Croatia Leads EU in Real Estate Price Surge
Real estate prices in Croatia are experiencing an unprecedented surge, setting a record for growth compared to other EU members. Croatia has consistently outperformed other EU countries in real estate price growth, even on an annual basis, trailing only Iceland. In the first quarter of 2023, EU countries experienced an average price decline of 1.5 percent, with Denmark (-6.5%), Germany (-5%), Cyprus (-4%), Sweden (-3.4%), and Finland (-3.4%) recording the largest declines. In contrast, prices in Croatia rose by 4.7% over the same period. In particular, Zagreb recorded the largest increase in house prices, at 22.5%.
Factors Driving the Growth of Croatia’s Real Estate Market
A few important factors are responsible for Croatia’s real estate market growth. First, its tourism boom with a stunning coastline, clear waters, and historic towns attracts over 20 million visitors annually, spurring demand for rental properties and driving up prices in tourist hubs. In addition, Croatia’s affordability compared to other European nations is attracting retirees and relocators, lured by the lower cost of living and vibrant culture. Finally, Croatia’s entry into the Schengen area and the transition to the Euro as its currency have opened doors for foreign investors. These developments are expected to have a positive impact on the real estate market, providing opportunities for investment and growth.
The Impact of Interest Rates and Inflation
One of the main factors that will influence the real estate market in 2023 is the rise in interest rates. After years of historically low interest rates, we can expect a shift towards higher interest rates, which may have an impact on real estate prices. In addition, the inflation rate is also expected to play a significant role in market dynamics. The effects of the COVID-19 pandemic, such as supply chain disruptions and increased costs, have contributed to a high rate of inflation. These factors, combined with the upward trend in real estate prices, may lead to further price increases in 2023.
Supply and Demand Dynamics
In recent years, Croatia has witnessed a surge in demand for real estate, especially in desirable locations such as city centers. The current market situation is characterised by a shortage of available properties, which leads to higher demand than supply. As a result, buyers are focusing on quality rather than price. Properties in city centres are likely to hold their value, while those in less attractive locations may face challenges. It is worth noting that foreign buyers often perceive Croatian property prices as high compared to their home countries, although they are relatively reasonable.
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Hotspots of Vacation Home Buyers & Prices
Croatia faced significant challenges in 2020 with two earthquakes that hit the Zagreb region. These events exposed vulnerabilities in the quality of housing and led to a decrease in the number of properties available for sale. Real estate prices in Zagreb range from about 3,000 Swiss francs for new construction to about 2,600 Swiss francs for second-hand apartments.
The Istria region in northern Croatia is a prime destination for vacation home buyers, especially Germans, Austrians, and Italians. Its proximity to major European cities and its stunning coastline make it an ideal location for a vacation home. However, due to its popularity, real estate prices in Istria are relatively higher compared to other regions in Croatia. The average cost per square metre of residential space there is around 2,500 Swiss francs.
Known for its mediaeval city of Dubrovnik, Dalmatia, in the south of the country, has also seen a surge in tourist arrivals. Despite the longer journey to reach the region, property prices here are around 3,500 Swiss francs per square metre.
