Croatian property | real estate Croatia | property in Croatia | investment property Croatia :: express.co.uk - Graham Norwood

FIRST Intelligence

express.co.uk - Graham Norwood - April 2010

Say Croatia and most people think of sun-kissed islands on the Dalmatian coast. But be sure that you don't overlook Zagreb, says GRAHAM NORWOOD.

Croatia has been a democracy only since 1990 but for centuries Zagreb has been an important transport hub for central Europe. Now, despite a national economy still in recession, the city is modernising into an impressive capital.

The airport is being enlarged, new trams are being introduced to the 15 daytime and four overnight lines and underground car parks are being built in the buzzing city centre. Motorways opened since the millennium have made Zagreb a major and easily accessed location for business and tourism, Venice is just four hours by car while Istanbul is a six-hour drive.

But these modern improvements take nothing away from Zagreb's beautiful past.

Upper Town, best reached via a short but pretty trip on a funicular, is a cluster of cobbled hills and streets with most of the capital's museums, government offices, a spectacular cathedral and several churches.

Many of the buildings date back to the 17th century and one of the most spectacular sights is standing near the Presidential Palace and Kaptol Square and viewing the city's beautiful tiled roofs.

Houses in this part of the city date from the 15th century.

Some are converted into apartments but there is the occasional empty wreck awaiting restoration.

Lower Town is modern, blending 19th and 20th century buildings in a U-shape, peppered with squares, parks and walkways and giving the area a leafy atmosphere. Far from the old days of spartan communism, the city is now a haven for upmarket shopping - Armani, Dolce & Gabbana, Calvin Klein, Diesel and good old Marks & Spencer can all be found in the lower town, while boutique shops in quiet streets provide comfort for anyone in urgent need of retail therapy.

The appeal of the city to the property business is obvious. Despite the recession there have been many multinational relocations in the past five years, involving high-profile companies like Siemens, Ericsson and Coca-Cola.

There are 25,000 students at Zagreb's universities, so the rental market has been relatively strong for smaller apartments.

HOWEVER, property sales in Zagreb, as elsewhere, have suffered short-term falls. At the height of the market some 24,000 apartments were completed in 2007 alone, so work on almost all city centre schemes was frozen when the credit crunch hit and not all are yet out of mothballs.
"There are many brand-new apartments on sale today. Prices went down by 20 per cent to 30 per cent, although properties at the best locations roughly kept their value, " explains Tatjana Tosic of Avenia, the Zagreb associate of the British estate agency Savills.

In the city centre, Avenia has a two-bed period apartment needing renovation for a mere X95,000 (£85,400) - that's X2,100 per square metre. In the fashionable suburbs of northern Zagreb prices rise to X3,000 per square metre and villas can easily be 200 square metres.

Build quality for new homes is relatively high.

Most apartments have large terraces, ash flooring and granite worktops as standard, with parking spaces and high levels of landscaping. More expensive new properties include pools, private gardens, remote control heating and lighting, sophisticated video entry phones and CCTV.
The problem for foreign investment buyers is demand for homes from locals has fallen and without this demand, long-term price growth is on hold.
"The locals stopped buying because of job insecurity and difficulties with bank loans, " says Tosic.

But now a group of Zagreb estate agents has been formed to lobby for a state-backed programme to revive the market.

Colliers International, a worldwide agency, wants state help for Zagreb residents who buy new homes but might struggle to meet mortgage repayments. The firm wants the scheme to run until the economy recovers, which is expected in 2012. "This would give impetus to a market stifled by consumer worries, " says a Colliers spokeswoman.

Once homeowners got new jobs, they would start making payments again and repay their debt to the state - a scheme that has already kick-started similar property markets in the Czech Republic and Slovakia.

Until that happens prices will stay relatively low in Zagreb. Agents say foreign investors, common five years ago, are returning. They are confident the economy will recover and lead to capital appreciation.

In the meantime, they will let.

"There is always demand for rental properties from students and new companies relocating here, " says Tosic. Rental yields have been as high as eight per cent per year even during the recession, for smaller centrally-located apartments.

But British buyers wanting a bargain, for themselves or to rent out, should budget for high transaction costs. Properties built before 1997 incur a five per cent purchase tax, soaring to 22 per cent for post-1997 homes. Add to that a typical fee of four per cent paid by purchasers to the selling agent, as well as two per cent legal fees.

For local home owners and foreign investment buyers alike, however, there is the hope that should Croatia join the EU - talks have been going on for years - prices will then recover their former glory.

Original article at http://www.express.co.uk/features/view/167804/Croatia-Capital-chance-of-gain