Croatia has come a long way quickly. After emerging from the catastrophic Yugoslav Wars in the late 1990s and becoming an independent state, Croatia has arguably become the darling of the Balkans. Sharing an Adriatic coastline with much smaller and slightly less organised Montenegro, the country has leapt into the top 20 of global vacation destinations for its yachting and naturist tourist industries. The country of just over four million is growing at a steady clip, one that has refocused investor attention — particularly for holiday homes.
Working on the Basics
Croatia is directly across the Adriatic Sea from Italy, though admittedly a touch more complicated to get to. That said regular flights from London, Munich, Amsterdam and Paris to the capital at Zagreb as well as Dubrovnik at the southern tip make for easy connections from other parts of Europe, and by extension Asia.
Another thing the Adriatic countries share is a lifestyle; a similar pace and easy-going attitude that takes over as soon as the workday ends. Croats work to live, not the other way around. Which is not to say it’s cruising along on the goodwill of the European Union, which it officially joined on July 1 2013. It has seen its share of ups and downs since the global crash of 2008, and among the challenges facing greater Croatian economic growth are high unemployment (third in the EU behind hard hit Spain and Greece) and stagnant or contracting GDP. Property writer Chris Dillon notes in Landed Global that Croatia’s population could also fall by 15 percent or more by 2050, the opposite trend to what investors traditionally like to see.
On the bright side, shipbuilding, agriculture and tourism are still strong sectors and have buoyed the economy to some degree. While the economy is rated as stable rather than growing, entry into the EU should help in the coming years. Though reforms are slow coming, Croatian consultancy Alpe Adria Real Estate & Investment’s recent research predicted increased interest from multinationals considering using Croatia as a trading hub for south eastern Europe, given the country’s superior infrastructure, which dates back to before independence, when Croatia was the affluent, booming part of Yugoslavia.
Overall, mass residential prices have been falling for the last five to six years. Prices in Zagreb dipped just over 3 percent in the first quarter of 2014, and under 1 percent on the coast. Even with those numbers representing a price drop, it’s the lowest decline since 2011, perhaps signalling Croatia turning a corner ahead of expected economic growth of 2015.
But the high-end property sector is looking healthy. As of the end of 2013, over 30,000 foreign nationals (70,000 by some estimates) have already invested in Croatian residential real estate, largely in the capital at Zagreb and on the coast in popular resort spots such as Opatija or near one of Croatia’s 50-plus marinas. The berth rates and lower taxes on the Dalmatian side of the Adriatic make Croatia (and neighbouring Montenegro) appealing to yachting enthusiasts who are attracted to the Italian atmosphere at lower costs.
According to Engel & Völkers, since Croatia’s entry into the EU, buyer enquiries regarding second homes have increased 30 percent (with Germans and Austrians leading the way), prompting E&V to speculate that prices in popular regions are likely on an upward trajectory. Prestige locations are routinely demanding €750,000 to €1.5 million (HK$7.5 to $15 million) for exclusive properties with sea views on the Opatija Riviera, while classical stone houses on the Istrian peninsula can run €500,000 (HK$5 million). On the island of Rab, 2,100 square foot villas can fetch €400,000 (HK$4 million) on the low end and freehold apartments are currently sitting at approximately €185 per square foot (HK$1,840). Multi-million euro villas in Opatija and in Dubrovnik are not uncommon.
Aside from the confidence provided by EU membership, E&V notes other factors have stimulated interest, chief among them improved construction quality. “In Istria, on the Opatija Riviera and in neighbouring regions such as Zadar, more and more exclusive villas and apartments are coming onto the market with a western European standard of building work and a western European look,” noted Michael Grimm, managing partner of Engel & Völkers in Rab and Opatija in a statement. Also contributing to Croatia’s modest property renaissance: overseas buyers with Croatian roots, many of who have their own financing. Add to those factors modernisation of land registration processes as well new regulations that allow owners to rent out their vacation homes, common all across Europe, and the perfect investment storm is brewing. “This was not possible previously and is now an especially interesting prospect for investors,” Grimm added.