split. The development will consist of a hotel with 250 rooms, 141 branded residences, beach bars, and restaurants, an ethno village, pool, and wellness facilities, and sports and entertainment areas.

Rental Market:

Moderate rental yields, but very limited rental market

Croatia has moderate gross rental yields, averaging 4.91% in Q4 2024, slightly up from 4.78% in Q2 2023, based on recent research conducted by the Global Property Guide.

By major city:

• In Zagreb, Croatia's capital, gross rental yields for apartments ranged from 4.09% to 6.55% in Q4 2024, with a city average of 5.57%.
• In Rijeka, apartment rental yields ranged from 4.13% to 5.56%, with a city average of 4.66%.
• In Split, apartment rental yields are relatively lower, ranging from 3.32% to 4.11% in Q4 2024, with a city average of 3.87%.
• In Osijek, gross rental yields for apartments ranged from 5.42% to 5.71%, with a city average of 5.53%.

Most Croatians are owner-occupiers. About 91.2% of Croatian households are currently living in an owner-occupied home or apartment, far higher than the eurozone average of less than 70%, according to Eurostat figures.

The country's long-term rental market is very small. Most long-term rental properties are in Zagreb, Dubrovnik, and Split. In Zagreb, the demand for rental properties partly comes from students studying at the University of Zagreb, as in Split, where the greatest demand is in the city center and around the university campus.

The Adriatic coast is the core of short-term demand, concentrating on short-term holiday rentals for foreigners and tourists.

Mortgage Market:

Mortgage interest rates increasing

In September 2024, the average interest rate for new housing loans in Croatia was 3.72%, up from 3.54% in the previous year and 3.1% two years ago, according to the Croatian National Bank (CNB), the country's central bank. In fact, new housing loan interest rates averaged just 2.89% in January 2023 when the euro was newly adopted as its official currency.

Croatia's mortgage loan interest rates:

Over the same period:

• Floating rate and IRF of up to 1 year: 3.23%, up from 2.96% in September 2023 but slightly down from 3.28% two years earlier
• IRF over 1 and up to 5 years: 2.85%, slightly higher than the 2.84% in the same period last year and 2.76% two years ago
• IRF over 5 years and up to 10 years: 3.53%, up from 3.14% in September 2023 and 2.95% in September 2022
• IRF over 10 years: 3.8%, up from 3.67% in the previous year and 3.42% two years earlier

Only about 3.8% of all new housing loans in the first nine months of 2024 are floating rate (or with interest rate fixation (IRF) of up to 1 year), 4% have an IRF between 1 and 5 years, and 5% have an IRF between 5 and 10 years. The remaining 87.2% of all new housing loans have an IRF of more than 10 years.

New housing loans falling rapidly, but outstanding loans continue to increase

Croatia's residential mortgage loans are now falling, amidst increasing interest rates. In the first nine months of 2024, the value of new housing loans drawn amounted to €1.79 billion, down by 16% from the same period last year, according to CNB figures. Over the same period:

• Floating rate and IRF of up to 1 year: €67.7 million, down by a huge 67% as compared to the same period last year
• IRF over 1 and up to 5 years: €71.8 million, down by a whopping 80.7% from a year earlier
• IRF over 5 years and up to 10 years: €89.9 million, down by 75% from a year earlier
• IRF over 10 years: €1.56 billion, up by 30.2% from the previous year

Despite this, the total outstanding housing loans continue to increase by 8.5% to reach €11.6 billion in September 2024, following y-o-y growth of 9.8% in 2023, 10.3% in 2022, 9% in 2021, and 8.2% in 2020. Outstanding housing loans have been continuously growing since 2017. But prior to this, the mortgage market contracted by an annual average of 3.5% from 2012 to 2016, before stabilizing in 2017.

The mortgage market has developed significantly in recent years, as the old large state-owned banks have been privatized, commercial banks have been restructured, and Austrian, Italian, and German banks have entered the market. There was a significant increase in building societies' share of loans, from 1% in 2003 to 5% recently.

Yet the size of the residential mortgage market of Croatia remains small, equivalent to about 14.2% of GDP in 2023.

Since Croatia joined the eurozone early this year, nearly all housing loans in the country have been converted to euros.

Socio-Economic Context:

Economy remains fundamentally strong, inflation easing

Croatia's economic growth moderated to 3.1% during 2023 yet it remains among the highest growth in the euro area.

"The economy has performed strongly despite consecutive external shocks. The impressive post-pandemic growth during 2021-22 moderated to 3.1 percent in 2023, still among the highest in the euro area," said the IMF.

The Croatian economy bounced back strongly in 2021, registering a real GDP growth rate of 13%, fully offsetting the 8.5% contraction seen in 2020 due to the Covid-19 pandemic. Then in 2022, Croatia recorded another impressive growth of 7%, as economic activity totally returned to pre-pandemic levels.

The European Commission expects the Croatian economy to expand by another 3.3% this year while the International Monetary Fund (IMF) is a bit more optimistic, projecting a real GDP growth rate of 3.4% for the country this year.

"In 2024, Croatia's GDP is expected to grow by 3.3%, also benefiting from the strong dynamism at the end of 2023," said the European Commission. "The main growth impulse should come from private consumption, boosted by continued real wage and employment growth, and stronger credit activity. Government consumption is projected to rise, mainly due to a comprehensive public sector wage reform that substantially aligned, but also increased, wage outlays."

During the global financial crisis, Croatia's economy lost more than 12% of its GDP from 2009 to 2014, 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 2.6% and 3.6%, respectively. The country exited the EDP in June 2017. The economy grew by an annual average of 3.3% from 2017 to 2019, before contracting by a huge 8.5% in 2020 due to the Covid-19 pandemic.

The country registered a budget deficit equivalent to about 0.7% of GDP in 2023, after recording a balanced budget in 2022, and shortfalls of 3% of GDP in 2021 and 7% in 2020. Croatia's budget is clearly within the Maastricht threshold of a 3% deficit.

Croatia's budget deficit is projected to widen to about 2.6% of GDP this year, as the new public wage law and social assistance measures put further pressure on government spending.

Despite this, the public debt is projected to fall to around 59.5% of GDP this year, down from 63% of GDP in 2023, 68.2% in 2022, 78.1% in 2021, and 86.8% in 2020. In fact, public debt is already far lower than the 70.9% of GDP recorded before the pandemic in 2019.

"Thanks to the accelerated economic growth, the ratio of public debt to gross domestic product will be 58.9% and this way, for the first time Croatia will meet the Maastricht criteria in terms of both deficit and public debt," said finance minister Marko Primorac.

In September 2024, Fitch Ratings upgraded Croatia's long-term foreign-currency issuer default rating to 'A-' from 'BBB+' with a stable outlook, following an upgrade in July 2022 after the Council of the European Union officially confirmed Croatia's accession to the euro area on January 1, 2023.

"Croatia's ratings reflect its credible policy framework supported by its EU and eurozone membership. A record of fiscal discipline and commitment to EU fiscal rules will underpin debt reduction in the next four years," said Fitch Ratings.

Last year, S&P and Moody's both affirmed the country's credit ratings at 'BBB+' and 'Baa2' respectively. But both changed the outlook for the country from stable to positive.

Inflationary pressures continue to ease. In September 2024, the overall inflation declined to 1.6%, from 1.8% in the previous month and 6.7% in the same month last year. In fact, it was the lowest level since April 2021. Nationwide inflation averaged just 1.2% in 2010-2021 before accelerating to 10.7% in 2022 and 8.4% in 2023.

The European Commission expects inflation to settle at an average of 3.5% this year and to fall further to 2.2% in 2025.

The labor market continues to tighten. The registered nationwide unemployment rate declined to a record low of 4.6% in September 2024, down from 4.8% in the previous month and 5.8% a year earlier, according to CBS.

The country's jobless rate averaged 17.4% from 2000-2017 before gradually falling to single-digit figures in the past six years.

"The tight labor market pushed up wages, which grew considerably also in real terms. Significant inflows of workers from non-EU countries contributed to easing labour supply shortages. Employment growth is projected to stay strong, although decelerating over the forecast horizon, with the unemployment rate reaching new lows and continued pressure on real wages," said the European Commission.

Sources:

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2. Prices of New Dwellings Sold, First Half-Year of 2023 (Croatian Bureau of Statistics): https://podaci.dzs.hr/
3. Prices of New Dwellings Sold, Second Half-Year of 2023 (Croatian Bureau of Statistics): https://podaci.dzs.hr/
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5. Unveiling the Croatian Market Snapshot for H1 2024: Essential Data and Analysis (Colliers International): https://www.colliers.com/
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14. Republic of Croatia (International Monetary Fund): https://www.imf.org/
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16. LIOQA Resort Finally Arrived (Lioqa Resort): https://resort.lioqa.com/
17. New family resort for the island of Rab (Croatia Week): https://www.croatiaweek.com/
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20. Croatia Home Ownership Rate (Trading Economics): https://tradingeconomics.com/
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