Virgin soil raised by foreigners
Croatia is experiencing a real estate market boom created by foreign buyers. So, according to Knight Frank's forecast, apartments, which now cost $350,000, will rise in price by 20% during the year. Nevertheless, here you can still find real estate at a reasonable price - for example, in Istria, which is called "new Tuscany" for similar landscapes of the coast. According to the assessment of the company Croatian Property Services, 1 sq. m in new apartments near the marina in Novigrad (Novigrad) costs about $3000. And on the island of Korcula, famous for its vineyards and old villages, the Real Estate agency Dalmatia offers a villa with a view of the water for $330,000. The Croatiansun company offers exclusive apartments in a newly built complex in Dubrovnik, 150 m from the sea, at a price of $2500 per 1 sq. m. "We immediately fell in love with this place," says Philip Siriwardena, a buyer from the UK. "We were looking for an investment property, and buying in other parts of the Mediterranean would exceed our budget."
So, the Croatian real estate market seems to be very interesting from the point of view of investment. But if you intend to make a profit as quickly as possible, then there may be obstacles in your way.
The MFA is the head of everything
Almost everything related to real estate owned by a foreigner is based on the permission of the Ministry of Foreign Affairs of Croatia. It will be required to register the legal owner in the local land registry, which in turn is necessary to obtain a permit for construction work, communications, rental of real estate, etc
. In the period between 2000 and 2004, 6034 applications were submitted by foreign buyers to the Croatian Foreign Ministry. Only 2,150 of them were approved. This figure does not indicate the number of failures, but the duration of the process. Most Croatian real estate agents believe that the application process takes at least a year, but it can take two years or even longer.
Registration of a construction permit can take from 6-8 months, and for the summing up of communications – 6-12 months. It is illegal to start any construction work without a permit. Sanctions in this case are of two types – you will either face a fine of $ 4,000 or the demolition of an illegally constructed structure. A properly executed construction permit is also necessary in the future - for resale or rental of real estate.
Bans move the market
In order to avoid too dense development of the coast, as happened, for example, on the Costa del Sol, the Croatian authorities last year adopted a number of new laws regulating construction on the territory of the country. The amendment to the law concerning the development of the coastal strip caused the most controversy. Now it is not allowed to build buildings closer than 70 m from the water. Other changes restrict the construction of new residential facilities, the reconstruction of historical buildings, as well as the development of land plots.
Most real estate agencies agree that the new laws will have a positive impact on the real estate market and on the coast itself. Paul Keppler, Managing Director of Croatiansun, believes that innovations will contribute to improving the quality of coastal development. "In market conditions, the restrictions on building that the government has introduced are really very rational," he says. "Now Croatia needs money and patience to invest in real estate, these restrictions apply to those buyers who want to get rich quickly." On the one hand, new laws may slow down the implementation of your project, but on the other - they lead to an increase in your capital invested in real estate. The legislation guarantees that the unique atmosphere of Croatia will remain unchanged, and this country attracts more and more investors.
Don't rush to rent or sell
If your financial plans are based on rental income and you would like to rent your house a year after the purchase, you should think hard. To rent out Croatian real estate, you will need a license. Consideration of the application may take up to three months, but first you need to collect a whole package of documents - a Foreign Ministry permit, a construction permit and certificates of construction and electrical safety. It should also be borne in mind that it is very difficult and long to collect documents and obtain a license without being in Croatia, so it is worth using the services of a local company. But when the documents are finally collected and the license is obtained, you will be rewarded with dignity. "The rental market for villas and apartments in Croatia is constantly growing, so immediately after you start renting out your property, you just have to make a profit," says Saron Liz, director of the British agency Croatia Gems. This opinion is confirmed by the figures of Knight Frank, which predicts a 20% increase in rental income in the coming year.
To sell your property, you will again need permission from the Croatian Foreign Ministry, and in addition – registration in the land register and the participation of the former owner of the property. However, after three years of the object's stay in your property, you will be exempt from paying value gains tax, and for the sale of real estate in five years you will no longer need to bother the one who sold it to you. Paul Keppler believes that the three-year moratorium on tax benefits has a positive effect on the market. "This period stimulates medium- and long-term investments and prevents speculative resales. As a result, the real estate market is becoming more stable, in the future there is less likelihood of periodic ups and downs," he believes.
The tax on the purchase and sale of real estate currently amounts to 5% of its value. By law, this amount must be paid by the seller within 30 days after the completion of the transaction, but in practice this burden is borne by the buyer. Since a foreigner cannot officially purchase real estate until he receives permission from the Ministry of Foreign Affairs, it is better to draw up an agreement between the seller and the buyer at the time of the final completion of the transaction. Otherwise, it may turn out that you will pay taxes for two years in a row, and if you invested in the reconstruction of the building at the time when the Ministry of Foreign Affairs is considering your application, then the second payment will be more than the first.
For those who always go around
As in many other countries, in Croatia there is an opportunity to circumvent the obstacles associated with the permission of the Ministry of Foreign Affairs - just open a Croatian company and buy real estate on its behalf. Creating a company will require additional costs, but the purchase will be immediately registered as an asset of the company. Note that the Croatian government does not welcome the creation of firms by foreigners just to buy real estate here. However, if you plan to rent out your property and, therefore, will be engaged in business, no objections should arise.
Another option is to request a construction permit, communications and a rental license with the help of the previous owner of the property. Such an agreement should be included in the contract of sale. If you want to invest in Croatia without too much hassle, then the best option would be to buy apartments in new residential complexes. The developer himself takes care of the permit for construction work, utilities and has a license to rent.
But what should those who are just looking for a holiday home in Croatia do? The answer is one - to know and understand in advance, before buying, that it will take more time before the start of construction work, and even more so before the start of renting out real estate, here than in other countries. But the result will be very attractive. The imminent accession to the EU, on the one hand, will simplify legislation, and on the other hand, will guarantee the effectiveness of investments. It is expected that up to this point prices will rise especially rapidly, and subsequently the market growth, although not so rapid, will continue. There are other factors that should contribute to the growth of the market, and first of all - the development of transport communications. Thus, by 2008, the construction of a motorway from Zagreb to Dubrovnik should be completed, which will further increase the attractiveness of the region. And if we recall the resort in the Biokovo mountains, located just half an hour from the coast, it is not difficult to conclude that Croatia can become a year-round resort in the future.
A final tip - no matter how much time it takes, follow the Croatian real estate laws! It is possible that the development of your investments will not be quick, but patience and perseverance will be able to guarantee your income in the future.
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