Glorious Croatia
 Property market in Croatia is fizzing as this beautiful country enjoys a return to its former glory as a prestigious European holiday destination.
By James Hughes*
Published in Square Foot Magazine on January 15 2007
This small country of just 4.4 million people was left ravaged and weak after four years of vicious fighting, and by decades of economic mismanagement and political corruption. 2000 was the turning point when a new generation of political leaders took office and set the country on a road towards economic liberalisation and integration into the European Union. Croatia should become an EU member state by no later than 2010.
Even before the war, Croatia was the second most prosperous and the most industrialised area of Yugoslavia - Slovenia ranked first. Since the end of the war, macroeconomic stabilisation has largely been achieved, although structural reform is slow. Real GDP growth has been a healthy 3% to 5% over the last few years, although driven in part by fiscal deficit and credit growth; the other fly in the ointment is unemployment, which remains high at around 18%. However, it is widely expected that the EU integration will accelerate structural reform leading to lower unemployment, improved fiscal situation, and enhanced quality and composition of future GDP growth.
A tourism hot spot
 Croatia, and especially its beautiful Adriatic coastline, is re-emerging as a hot spot for tourists and property investors alike. It's ‘re-emerging' rather than ‘emerging'; it was a holiday retreat for the rich and famous since Roman times. Its popularity has only suffered in recent times because of its communism politics while it was a part of federal Yugoslavia, and the horrific war for independence that ended in 1995.
Tourism has probably the greatest potential for development and growth, and while the war had a devastating effect, most of the damage has now been repaired, and tourist numbers are fast returning to pre-war levels. Tourism has always been a key industry for Croatia, which has beautiful coastlines with over a thousand islands - Croatia has a staggering 1,777 km of mainland coastline, and 4,058 km of island coastline.
Croatia is very cosmopolitan, especially in the coastal areas, where English is widely spoken. It is perfect for people who love Italy - good food and wine, pleasant environment, rich culture, and an exclusive feel.
The government is actively updating land use regulations to make it easier for investors to participate. A recent survey of unused land along the coast identified forty-two sites suitable for golf course development (at present there are only two golf courses in the whole of Croatia), which the Ministry of Tourism is keen to develop along with improved hotel and conference facilities to attract more year-round tourism, including business tourism
Property investment hot spot
Croatia's potential recovery combined with the increased appetite for overseas property investment, itself fuelled by the availability of cheap travel around Europe, create the potential for a market ceiling much higher than the pre-war high water mark.
Croatia represents an excellent window of opportunity for property investors who would like to participate in the regeneration and future of this European tourist paradise.
Small scale development activity is focussed on renovating and converting old buildings into villas and apartments suitable for tourist letting. Occupancy rates and yields are particularly high in certain hot spots such as Dubrovnik, where the price of a cup of coffee would make even a Hongkonger wince - although the medieval architecture, sea view, and Mediterranean climate is some compensation! This small scale property renovation market is mainly occupied by individual investors who have cashed out in their home markets and are looking for a new opportunity in an emerging market starting from a lower base.
Larger scale developments are also increasing in numbers: on the outskirts of established towns, such as Split, and on some of the larger islands, such as Hvar and Brac. Most new developments consist of villa developments with shared facilities. They are sold off-plan or during construction to investors looking for decent capital gains over the next few years especially in the run up to EU membership, good yield, and somewhere nice to go on holiday with family and friends.
Buying process
If you buy in Croatia, make sure that you have a very good lawyer to clear the property title! The war displaced a lot of people - some are dead, some are missing, some have turned up buried in mass graves on land bought by developers. Also, Croatia inherited archaic laws relating to land. Developers have literally been ordered to stop work after digging up bones; in other cases an owner presumed dead has suddenly appeared out of the woodwork to claim his slice of land.
A safe starting point is to buy in areas where there was little or no fighting, such as the middle coastal regions and the islands. But do not take any chances - pay good money for a good lawyer. After years of communist rule, bureaucracy in Croatia is terrible, so even if you are right, your case may not get resolved for years. Don't cut corners.
Financial options
With regard to mortgage finance availability, obviously the less cash down, the greater the potential returns on your capital investment. The mortgage market in Croatia is rather undeveloped, especially if you're a foreign investor. On the plus side, as mortgage finance does become more widely available, this will boost the property market further. For the time being, while most developers and their agents will tell you that mortgage finance is available, bear in mind that it's not exactly straightforward. The easiest way to obtain mortgage finance from a Croatian bank is to buy your property through a Croatian limited company. The cost and administrative hassle of setting up and running a foreign company means that you have to get involved at a minimum efficient scale to make it worth your while. Alternatively, raise the funding by borrowing against assets closer to home; this introduces currency risk but the currency risk should work in your favour, as long as you believe in the economic potential of the country.
You can also invest by participating at an offshore level in a property development project ‘special purpose vehicle'. Typically you lend money to a property developer for the purpose of funding a specific project, then they buy the land, build the project, and sell the property. You then share the profits. You're much closer to the source in terms of where you are on the value chain, leverage is built in, and so is your exit strategy. It doesn't really get much easier than this.
* Emerging Market Property Ltd
Hong Kong representative: James Hughes 2273 5129
www.emergingmarketproperty.co.uk
Albrecht Immobilien International
Property award winner 2006 - Best Croatian real-estate agency
www.croatian-dreamvillas.eu
Adria Immo
Croatia Real-Estate |
