It is being reported by a number of websites and commentators that Croatia property prices have begun to stabilize. There is perhaps some truth in that regarding specific areas or asset classes however the general picture would seem to suggest further falls for Croatian property are likely. Moreover, most of these reports are based on advertised prices, which bear very little resemblance to actual sales values of property in Croatia. Furthermore, some are quoting indexes, but we are not aware of any property indexes in Croatia that are based on reliable sales data, if anyone knows any different please contact us we will be happy to make that data available and reference it.
Why further falls? With political parties beginning to gear up for the election approaching at the end of the year, the chance of any renewed efforts by central government to kick-start the Croatian economy are unlikely. Since existing policy is both uninspiring and lack luster, we do not see any real chance of the Croatian economy making any real gains this year and in fact conditions could continue to get worse.
What has definitely happened is that buyers are now coming into the market as Croatian property prices are more reasonable and there are some good deals around. We can say this is the start of the bottom fishing process. Whether we are actually near the bottom is debate-able, for reasons mentioned above, but for some who have been waiting they feel now is an appropriate time. This is all part of the recovery process, as confidence comes back, and once again buyers and sellers expectations align and deals are made.
But, whilst positive and encouraging, the market is still very fragile. Banks are not lending, unless developers can demonstrate pipeline sales and a strong product. In the current market very few projects meet that criteria excluding those that are in the top A locations. For buyers they are lucky to get 30% LTV if at all, with cases being assessed on an individual basis and interest rates around the 10% mark (extremely high when you consider the current European Union Central Bank rate).
Foreign clients buying property in Croatia, rarely understand the reason for such caution. This is understandable but from the banks perspective what happens if a foreign client stops making repayments. Unless they are in the business of ‘loan to own’, trying to recover monthly payments on a loan of €100,000 is not cost effective. Moreover, if a repossession order follows, this is currently a time consuming and risky process in Croatia and it therefore does not make good business sense from the bank’s perspective. For EU citizens this will change as soon as Croatia joins the EU and will open up the mortgage market. This should have considerable positive impact on the Croatian real estate market.
There are a number of reasons why advertise prices of Croatian property are so high compared to actual sale values, most of which has been dealt with in this article Property In Croatia. However, one factor that has become apparent in recent months is that buyers will often negotiate as hard on a realistic price as they will on an unrealistic price and therefore Vendor’s are reluctant to reduce advertised price at all. This exacerbates the situation, especially in a market that is still in the early stage of development with little comparable data. This is of course with reference to the coastal market that is more orientated to second-home buyer but still has some relevance to domestic market too.