Buying Pre-construction in Croatia

Saturday, May 17, 2008

Read more about investing in overseas real estate in International Living Postcards —Saturday Edition

The Croatian real estate market has matured over the last few years. Prices appreciated rapidly as Europeans came in and bought coastal properties and farmhouses to renovate. The expectation was that there would also be new construction, but new development was stalled for several years as the government revamped its planning approval process. While the government was fine-tuning the rules, the only new homes available were small apartment buildings that were outside of the planning requirements.

Today, the options for new construction have multiplied, and buying pre-construction is again an option for investing on the coast of Croatia. While you can buy with the idea of flipping before closing, it probably makes more sense to hold onto your apartment and rent it out.

Most of the new construction along the coast is geared toward short-term rentals—the tourist market. The units are small one- and two-bedroom apartments close to ocean. Larger developments may include a rental management program in their services. Smaller projects ranging from a few apartments to a couple of dozen apartments likely won’t offer built-in management services, but many real estate agencies offer short-term rental and property management.

Many tourists to Croatia drive down from Central Europe. It’s not a far drive, and they save the cost of a rental car by bringing their own. However, with more airlines flying directly to Croatia’s secondary airports, the country is more accessible than ever from throughout Europe. The airports on the coast with direct flights from at least one European destination include Pula, Rijeka, Zadar, Split, and Dubrovnik. Trieste in Italy is also close enough to Istria to consider it a local airport. In fact, Trieste airport is closer to northern Istria than the airport in Pula.

Dubrovnik is still the jewel of the Adriatic, but it is far south in the country, which limits your potential rental pool to those flying in...and it’s the most expensive area on the coast. For pure investment potential, looking farther north probably makes more sense.

The city of Split is the center of much of the action. Although it attracts visitors for only a day or two, it is the crossroads to get to the major islands, Hvar and Brac. The prices on the islands can be reasonable relative to mainland prices...as low as $3,095 per square meter. North of Split is the island of Ciovo, which is connected to the mainland by a short, narrow bridge. In fact, crossing it, you may not even realize you’ve traversed to an island. This island gets much more traffic than Split, much of which is from Central Europeans. Ciovo generally offers a good price-to-yield ratio, as occupancy rates are very high during the summer season.

The Rijeka airport is on the island of Krk, which, again, is connected to the mainland by a bridge. Some developments are under way on Krk, and you can expect more as demand rises. The flights into Rijeka airport are relatively recent, and the developers haven’t fully appreciated the opportunity yet.

Istria offers a wide choice of new construction right now. While the entire peninsula is a tourist destination, the main towns are Pula, Porec, Rovinj, Novigrad, and Umag. Porec has the most tourist hotels and has traditionally been the center of the tourist activity, both literally and figuratively. With new roads running up and down the peninsula, getting around is easier, so almost anywhere along the coast should attract potential renters.

Prices for new construction along the coast range from €1,750 to €3,000 ($2,700 to $4,600) per square meter. Of course, the closer to the ocean and the closer to a major destination...the higher the price. Sizes range from about 35 square meters to over 100 square meters, with the average apartment around 50 square meters. So while you can buy an apartment for as little as $110,000, most opportunities will be in the $155,000 to $310,000 range.

You should expect reasonable rental yields, in the 5% to 6% range.

Lief Simon
For International Living

P.S. Non-resident mortgages are available in Croatia, which makes the idea of holding on to your pre-construction purchase for rental even more sensible. Current rates are in the 7% range, and you can get a mortgage for up to 70% of the purchase price. Many real estate groups can help you arrange local financing, but they’ll typically make the introduction to the bank only if you are buying through them. Croatian Sun offers a selection of pre-construction properties and works with a bank for obtaining a mortgage.

Editor’s note: Lief will share more tips about how to profit from international real estate at our Ultimate Event in Cancun, Mexico, May 28–31. We’ve almost reached capacity for our biggest event of the year…but a few seats remain, but hurry! You don't want to miss it.

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