Newsroom / News / Media / Info Magazine LGP NEWS 01/2022 / Real Estate Investment Trends in Croatia

Real Estate Investment Trends in Croatia

Real Estate Investment Trends in Croatia

Notwithstanding the weakened economy due to the COVID-19 pandemic, Croatia’s high-end residential market seems to be on the rise, in particular when it comes to foreign investments.

Traditionally, most foreign investors in Croatia are Germans, Russians, Austrians, Slovenians, Czechs, Slovaks and Britons, but in the last years there was also a high demand from Scandinavian investors. The most popular locations for investments are Istria and Dalmatia, in particular locations with good infrastructure and good access to airports. Contrary to some other Mediterranean countries such as Greece, airports on Croatian islands are rather an exception; only the two islands Krk and Brač have commercial airports. 

In recent years, Croatia has turned to more exclusive forms of tourism, which is a natural consequence given its rather limited tourist capacity comparing to other major touristic destinations like Spain or Italy. In addition, several laws for the protection of the Adriatic Sea and the coast have been passed, limiting the possibilities for new constructions, especially along the coastline and in more remote areas. Investing in luxurious villas and boutique hotels has become a trend, slowly replacing traditional rental houses with many apartment units. Due to the mentioned building restrictions, large-scale resorts are rare in Croatia. 

The consequences of this policy are already visible and it is clear that in the next years it will be more challenging to find and build desirable property with tourist potential on the coast. 

Land registers and restitution proceedings 

Keeping the above in mind it is certainly a good time to invest in Croatia, nevertheless certain challenges remain due to overregulated administration, quite complex construction permit applications and certain inconsistencies in property registers, none of which can be solved without proper legal and local know-how. 

One of the obstacles every diligent investor shall consider is certainly the inaccuracy of the land registry data, in particular when it comes to real estate which used to belong to a state-owned company. In this case, one cannot rely solely on truthfulness and accuracy of the land registry. The same applies to ongoing restitution proceedings. 

Even though the deadline for the restitution claims by real estate owners whose properties have been expropriated during the socialist regime has already expired, there are still pending restitution proceedings and not all of them are recorded in the land register, as there is no formal obligation to do so. 

Apart from some exceptions to agricultural land, EU citizens may purchase real estate in Croatia without any limitations. A different situation applies to non-EU citizens, who need an approval by the Ministry of Justice for the acquisition of real estate. This procedure can take up to several months. 

The restrictions for purchasing agricultural land are provided in the Law on Ownership and Other Real Rights according to which such land cannot be bought by foreign nationals, including EU-nationals. However, the embargo for EU-nationals will expire in two years, which might also be the reason for the rapidly increasing prices of agricultural land. In recent years alone, prices for agricultural land have climbed by 10 % or more. Still, according to the latest Eurostat data, with an average price of 3,395.00 euros per hectare, Croatia has the cheapest agricultural land in the European Union. For comparison, the price per hectare in neighboring Slovenia is almost six times as much and in Italy even 13 times. 

Along the coastline foreigners keep on investing in agricultural land, speculating on the possibility of its conversion to construction sites, which would increase the value enormously. The “first row to the sea”-locations that are in such high demand by foreign investors can in many cases only be acquired as agricultural land. There are several options for building smaller facilities meeting the conditions for rural tourism on agricultural land depending on the size of the land plot. For example, on the coastline it is necessary to acquire at least 3 hectares. Even though the embargo is still in force for asset deals, there is no such restriction for a share deal. As a result, every foreign national interested in buying agricultural land can do so via a Croatian legal entity or via a Croatian subsidiary of a foreign entity. 

When purchasing real estate along the coastline with already existing facilities, it is important to keep in mind that many of these objects were legalised after the 2012 Legalisation Act came into force. Upon application, only properties of their existing size were legalised, which leaves little room for additional modifications and extensions. This is why it is crucial to keep in mind that the possibilities of any changes might be quite limited, if not completely ruled out, when buying objects in more remote areas or areas right by the sea. 

Despite the aforementioned challenges, it is certainly a good time to invest in Croatia given the high demand in tourism and hospitality at the coastline, while capacity is limited, taking into consideration the continuously improving business climate despite the pandemic. 

LGP has already advised several private as well as institutional investors on real estate transactions in Croatia, with an emphasis on the Dalmatian region. With our local know how, LGP is a real one stop shop for all services connected to a real estate investment in Croatia, from diligent legal work to professional advising on the financing of such transactions. 


AUTHOR:

Mag. Mara Okmažić, Senior Legal Counsel & Head of Business Development, Head of Westbalkan & SEE Desk at LGP

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