Croatia seems to have recovered from the effects of its short crisis and with a new, more stable government in place; its economy appears to have found a steady rhythm again.
Foreign buyers and the current economic growth have boosted the housing market and prices are rising. The nationwide house price index for 2017 rose sharply by 7.6%, according to figures provided by the Croatian Bureau of Statistics (CBS)
The popular coastal areas had the biggest price increases and Istria’s largest city, Pula had the highest price growth of more than 12% in February 2018. On the Adriatic coast, the house price index rose by 7.2% in the same period.
The capital city, Zagreb, saw new dwelling prices rise by as much as 15.8% in 2017 and the average amount per square meter rose to HRK12,092 (€ 1,630). On average, house prices in Zagreb rose by 9.8% by the last quarter of 2011.
The average price of new dwellings in other areas only rose by 1% and the average price index across the rest of the country went up by 4.1% (selling on average at HRK10,734 per m2), while the prices of existing homes across the country averaged an 8.3% year- on -year growth.
The most expensive properties in Croatia are in Dubrovnick (on the Adriatic coast in southern Croatia), where you can expect to pay anything from € 3,374 to € 4,600 per m2. Houses cost more per square meter than apartments. In the towns of Split and Zadar (on the Dalmatian coast) and in Rovinj (on the Istrian Peninsula) you can expect to pay anything between €2,799 and €1,482 per m2, and Rovinj is the cheaper of the three. In Split, apartments cost less per square meter than houses, but in Rovinj and Zadar be prepared to pay more for apartments than houses.
New home sales in 2017 were mostly concentrated in Zagreb, with 45% with 55% of the sales scattered across the rest of the country.
The prices continued to push upwards throughout 2018, according to the Croatian Chamber of Commerce (HGK), and increased at the same rate of between six and seven percent as in the previous two years.
Housing prices are becoming unaffordable for the locals, despite recent measures taken in January 2017 by the government. The measures included lowering of the property transfer tax from 5% to 4% and the introduction of a five year subsidy for housing purchases to young couples. The government is thinking of extending the scheme for another two years and to include couples who already have a child.
VAT has not changed for transactions where it is relevant and has remained at 25%.
Zagreb has the highest property yields in the country and they are considered to be reasonable, since the prices are also still relatively low when compared to most countries in Europe.
Gross rental yields in Zagreb will be anything from 5.4% to 6%. Split has lower yields of 3.6% on larger apartments and 4.7% on smaller ones.
Croatian law does not favor the tenant above the landlord, nor the other way around. There is no rent control and there is no maximum deposit ruling. It is customary to require one or two month’s deposit from tenants.
Due to the judicial system backlog, evictions can take time; creating problems for owners who need to evict tenants. Some agencies recommend the use of ‘informal methods’.
Non-EU foreign nationals can only buy property in Croatia if their country has a reciprocity agreement with Croatia.
The country has moderate tax rates and rental income for non-resident foreigners is taxed at 12%.
Capital gains are taxed at a flat rate of 24% and properties held for more than three years do not pay this tax.
A spouse and dependents are not liable for inheritance tax.
Residents pay a progressive personal income tax from 24% to 36%.
Transaction costs for the purchase of property are high in Croatia and range from 10% to 15%.
The real estate agents fee is split between the buyer and seller and can be anything from 3% to 6%. The real estate transfer fee of 5% does not apply to houses sold for the first time. However, new houses have the added VAT of 25%, calculated on the net construction value.
GDP growth was at 2.9% in 2017, 2.8% in 2018 and is expected to contract to 2.7% in 2019. These are the official figures as provided by the European Commission.
The economy of Croatia lost more than 12% GDP in the period 2009 to 2014, the second biggest in the European Union after Greece. The economy is mainly driven by private consumption, supported by rising wages and employment. Investment growth suffered a setback in 2017 after the debt-restructuring of Agrokor, a major retail and food-processing company. The situation eased in 2018.
High unemployment rates but with the highest decline, places Croatia fourth in the EU after Greece, Spain and Italy. Croatian unemployment fell from, 14.4% in 2017 to 11.5% in March 2018.
For three years the country recorded deflation rates of -0.2% in 2014, -0.5% in 2015 and -1.1% in 2016, figures provided by the CBS. The annual inflation in March 2018 stood at 1.1%.
The problems with Agrokor, saw the collapse of the governing coalition in April 2017. A new coalition government has brought stability, resulting in an upgrade to the country’s credit ratings to ‘BB+”. This upgrade was because of the stable outlook, economic growth, improved public finance and strong tourism growth.
Since, June 2017, Croatia was able to exit the Excessive Deficit procedure (EDP) placed on it by the European Commission since early 2014. The country has managed to reduce its public debt from 83.8% in 2015 to 78% of GDP in 2017.
Croatia had its first budget surplus since independence in 2017, at 0.8% of GDP.
Information gleaned from the official site of the European Union show that, intra –EU trade accounts for 66% of Croatia’s exports and 77% of its imports and the country’s most important economic sectors are food services, industry and public spending (administration, defense, education, health and welfare).