However, in recent years, first Croatia and then Montenegro have caused a real boom in the real estate market. In the late 1990s, the price level in both countries was extremely low, and as the wariness of political and economic instability decreased, the region began to integrate into the European community and attract more and more tourists, and then investors.
At first, a sharp rise in the real estate market was observed in Croatia, where at the beginning of the decade the annual increase in the value of real estate was up to 40-50%. Over time, the price situation has stabilized somewhat, but the influx of investments into real estate in Croatia has not weakened. The most popular region was South Dalmatia with the ancient city of Dubrovnik.
Montenegro, by and large, is only becoming a significant player in the real estate market. Experts say that this country has an exceptionally high potential, both for the development of tourism and for buying a holiday home. The number of tourists visiting Montenegro increases by 12% annually. Current housing prices correspond to Croatian ones from about five years ago, which allows us to count on a high return on investment.
The second house in South Dalmatia
The growth of real estate prices in Croatia has slowed down compared to the record pace of previous years and has recently amounted to 15-20%, while income from renting out real estate averages 6-7% per year of its value. One of the reasons for the constant increase in prices is the laws adopted a couple of years ago in connection with the intensive development of the coast, aimed at limiting it. Now construction is allowed only in certain areas of the country and at a certain distance from the coast. "There is a shortage of high–quality real estate in Croatia," says Oliver Felstead of CR Investment. "There is a lot of demand, but not enough supply, so prices are rising."
One of the most popular areas of Croatia is Southern Dalmatia, with a sunny Mediterranean climate in summer and mild winters. The mountains here are located in close proximity to the coast, and the beautiful seascape cannot but fascinate. The center of the region is considered to be the city of Dubrovnik with its rich history and colorful architecture. Real estate prices are constantly rising here, in the historical part of the city the cost of 1 sq. m. The average price is about 4,000 euros, so even a small apartment will cost the buyer at least 200,000 euros. The supply in the central part of the city is limited, which undoubtedly increases the value of real estate. Another reason for the popularity of the city is the convenience of flights, since both direct flights from a number of European countries and regular and charter flights from Moscow are made to Dubrovnik.
"Dubrovnik is not only a beautiful, but also a famous resort town," says Andrea Marston of Dream Property Croatia. – Here you can find good deals at reasonable prices. According to my forecasts, the value of real estate in the next two years will grow by an average of 10%." The company's catalogues include a three-storey two-bedroom house in the historical part of the city for 297,000 euros, which is very inexpensive, given the popularity of the area. Another house in need of renovation and also located in the city center costs from 260,000 euros.
Those who want to buy a spacious house at a lower price can find suitable offers on the outskirts of Dubrovnik, in nearby towns and on the islands. In the Lapad area, apartments are put on the market at a price of 169,000 euros. On the coast of Zupa Dubrovacka, located near both the historical center of Dubrovnik and the airport, modern apartments with magnificent sea views cost 190,000 euros. In Cavtat, 20 km south of Dubrovnik, new apartments can be bought for 170,000 euros, and an old stone house is being sold by Dream Property Croatia for 220,000 euros.
As for the purchase at the off-plan stage, Ready2Invest has opened sales in a new resort complex that will be built on the outskirts of Dubrovnik. According to the company's experts, this is the last good building site in the city. The complex, which includes both apartments and townhouses and villas, is designed by architect Robert Dallas, who works in a rural Provencal style. The price of 1 sq.m. at the start of construction is 4000 euros. Investors may also be attracted by the fact that a new golf course is being built next to the complex.
"Most often, real estate in Dubrovnik is bought not for the purpose of investing, but as a second holiday home," notes Andrea Marston. – For those who are looking for long-term investment opportunities, the resorts of the Istrian peninsula, as well as the city of Split and its surroundings, are much more suitable.
Istria, sister of Tuscany
A significant part of European tourists coming to Croatia prefer the Istrian peninsula, located in the north of the country and often compared to Tuscany. "Istria is easily accessible from Central Europe," notes Oliver Felstead, "so most tourists come here from Italy and Germany.
European budget airlines operate flights to the airports of the cities of Rijeka (Rjieke) and Pula (Pula), high-speed highways are being built on the peninsula. The development of transport infrastructure goes hand in hand with the design of a large number of golf resorts - 23 golf courses are planned to be built in Istria in the next five years.
Relatively inexpensive Istrian real estate has excellent investment potential. For example, the average cost of three-bedroom villas near Porec has increased over the past year from 117,000 euros to 147,000 euros. According to Oliver Felsted, average real estate prices range from 90,000 euros for an apartment to 200,000 euros for larger properties.
CR Investment company sells apartments on the coast in the city of Pula at a price of 120,000 euros per studio. A little further from the sea shore is the residential complex Villas Kastelir. Here, a three-bedroom cottage with a swimming pool and a garden costs from 255,000 euros. More affordable offers can be found on the secondary market. Small apartments can be purchased for 74,000 euros, and a stone house in need of renovation for 148,000 euros.
Every year it becomes more and more difficult to find decent offers of antique real estate or reconstructed houses on the market, but the number of new residential complexes is growing. Traditional stone construction technologies are often used in their construction, and the quality of such houses is also likely to be very high.
Another interesting region to buy is Middle Dalmatia. "Buying in Split is profitable, as prices here are much lower than in other coastal areas of Croatia,– says Alice Krossik, investment consultant at Ready2Invest. – In Split, 1 sq. m costs from 2000 euros, – compare with the prices of Dubrovnik"! The average cost of apartments varies from 103,000 to 148,000 euros, and villas cost from 222,000 euros to 445,000 euros, depending on the size of the house and its location. The historical center of Split is included in the UNESCO list of Historical Heritage.
Montenegro does not want to lag behind
After the value of real estate in Croatia reached a certain level, a significant part of investors turned their attention to neighboring Montenegro, whose housing market lagged behind the Croatian one for several years. Of course, buyers were attracted not only by low prices, but also by the beauty of the Montenegrin landscapes, the warm Mediterranean climate and the clear Adriatic Sea.
"In recent years, real estate prices in Montenegro have doubled," says Sanya Todorovich of the company Someplace Else. "Nevertheless, the cost of real estate here is still 40-50% lower than in Croatia. Undoubtedly, the price growth trend in Montenegro will continue in the next five years."
The most popular among tourists are the coastal resort of Sveti Stefan and the city of Kotor. Sveti Stefan, located 5 km southeast of the city of Budva, is considered the most exclusive resort on the Montenegrin coast, its highlight is an ancient city built on a small island and connected to the coast by a narrow isthmus. There are no offers for the sale of real estate in the historical part of Sveti Stefan, since all the houses in it are now occupied by hotels, but it is quite possible to purchase apartments or a villa on the nearby coast.
The city of Kotor is surrounded by mountains on the shore of the bay of the same name, which is the most authentic and at the same time the southernmost fjord in the Northern Hemisphere. In the historical part of the city, which is under UNESCO protection, back in 2005 it was possible to buy apartments in an old house for only 56,000 euros. In 2006, a similar facility, but after reconstruction, was already sold at a price of 140,000 euros. Average prices for secondary market real estate range from 30,000 euros for apartments in need of renovation to 444,000 euros for a family–type house. Although many people prefer to buy old stone houses that have preserved their historical appearance, modern real estate can also be found in the city.
"The demand for all types of housing is high, as there is little in the marketoffers," says Anne Ferrier-Ilic from Montenegro Living. Over the past two years, old stone houses have been especially actively bought on the secondary market, their number is limited. In 2006, new complexes began to appear on sale, the demand for which is expected to be very high, since mainly small-sized projects are being implemented." The small number of new buildings is due to the fact that in the coastal areas of Montenegro, as in Croatia, development is limited, and obtaining a construction permit takes a long time.
The current market situation seems to be a great moment for investment, but Oliver Felstead advises investors not to overestimate the potential of the market. Investing with the expectation of a quick profit from resale can be risky, especially if third-party financing is involved in the purchase of real estate. After the situation in the Montenegrin market stabilizes, long-term investment will become as profitable here as in Croatia.
The warmer it is, the more profitable
A high rise in real estate prices does not guarantee a high income from renting out real estate. This market in Croatia, and even more so in Montenegro, has just begun to develop, so it is difficult to calculate the return on investment. "At the height of the summer season, the weekly income from renting out high–end two-bedroom apartments located on the coast will amount to 800 euros," says Anne Ferrier-Ilic. – Villas can bring their owners up to 1,500 euros. However, at other times of the year, profits will be significantly lower. To date, it is worth calculating income, focusing on a load of 35%. If the property is located outside the city, the owner may face a number of problems that negatively affect rental income."
How to buy
In both countries, the process of buying real estate is quite simple. In Montenegro, there are no restrictions on foreigners buying apartments and buildings with land plots, however, to purchase undeveloped land, a Montenegrin company will have to be established. In Croatia, to purchase real estate, you need to apply for permission from the Ministry of Foreign Affairs.
In both countries, a piece of land may have several owners, and before carrying out the transaction, the buyer's lawyer must make sure that consent to the sale has been obtained from each of them.
Legal registration of property rights in Montenegro costs from 600 to 1000 euros, real estate tax is 2% of the value of the property, and agents' commissions are 3-5%. Currently, Montenegro's tax and financial legislation is changing in accordance with EU requirements.
When making a transaction in Croatia, the agents' commissions will amount to 4% of the real estate value, the fee for legal and notarial registration of real estate will be approximately 2%. The tax on real estate transactions is 5% of the cost, in addition, when buying new buildings, there is a VAT of 22%. Before concluding the transaction, the investor needs to find out whether VAT is included in the value of the property.
