Has this global financial crisis brought us any good to the Croatian property market? What am I talking about now, you are probably wondering, cause how can any crisis be good, especialy when we are talking about real estate investment. Well, this might be true for highly developed markets, but Croatia is still an emerging market with a lot to learn.
For example, the mentality of the people has changed drasticly since the crisis hit the world. Most of the old houses on attractive locations on the Croatian coast are in family ownership. During the last couple of years the tourist and real estate “boom” hit Croatia. A country that was once almost completely isolated was now featured on covers of the most famous travel magazines in the world, which led to a dramatic increase in the number of visitors and real estate investments. People from all over the world were on their way to grab houses on the Adriatic coast! People in Croatia, or better said families who owned the houses, were not quite used to all these new “free market” laws. Some of them saw the chance to earn some money, but they didn’t know how the real estate market worked. These sellers would put a price on their property which not only included the real value determined by the market situation, location, quality, but also their ow subjective value. “My grandfather built this house and I am not about to sell it cheap!”, for example. There were also those who planned to solve their financial situation for the rest of their lives by selling just one house they owned or inherited! These would determine the price based on the amount of apartments they need to buy after selling in order to live of renting these apartments so they could quit their daily jobs… Tha saddest thing about all of this was that the market had no problem with this. The demand was huge and loans were in abundance!
Now, situation is a bit different. There is no more high demand, but there are sellers who kept their prices unrealisticly high for years and have now found themselves in dire need for some cash. If you are the party that happens to have what these people need, and I am talking about money, possibly in a strong foreign currency like €, than you can negotiate a great deal! If you see that the property you set your eyes upon is highly overvalued by the seller, you can be sure that it is for some of the reasons stated above, or at least something close to that. This is your opportunity to do a little bargaining, preferably accompanied by one of the Croatian real estate agents and with a large amount of cash to put as downpayment. If you are skillful, you could lower the price for up to 20%, even more in some cases!

Famous business newspaper Businessweek wrote an interesting article regarding real estate investment in Europe, especially focusing on the situation at different markets.
The prices have slummped over the last two years. It is enough to mention Spain and their price drop of 35%. The situation is even worse if we take a look only at commercial real estate, in which case the prices have hit the bottom after a 72% drop, like France for example. It is fair to say that things were not looking good at all. But what happens after prices drop? It may sound silly, but they rise again and there is a good economic explanation. Lower prices mean more attractive investments and there is no reason for this not to aply for the property market as well as the economy in general.
What this means is that real estate markets which were regarded as “hot” before the crisis are going to get “fired up” again. In the case of Europe this means countries of the east, including Croatia and Montenegro on the Adriatic, but it also may aply to certain western countries that endured large price drops.
One good sign that this is coming is also the fact that market activity in the USA and UK has started to rise. Some real estate agencies in London had a rise in traffic of almost 20% from March to April. We could also take a look at Dubai that became more attractive to average investors after the prices dropped 25% during the crisis. Still, there is no reason to “jump in the fire” because the safest markets are still those that can “back up” their property market with a long term economic growth, which means India or Turkey, but this absence of risk may also mean absence of large profit.
When we talk about Croatia and Montenegro, we have to take some details into account. For example the fact that the prices in Croatia are artificially high even now, which was described in one of our recent articles, and the fact that investments were very high before the crisis, expecially in Montenegro, where they amounted up to 600 million dollars yearly. Another thing to consider is the fact that both Croatia and Montenegro are on a way to being developed tourist countries, which also means they have to attract a lot of foreign investment, so many believe there will be some additional government rules soon that will make the markets even more opened to investment, especially in those areas where tourism activity started to stagnate due to lack of capital.
To conclude, it is now quite safe to say that recovery has already started in most European countries, or it will start soon. What this means for developing countries, like Croatia and Montenegro, is another cycle of investment projects, including property investment.

The current situation with the market of apartments in Croatia is highly influenced by fear, which means that the reasons for real estate market weakening this way are not realistic, but rather imaginary.
Although the crisis is on everybody’s mind and fear is ever present, most potential buyers still say that a high quality of an apartment would be more than enough to make them buy it, at a reasonable price of course. Quality is determined by several factors like location, which means close vicinity to kindergardens, schools and hospitals, good traffic connections to the most important parts of the city, quality of life in every individual apartment, green surface around the building… Most of the apartments that meet these criteria have already reached the lowest possible price sellers are ready to give and it is now a very good time to buy them. Any other action could eventualy result in a much higher price in the coming months ahead.

The financial crisis, constant problems with EU entry, all kinds of different reports by foreign media… it is hard for an ordinary person to catch it all. You might star wondering what is exactly happening with Croatia and it’s property market? Let us give you a brief overview.

The Croatian property market exploded a couple of years ago, somewhere around year 200 after the country started recovering from a devastating war and years of political isolation, and later as people expected EU membership to be just around the corner. Fantastic climate, great beaches and landscapes also made the country a great destination for foreign buyers and investors, as well as travelers. Croatian real estate prices were among the fastest growing in the world, to the point where not much room remained for further growth, which led to some other countries in the region receiving more attention for a short period of time. However, the Croatian property market is expected to experience another boom after EU membership is achieved, probably in 2010-2011.

There is also another reason which makes Croatia attractive: much of the newly built properties are high quality modern developments. Further developments will also boost the area by adding top tourist attractions and making many locations jump to the high tourism category. The advance in development was favored by many in the beginning, but soon the authorities saw what was done with the rest of the Mediterranean, which was turned into a “concrete apartment complex”, so immediate legislation was implemented to protect the landscape and the coast. Tourism plays a major part in Croatia’s economy, so the image of “Mediterranean as it once was!” is quite important to the people. Today, the building standards of real estate in Croatia are really good, with most of the developers having extensive experience in construction from Western Europe.

The Croatian government has also been determined to encourage foreign investment in the property market. The government had done a lot of things during the last couple of years to bring more property investors into the market, which includes promoting the tourism, highlighting natural beauties and culture and removing all legal obstacles to foreigners for buying real estate in Croatia, especially with the new Croatian real estate law.

Croatian real estate agencies were a part of a research which determined that the difference between wanted and achieved prices is around 15%. This was a result from contacts with investors and sellers, and some agents even think that these would still make money if they lowered the prices down by 20%.
Most agencies agree with their customers who say that the prices are too high and based on unrealistic expectations. The gap between wanted prices and those that are achieved in the end has been steadily growing for the past two years, but it is not realistic to expect further significant price drops till Autumn because there is simply not enough room for that, especially if we are talking about real estate that has a certain level of quality. If you have found your real estate in Croatia and it suits all of your needs, than you should buy it now. Another problem with real estate prices in Croatia lies in the fact that they are often determined according to data displayed on different internet ad sites, but these prices are rarely final selling prices in the end.
One more thing to consider is that the apartment prices in Croatia are linked to land prices and there is no room for further price drops in the long run with present land prices. If you are still waiting for price drops in the range of 30-40% which were announced at the beginning of this year, than you are in for a disappointment. Those expectations often came from unreliable sources and it most certainly won’t come to that. One more absurdity is that the prices of old apartments are to similar to newly built ones. This is an area in which there could be some corrections. Most agencies also believe that the government and the banks could influence the market, primarily through interest rates and taxes.