The year 2021 was marked by a major event that affected many lives: a global pandemic engulfed the entire world and changed many of our habits. But in the case of real estate prices, the exact opposite of what most expected happened. The real estate market did not stop being active because of the pandemic, and despite the drop in GDP, the prices of all real estate did not fall, but rose mercilessly.
The average price per square meter in new construction in Croatia has increased by 6% since 2020, and the difference from five years ago has reached 30-40%. This means that five years ago you could have bought the same property for almost three times less money, but an even bigger problem is that the increase in real estate prices did not follow the increase in incomes.
Why has the price of real estate been rising for the last few years?
There are several reasons why the price of apartments has been continuously rising since 2017.
One of them is the absence of real estate tax in Croatia, which is why people who have money own several properties (because they can afford them). They continuously buy real estate and thereby maintain their high price – because as long as there is demand for real estate there is no need for price correction.
A very important factor is the so-called “price of money”. Due to record low interest rates on loans, the amount of which does not change, people move their money to a safer investment and buy real estate. In this way, they ensure that their money will not be eaten by inflation. Real estate has always been considered a very good and stable investment for the future.
The next reason can be found in the recent devastating earthquakes in Zagreb and Bania, which also greatly affected the demand for real estate.
Due to the pandemic, which caused the procurement of construction materials to be more difficult and its large consumption related to the reconstruction of the houses of the victims in the earthquake, the price of newly built buildings, especially residential buildings, also increased.
One of the reasons for the demand for real estate is the great interest of foreigners in buying real estate in Croatia. According to today's statistics, every fourth real estate buyer in Croatia is a foreigner, and it is their purchasing power and interest that has raised prices on the real estate market, especially in the coastal area. And that trend will certainly remain strong, or even increase with Croatia's entry into Schengen, which will make it even easier for foreigners to buy real estate.
A major influence on the state of the real estate market is also the state program of subsidizing the purchase of apartments, which is often not a real need to buy real estate, but rather a calculated calculation on the resale of real estate (considering that real estate prices are constantly rising) or noticing the possibility of renting an apartment after a certain period of years of income subsidies. It was precisely the low interest rates of APN loans and state subsidies for part of the loans that raised apartment prices because they increased the purchasing power of citizens.
What will the real estate market be like in 2022?
Experts who study the real estate market and the changes taking place in it claim that the market in Croatia, as well as in the rest of the world, is still very active, and that it is not currently expected that there will be any major changes in it.
Recently, the possibility of creating a real estate bubble based on the rapid growth of real estate prices without any real basis has been mentioned very often, after which the bubble usually bursts and the market collapses. Price growth should be increasing for a real reason, such as the development of the city and the increase in its population, and not without a real basis as is the case with many cities today.
Although there is always the possibility of a black scenario and a sudden collapse of the real estate market, experts believe that at some point it will happen that the supply will meet the demand and that inflation will cause interest rates to rise, so the demand for apartments will decrease, and their prices will fall to more realistic amounts.
An expansion phase is still predicted for 2022, because the demand for apartments is high due to the possibility of obtaining favorable loans (so-called cheap money), but after that there should be a phase of increased supply when there will no longer be so many buyers, so there will be stagnation or falling prices of apartments and real estate.
The current state of the real estate market in Croatia
Apartment prices in Croatia are continuously increasing, but mostly in certain parts of the country. The highest average apartment prices are found in large cities, such as Zagreb, Split and Rijeka, while the lowest prices are in cities in the east of the country.
The average price of a square apartment in Osijek is around 1,000 euros, while in Varaždin it is as much as 500 euros higher, and in Zagreb it is two to three times higher than the price in Osijek.
Coastal areas also vary in price, so in Dubrovnik, Opatija and Split, a square meter of residential space costs as much as 3,000 euros, but in other coastal cities the average price is slightly less than 2,000 euros.
