Property Investment Case Study: Croatia (TPI-HR-001)
Introduction:
Croatia borders Slovenia in the west, Hungary in the north, Serbia in the east, Bosnia and Herzegovina in the south, and has a long maritime border with Italy in the Adriatic Sea. Benefiting from a Mediterranean climate with warm sunny summers and mild winters, Croatia boasts one of the sunniest coastlines in Europe with 2,600 hours of sunlight per year! With 8 national parks and 6 nature parks to its credit, it is a country of outstanding beauty which has been left totally unspoilt. Following the civil war in the early 1990's, Croatia is now stable, with the government working hard to build the Croatian economy. Now that Croatia is well on its way to EU integration, it is becoming a popular second-home destination for buyers who are looking beyond the traditional mature markets, where excellent opportunities exist for capital appreciation. Strong demand from overseas investors is creating a buoyant market with huge potential for ongoing growth. Properties with land are plentiful and as little as £50,000 will go a very long way attributing to one of the fastest growing property markets in the 'New Europe'.
Location:
The two main hot spots are the Dubrovnik region and Split. Boasting the best-preserved walled city in Europe - Dubrovnik, which UNESCO declared a World Heritage Site, has seen good growth in the last 2 years. Situated north of Dubrovnik, Split is a beautiful coastal city with a population of 300,000 and is Croatia's second biggest city. This region has seen some of its properties double within the last year.
Economy:
Croatia is encouraging foreign investment with the aim of strengthening trade and commercial relations. The country is anxious to catch up with Bulgaria and Romania in their efforts to accede to the EU in 2007. The break up of Yugoslavia had a severe impact on the Croatian economy. Before this, it was one of the most industrialised republics with the principle industries being chemicals, shipbuilding, food processing, agriculture and tourism. The existing government have made it their top priority to develop a market economy and maintain economic stability. Inflation has been considerably reduced and the majority of socially owned enterprises successfully privatised. However, there is still a struggle to privatise the large state enterprises, including the banks. Croatia's long standing trading partners are Germany, Italy, Slovenia and Austria. Current largest exports are textiles, petroleum products, ships and chemicals. Almost half of the population live in rural areas where agriculture continues to be the traditional source of income which accounts to 13% of the workforce, whilst the industrial sector employs 28%. Tourism will be on the most important factors in building Croatia's economy, as it accounts for 40% of all foreign exchange.
Property Market:
Most of the properties for sale in Dubrovnik are resales with 1 bedroom apartments starting at £70.000, or 1.5 - 2k per square meter. As opposed to Spain for instance, more apartments are available than villas. In Split prices are cheaper with a 1 bedroom apartment starting at £50,000 or £800 - 2k per square metre. Most properties here are new developments and available off-plan. Developments to watch:
Examples:
Cavtat Apartments
1 and 2 bedroom apartments with terrace and fantastic sea views. 10 minutes from Dubrovnik.
Price £72,000 - £112,000.
Saldun Bay Resort
104 off-plan apartments.10 minutes from beach and a 10 minute walk to Trogir, a 2,300 year old UNESCO heritage town and one of the most famous tourist destinations on the Dalmatian coast.
Attractions:
Dubrovnik is an incredibly attractive, unspoilt city and is firmly becoming an interesting favourite with tourists looking for something different. Easily the highlight of Split is Diocletian's Palace right in the middle of the seafront. It's been continuously lived in since about 300AD when Roman emperor Diocletian built his summer house here.
Transport Infrastructure:
There are a number of weekly charter flights to Dubrovnik and Split, mostly Manchester & Gatwick, (including some other regional airports) with seats available from about £89 depending upon season. There are daily BA scheduled flights from Gatwick to Dubrovnik with a journey time of 2 hours 40 minutes from £108, and from Gatwick to Split 3 times per week, journey time of 2 hours 50 minutes from £96. The government is currently upgrading the infrastructure of the country with the modernisation of roads and railways. 70 million Europeans now have good access to Croatia.
Local Mortgage:
It is currently very difficult for foreigners to obtain a mortgage. Croatian banks don't tend to lend to people who are based abroad. However, Slovenia banks will lend.
Inflation:
3%
Economic Growth:
Real GDP growth = 3.8%
Sunshine Days:
260 days per year.
Annual Rainfall:
890 millimetres - the summer is the wettest season in the North
Temperatures:
Winter: Inland - Average 10C Coastal - Average 15C
Summer: Inland - Average 10 - 15C Coastal - Average 30 - 35C
Property Price Inflation:
30 - 100% per annum.
Local Currency:
Kuna (K) = 100 Lipas
Cost of Living Index:
The Croatian cost of living is more expensive than neighbouring Slovenia. It is twice as expensive as Hungary, although cheaper than Austria and Italy. Overall, the standard of living is lower than all of the above countries as only 70% of the work force is employed.
Income Tax:
Income tax only applies on more than 11,000 Euros on rent.
Property Tax:
5% Real Estate Transfer Tax (RETT) apples to resales. If its is an off-plan development and you have paid VAT (included in the purchase prices) on the building cost which is almost always, then you only pay one RETT on the land value. This is approximately 2% of the total purchase price.
Council tax is equivalent to about £200 per year.
Capital Gains Tax:
Capital gains on property sold within first 3 years is taxed at 35%. Property sold after that time is not subject to tax.
Buying and Selling Costs:
Dependant on the agent, but should be 2% agency fees. Land registry is negligible. No stamp duty to pay.
Rental Yields:
Average rental yields 3 - 4%.
Report Compiled By:
Julie Jenner
To download this case study in a handy pdf format use the link below:
Download Case Study TPI-HR-001
Report ref: TPI-HR-001
Date created: 13-06-2005
