Experiences of an American woman who was married to a Serb.

Monday, March 3, 2008

Buying Property in Croatia: Real Estate Prices

Real estate is fairly new to Croatia. So if you are coming from outside, it is going to drive you NUTS. I just spent six weeks trying -- and failing -- to find a flat to buy in Zadar Croatia near my in-laws' place. If you're one of the thousands of Brits, Germans, Italians or ex-pat Croatians who are considering Croatian Real Estate, I console myself that the past six weeks of torture weren't entirely useless as I can share my lessons with you in this blog.

First, here's some info on pricing:

Today's Croatian real estate pricing is decided by how much the owner thinks they can gouge the market for at some indefinite point in the future. They are usually not selling because they absolutely have to, or with any kind of tight deadline.

So, there's very little pressure to lower prices when the market is flooded, or when something's been on the market for a year (or two), or when nothing is moving at all. Everyone digs in and waits for the long haul. They are quite sure their place will be worth a whopping amount someday; everyone KNOWS the future is bright.

Why not wait? Nobody needs to move, if the family flat gets cramped with too many generations sharing 60 square meters, you can use the neighborhood cafe as an extended living room and/or get a bank loan to buy a car to go parking for your more private moments. (Cars are less for commuting and more for status.)

It's an open secret that many new buildings are built for money laundering purposes. (Croatia is one of the money-laundering capitals of Europe.) That's why you see so many cranes busily erecting new flat buildings like crazy even in markets where when practically no new flats are being sold. Building these can be very cheap -- homes and apartment buildings in the Balkans are made from concrete and concrete blocks, which don't cost much. And you use super-cheap Bosnian labor. In fact there are so many Bosnians on building sites that the Port-o-Potty on site (when on the rare occasion there actually is one) may have "Bosnians Go Home"-type graffiti inside it. After the investor has sold a handful of flats, the building costs are covered, their money is laundered. The rest is gravy, and they can afford to wait for that train to come in.

Many honestly don't care if it takes years to sell the flats, they figure their money is safe there and prices will only go up someday. Having a few flats on the side to sell is like having a long-term retirement investment account.

Flats are priced in Euros by the square meter. So, at first you're doing math like crazy in your head to figure out what a place really costs. After a while you get used to it. 1,500 Euros m2 is a very good price for one Zadar native selling to another Zadar native for an older flat that's a ways out of town. When you get in town, nearer the center, prices can go up to 2,000-2,500 Euros m2. I've seen some for 3,000-3,500 Euros m2 if there's a water view and one for 4,000 Euros m2when they heard I was American.

Zagreb, Dubrovnik, and Split are all more generally expensive than Zadar. Most of Serbia is a heck of a lot cheaper -- I was stunned to learn I could get a good flat in the best neighborhood in Belgrade for less than the best flat in Zadar. For now anyway.

So, to put this into US dollars: a typical 750 square foot, two-bedroom apartment with balcony in a fairly nice downtown neighborhood in Zadar may cost you $210,000-300,000 plus realtor fees and buyer taxes.

The biggest mystery about price is how can natives possibly afford it? The answer is they can't. Although real estate costs about the same as it does in my corner of the US, salaries are nowhere near as high in Croatia, and only 1/3 of the population has a job (the rest are too old, too young, or just unemployed.) However, credit cards are new and health and education are free, so people don't have anything like the type of personal debt Americans stagger under. That means most people can afford a mortgage for just under 100,000 Euros. Which in turn means small, cheaper flats tend to be snapped up quickly. Anything more expensive lingers on the market forever and ever, waiting for a German millionaire or returning expat to buy it.

Historically, before about the mid-1990s, all property was essentially free - you got your flat in town as part of your employment and often inherited land in the country from family. Even your holiday flat by the sea was often built by your employer. So the older flats being sold are usually ones that no one actually paid for. No one's parents had mortgages. That doesn't mean they don't expect top Euro when selling them. After all, this is their big chance at last to make some real money.

Prices are affected by:
- sea-view and number of meters to ocean
- floor (lower is better unless there's an elevator)
- how hard the apartment will be to heat (windier sides and the top floor can be cheaper sometimes)
- 100% wood vs wood laid on concrete floors (the latter is seen as higher quality)
- ceiling-height (very old buildings can have 15+ foot ceilings which are dark, hard to heat, and less valued)
- size extremes (a tiny place is worth far more per square meter than a very big place)
- recent renovation.

Recent renovations are nearly always horrible to the non-Croatian eye -- especially lots of tiling you'd rip out and replace immediately -- and the owner wants to make back 200% -500% of the renovation costs. Also, renovation will only touch the apartment itself, NOT the common areas of the building.

I've been in several ultra-expensive renovated apartments inside buildings that are literally falling apart with concrete falling off the sides of the building, giant cracks, etc. Even the nicer buildings in better local neighborhoods will have lots of unpleasant graffiti on the ground floor, in the stairwells and in the elevators. There's absolutely no sense that inhabitants think of the common areas as being anything they have any duty or relation with. So, somebody's dog peed in the stairwell repeatedly, it's not their problem! It certainly won't affect their apartment price.

Price nearly always does NOT include kitchen. You'll get the space and the plumbing hook-ups, but no fridge, stove, cabinets or even countertops. You'll just get an empty space. People take their kitchens with them when they move. (This is true in Serbia as well.)

You also won't get a washer/dryer. You'll get an empty spot in the bathroom where the washer can be placed, and you'll get a balcony on which you can string laundry. (The few people who don't have balconies, hang their laundry out on lines outside the window.) I saw a dryer in a Croatian store once. I have never seen one inside an apartment and I have seen nearly 100 apartments.

Parking is almost never included in the price either. Even newer buildings have a laughably tiny number of parking spaces. The code must be something like one space per every ten apartments... or maybe there is no code at all. You can buy parking spaces in-town, but they are pricey, as in tens of thousands of Euros. If you are buying in a village outside of a main city, then you'll have no problem parking on the street. If you're buying in a city or large town, parking will be a problem, especially if you have anything bigger than a mini.

When you buy a flat, you'll also be charged a monthly fee for building needs. This often includes heat, but almost never air conditioning. It's fairly low and thus the building committee does not have enough funds built up to pay for anything significant like a new roof or elevator or graffiti removal or anything like that. Some buildings are infamous for owners who do not pay their fees. If the owners got the place as part of their job in the old Yugoslavian days (which is the way the vast majority of people got their places), it's next to impossible to evict them if they don't pay the fees. Old age pensions are dismally low in Croatia, so even if the building fee is only 50-75 Euros a month, it may be out of reach for some owners. In Zadar, and probably other places, this has resulted in skyscraper-style buildings which no longer have any central heat in the winter because not enough tenants pay for it to be switched on. If the building was built without chimneys for individual apartment heating stoves, you'll be cold.

Land pricing ranges from almost nothing - 10-15 Euros a square meter - to insanely high 500 Euros a square meter -- in relatively short distances. If you're in Zadar downtown or on the water in a village with electric and water, you'll have to be a millionaire. If you go just 15 minutes outside of town, land is next to nothing. I expect that's partly because no one really had cars until recently, so no one thought building land was that valuable.

Only Croatians can buy land. Foreigners can only buy flats and buildings - hence the crazy prices for "old stone houses" in vacation spots. Officially you're buying the house and the right to re-build it, not the land it stands on. This may change if/when Croatia enters the EU, so prices will go insane someday.

If something is advertised on the Internet, assume you're seeing the top Euro price and the cost for a native might be cheaper. Croatians assume that if you are surfing the Internet or even working through a realtor you must not be a native... and if you are not a native, you must be a Crazy Rich Foreigner. And ipso facto ready to be ripped off.

Croatians expats who have lived abroad and are now returning home are generally considered to be in the Rich Foreigner category. After all, if you were a native, you'd get land from your family (everyone seems to have a bit of land somewhere they inherited along with 12 cousins on their mother's side.) Or you would buy your apartment directly from a friend or network of acquaintances and not bother with this realtor stuff.

Tomorrow I'll explain about the realtors....


Sanda Kufrin said...

I really enjoyed your blog. I am currently considering buying property in Croatia and am amazed at the "unrealistic" prices, to say the least. I love your humorous interpretation of the "real estate industry" in Croatia.

Anonymous said...

Well, I think the prices are fair enough. If people want a bunch of drunk tourists around them, they can buy in Spain for example. If Croatia would be affordable to everyone like Bulgaria, it´s wouldn´t be attractive anymore.

Anonymous said...

Yours story is just partly, almost non realistic and from your vey bad experience.My experience with that topic is that croatian real estate industry is fair enough, and not expect to be low priced than other europian countries. In fact, Croatia is the most beautiful
country in hers nature from country to the sea-cost side, 1200islands and excellent food. So, I give my vote to buy real property in Croatia.

Anonymous said...

Its 2012 and not much has changed from your 2008 input!!!

I agree with you spot on!! there was a study conducted by a German economist and he valued the average square meter in Croatia to be around 650-800 euros!!,, and you know what the closer Croatia is getting to the EU prices are dropping. Croatian real estate is way too overpriced the problem with bubbles is that eventually at some time the bubble has to burst and Croatia has yet to see its real estate bubble burst. Only then can there be a realistic price fix on real estate rather than "what the owner thinks"!! and that has been the problem with prices ever since we switched to the Euro. I would recommend that no one buys anything until Croatia becomes an official member of the EU.. banks will then be forced to give real interest rates on mortages ( as it is in the rest of europe) and I believe that prices will go down at least another 25 percent. Many forums have depicted Croatia's real estate market to be dead money!!! the reason for this is that the resale value cannot under these current financial trends be calculated which in turn does not give any indicators as to how much one can make by buying real estate in Croatia.

Anonymous said...

The only thing that baffles me is the fact that when you buy a flat or a house in Croatia you are only getting the bricks, walls, and cement!! I wanted to buy a flat in Zagreb last year and every flat they showed me had NO kitchen, NO standard appliances (stove or fridge) bathrooms were not fully equipped and the real estate agent told me that I was getting a good deal at 1960 Euros per square meter for a 65 meter square flat a total of 127,400 euros (162,000 USD). I could buy 3 150 square meter houses in Texas with huge lots for that much money, I understand that Croatia is beautiful but is it worth that much, I just don't get it. I liked your blog Rosemary and found it interesting, I guess that the real estate agents in Croatia find us Americans to be loaded with cash and willing to pay twice the price!!!!!!