Real estate market in Croatia is simply too expensive, but this statement applies only to Croatian citizens, which is correct if viewed from the standpoint of purchasing power of citizens.
Viewed only from the standpoint of property values, Croatia is not that expensive as far as we can tell, especially if one looks only at the market of houses. What does it mean to Croatians? Not much really… And it is not a consolation when the calculations include the economic situation in the country. However, it certainly means a lot to real estate agencies and investors, and ultimately could improve the economic picture of the country, which would probably do some good fix the situation for Croatian citizens as well. It is all a circle.
Not to complicate, the houses in Croatia are among the cheapest in Europe, and in the neighborhood as well. In Slovenia, they cost a lot more, and in Montenegro too, mainly thanks to a huge breakthrough that the country has had on the tourist map of Europe. When all is taken into account, it is not unrealistic to expect foreign buyers, with a dose of optimism caused by the economic recovery in their countries, will soon be able to begin their return to the Croatian property market in large numbers, especially to the traditionally popular Adriatic.
As usual, the banks were among the first to recognize this trend, and Erste Bank has already introduced housing loans for foreigners. Conditions are extremely favorable and offer various benefits, and loans are granted with a currency clause and mortgage insurance.
Good news for all who are engaged in the business with real estate in Croatia!

To immediately say how things stand with this question: There is no answer! All are divided over this issue - economists, builders, real estate agencies… Nobody offers answers, just ask new questions.

The government has also stepped into the market with incentives, but the initial enthusiasm disappeared after some new questions. Who are all these incentives for? Citizens will not benefit too much, neither will builders, because the possible sale of 1,000 dwellings does not resolve the question of the other 10,000. It seems that only the bankers will benefit. Some analysts even believe that the Government measures cause prices to fall 10-15%, but these are just speculations.

What about all those who have the best insight into the market, real estate agents in Croatia? Their opinions are also divided. About half of them believe that prices will fall, a little less that there will be a long period of stagnation, and only slightly less than 10% that prices will rise. However, it is interesting to return to the previous year when almost two thirds of agents expected a price drop, about a third predicted stagnation, and only just over 1% predicted growth. Something has changed during the last year. Whatever the case, one thing can be said with certainty, and that is that the prices are unlikely to increase, at least for the coming months. As for them dropping, the lower price are actually already there, only not at the required rates, but in realized sales. In addition to general price movements, everything is seen differently depending on location and property type. Some properties just always keep their price, so it is considered that real estate on the Adriatic and vacation cottages will retain value. Everyone also agrees that the cost of new buildings is a bit inflated.

Price drops are also predicted with rent prices, regardless of whether they are houses or apartments, and it already started with significant discounts in commercial real estate. I personally know a couple of small tradesmen who had no problem with lowering the rental price for their offices and facilities. It’s simple: It is better to sacrifice a little than risking that the tradesman leaves you or even perishes. In these economy conditions, it would probably mean a longer term “liberation” of space for an office.

Until when will this uncertainty last? It is difficult to predict, but it is fairly safe to say that entry to the EU should bring some stability to the market.

We have already mentioned in one article that the new government measures on encouraging the purchase with a 200 euro loan could potentially mine the housing market, but the fact is that the markets of Southeast Europe are exaggerated and we were all warned several years ago by a famous doctor of economics from American University of Ohio, Bulgarian Krasimir Petrov.
This expert estimates property values by the two basic indicators used in the West, namely the ratio of rental and property prices and the ratio of prices to average income households.
The first indicator is generated in a way that the annual rent is divided by sale prices, and thus you get the return on investment. The American practice of normal return is 10-12%. Return of 15-20% means that the property is probably undervalued, while 6-8% or lower means that a property is overvalued and the entire market bubble could burst. If we take into account the fact that in recent years we have have reported figures of 3-4% throughout the region, it is quite clear in which position we are in. Average square meter for apartments in Croatia is 1818 euros, and rent has been the same for years, so the indicator is 3,5.
Another indicator (the ratio of prices and household income) shows how many annual gross earnings are required to purchase a property. If you need one, it’s an undervalued property, two show a normal price, and three indicate an overestimated value. In Croatia, the average gross salary is 1070 euros, and if we consider that we have two working adults per household, for a flat of 65 square meters with the earlier mentioned price of 1818 euros, a household needs to set aside 118,170 euros. This means that for such an apartment five years of savings are needed, and if we consider already three years mean that the property is overvalued, the conclusion about the property prices in Croatia imposes itself. To conclude, according to Petrov and his formula, the price of a square meter in Croatia should be approximately 600 euros.

New oonstruction or old? New apartments are nice, but often they know to offer poor quality. In any case, it is best to bring a guide who understands the issues during the purchase.

The difference between the quality of the construction of new buildings and old buildings is great. Each new apartment is equipped with separate devices for measuring energy consumption and the difference is even greater when it comes to materials used during construction. If you consider all possible new technologies that are now used in construction, then the new building should be a sure winner. However, everything changes when we know that the apartments are still built by people, people who usually like to invest in something and save some money during the process. This leads to big problems, because not many use quality materials, nor the most modern technologies. In addition, old buildings are usually built to suit needs of people, which means that durin construction builders thought about comfort for the people who will live in an apartment, not just the profit, which is the case today. Besides all stated above, the greatest advantage for old buildings is definitely location. All attractive locations for construction of real estate were occupied a few decades ago, so if the buyer just has to live in the city center or some other attractive location, he/she is ready to give an unrealistic amount of money for an apartment in an older building. This is an emotional component that is difficult to express in money.

New buildings have their advantages and the old have their’s, but the biggest problem is that the difference in prices between the old and new housing is simply too small, which creates an unrealistic picture of the real estate market.

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.

The year 2009 brings us less new apartment buildings and a recession in the construction business. This will probably cause a drop in apartment prices, but not in the region of 30% or more like some might have expected. Sure, smaller investors will have to lower their prices more, but the “big players” will do no such thing.
Prices of real estate at the Adriatic coast in 2008 grew 4,6 percent, which is reletively a small amount considering the high growth during previous years. Average price of a square meter is about 2000 euros for weekend houses and apartments, and around 1500 euros for bigger houses. Dubrovnik is still the most expensive location in Croatia. Price of a square meter in the most prestigious town in the Adriatic is 3649 euros for an apartment and a little bit more, 3694 euros, for a house. To cut things short, price index for houses on the Adriatic coast of Croatia is in stagnation and shows a tendency to drop even further in 2009.
We are all in for an interesting and exciting year!