Why invest in real estate in Croatia ?

Real estate investment is one of the most common forms of investment that a large number of people around the world opt for. This form of investment is very popular in Croatia, as real estate is traditionally considered a long-term profitable investment in which it is wise to invest.

 

Some of the benefits of investing in real estate are:

 

Price growth

Since the supply of real estate in the market is relatively limited, they will always have a certain value. The simple economic law of supply and demand dictates that a good or service for which there is a great demand will always be of value, and if demand increases more than supply/availability, the price will rise.

For this reason, investing in real estate can be profitable during times of increased demand for housing, as this guarantees value growth. Of course, the growth in demand can vary depending on the location, so it is possible that in the same country there are regions where real estate prices are rising, while in another region they are falling.

 

Rent

Investing in real estate can yield a return in the form of an annuity that the landlord charges the tenant for using the property. Annuity represents the passive income of investors and real estate is not "dead capital" because of it, but brings a certain income to the investor even before he/she sells it.

If it is a property in a tourist attractive area, renting to tourists can be a significant source of income for the investor during the tourist season. Whether it is short-term rental to tourists, or long-term rental to tenants, rent can significantly increase the profitability of real estate investments.

 

Usability

In addition to the financial benefits of investing in real estate, a significant advantage is that real estate is a type of property that can be used on a daily basis, thus providing additional non-financial value to the investor. Namely, in real estate it is possible to live, spend the summer, store things and much more, this is another advantage regarding your investment.

 

Investing in real estate is, so to speak, a Croatian tradition. But what is the market situation?

In the past two years, real estate prices in Croatia have risen significantly, by an average of more than 10%, which is partly due to the lack of quality real estate on the market, which is an opportunity for investors and the development of new projects. The highest growth was recorded in Zagreb and on the Adriatic coast, and stagnation was recorded only in eastern Croatia. Rental prices also rose, and with generated an higher income of those who own real estate.

 

The market is looking for quality real estate in Zagreb and coastal cities, and the most sought after are apartments for living and apartments for rent. Prices are rising, and the asking price for real estate for apartments in the middle of last year ranged from an average of 2,000 euros per square meter in Zagreb to 2,900 in Split. However, sales prices are slightly lower and in Zagreb it was traded with slightly less than the average 1,800 euros per square meter.

 

The pandemic, the recent earthquakes, and the record fall in GDP - all this has strongly affected the real estate market. Instead of apartments in older buildings, quality new construction is required, which is not enough available on the market.

Croatia has low interest rates on savings, which are almost zero; interest rates on loans are at historically low levels, somewhere between 2-3 percent, which makes investing in real estate even more attractive.

Tourism and the Adriatic Sea are two things for which Croatia is widely known, as a result of which tourism is a particularly a big magnet for foreign investors and this is where the biggest investments come from.

 

Buying costs

 

The purchase of real estate, in addition to the purchase price, includes certain costs such as: commission of the agency, i.e. real estate agent if hired, attorney's fees and costs of notarization and solemnization of the contract with a notary public, as well as taxes and fees for registration in the real estate cadaster.

Real estate agency commission usually amounts to 3% of the contracted price of real estate, with agencies usually limiting the minimum price of commission by their acts.

The fee for registration of property rights in the competent real estate cadaster is about 25 euros.

Real estate transfer tax is 3% and is paid by each buyer (domestic and foreign). At the moment when the contract of sale is certified, the notary public automatically sends the application to the Tax Administration, which soon issues an order for the payment of taxes, where the deadline for payment is 15 days.

Real estate sold by a private entity (persons outside the VAT system) or real estate built before the introduction of VAT (1 January 1998) is taxed at a rate of 3%.

Real estate sold by an entity that is in the VAT system, and was built between 1 January 1998 and 31 December 2014, is also taxed at a rate of 3%. However, in this case, the tax is not paid on the entire value of the property, but only on a small part related to the value of land and infrastructure contained in the total price. This is because the construction part is already taxed with VAT (which you pay through the price of the property).

Real estate sold by an entity in the VAT system but built after 1 January 2015, is fully subject to VAT. In that case, there is no real estate transfer tax.

Foreigners, i.e. non-residents of the Republic of Croatia will most often need a certified translation of the sales contract for the application of the sale of real estate in the country of residence, for accounting or other offices. The prices of certified translations in Croatia according to the Ordinance on Court Interpreters range from 19 to 25 euros per card and one translation card is 1500 characters with spaces.

 

Having in mind all of the above, Croatia has become increasingly interesting to foreign investors. Nowadays the type of investor is different than twenty years ago because market conditions are different, Croatia is a stable country in the European Union and the risks are much lower. The country is more affordable, and in terms of quality and capabilities, Croatia is much closer to the most developed Western countries.

 

When making the decision to invest in real estate ( or any other sector ) it is highly recommendend to consult an exeprienced lawyer to confirm ownership papers and the contract before signing. Closing costs total around 7 percent of the sales price in Croatia.

 

A-Law lawyers can assist you with confirmation of ownership, legality, preparation of a pre-agreement and/or final sales contract, and submission of a request for a change of ownership on the clients behalf.

 

For more information on the above or our services on Croatia, contact Legal Cousel Dajana Kojić, Head Croatia Desk at d.kojic@a-law.eu or fill in our online contact form.