Overview of investing in Croatia

Croatia – getting in on the tourist boom?

Spectacular recovery

Considering that Croatia only emerged from the shadow of war in 1997, you’d scarcely have thought that, less than a decade later, it would emerge as one of the investment hotspots of Europe. But this exactly what has happened, and the country’s astonishing recovery is testimony to the willpower of its government and people. It may also present a very interesting opportunity for you.

EU entry pending

Since gaining independence in 1991, Croatia has joined the World Trade Organisation and the European Free Trade Area. More crucially than either of these, however, it was accepted as a candidate member of the EU in 2004. Membership talks began in earnest in early 2005, since when – predictably – foreign investment in the country has really begun to flow in. All the signs are that Croatia will be accepted as a full EU member in 2007. When this happens, expect property prices to grow even faster than at present.

Vast tourism potential

Most investment interest is currently focused on Croatia’s booming tourist industry. This is predicted to grow at an annual rate of about 7% for several years to come – far outstripping most other countries in Europe or world-wide. This is not so much an innovation as a return to Croatia’s glory days as an international tourist magnet before the civil war. Better than a return, indeed, since Croatia’s market-oriented economy is infinitely more stable – and prosperous – than the creaking model of the old Yugoslavia.

Croatia climate is a critical advantage. It means it has a better year-round appeal than its fashionable rival, Bulgaria. Its tourist centres are generally much better equipped, as are its ski resorts. Moreover, Croatia’s bonus is that its tourist sector has a wide geographical base. The country doesn’t just offer sea, sand and skiing. Its historic cities, notably Zagreb and Dubrovnik (‘the pearl of the Adriatic’) are a tourist draw in their own right. Again, Croatia’s sunny climate and mild winters make it an attractive focus for the second home market. At present, the supply of holiday accommodation cannot keep pace with demand.

Prices vary

Because of Croatia’s relatively high level of economic development (remember, it was never actually part of the old Soviet bloc), you won’t find the same bargain basement prices as in some of its Balkan neighbours. For example, a two-bedroom apartment in a good location can set you back around £60,000. Price variations between regions are big, however, and it’s not so much a question of what the price is today – but whether your investment will grow healthily. All the signs are that it will. At present, the best bargains can probably be found in the Istrian peninsula and the northern Adriatic.

Purchasing property in Croatia is a lot simpler than it looks. Citizens of the UK, US and European Union do not have to go through the process of setting up a local ‘company’, common in many of the ex-communist states. In theory, the Ministry of Foreign Affairs has to approve the purchase of real estate by foreigners, and this process can take up to a year. But don’t worry, because (a) you can make your application after you buy the property, and (b) approval is just a formality. Even if, by some fluke, approval were denied, you could just resell the investment to someone else. And the healthy demand for real estate, both from foreigners and locals, means that disposing of your property shouldn’t be a problem.

Need an expert?

As with any ex-communist state, it’s essential to have a qualified solicitor perform a title search, and generally look after your interests. If the property is a resale, it’s also advisable to have a structural survey carried out. (We can, of course, put you in touch with reliable, qualified local experts.) Once you’ve located your property, you’ll normally sign a pre-contract, and pay a deposit of 5-10%. In the event of any problems with the title search, etc, this will, of course, be returned. Once the property is given the all clear, the title deeds are exchanged, and you settle the balance of the payment. You should allow 5% of the price for purchase tax, and about 1% for legal fees.

If you decide to resell your property within three years of purchase, you’ll be subject to a 35% capital gains tax. If you buy-to-let (with either tourists or wealthier locals as your tenants), you must pay a 25% tax on your rental income.

Sustainable in the long term

Back in 2005, Croatia was on the point of being tipped as ‘the next big thing’ in the world of property investment. In the end, it was overshadowed by the publicity devoted to that other Balkan hotspot, Bulgaria. But with its strong economy and booming tourism, its swelling foreign investment and its ever-richer population, Croatia is most definitely a country on the up. And the best part of it is, not just that you can make a tidy profit here, but that this situation looks safe and sustainable for the long term future.