Market warming is particularly evident when looking at changes on an annual basis. On a scale of Croatia, growth was 7.4%, with the highest annual growth rates recorded in Zagreb - 11.4%.

After the balloon burst with the crisis over the entire decade, real estate prices plummeted and pulled towards the bottom of the construction sector, it took six years for the trend to turn. A slow growth has recently accelerated, and there is increasingly a concern that prices are getting out of control and that a balloon is once again being created on the market. Almost overnight, it has become "normal" again to sell the price of a square meter of an apartment in Zagreb for over 2,000 euros, and on some exclusive locations, such as Bundek where the American School is located, it is even above 3,000 euros. The experiences of real estate agents, who best "touch" the interactions of supply and demand, say that apartments of up to 40 square meters are often sold in a few hours, those up to 55 square meters in a few weeks, and anything above that is waiting for a long period of time for agreement between the buyer and the seller.

Price Index Croatia's residential property price index has risen 3.5% over the first three months of the year compared to the previous three-month period, and 7.4% on an annual basis, according to the latest figures from government statisticians. Growth this year occurred only in Zagreb and on the coast, while the rest of the country saw prices fall (-1.4%). By the end of March, prices in Zagreb had increased 4.3%, and in the Adriatic region 4.6%, on a quarterly basis - the fastest since the beginning of the great crisis, according to analysts from Raiffeisen bank. "More three-month growth rates in the City of Zagreb were recorded in late 2006, while on the Adriatic during the second three-month period of 2007," they say. To illustrate that the recovery is extremely selective, takes into account the location and quality of the object. New buildings have recorded relatively strong 7.4% growth, the highest since the data has been available. Existing objects have experienced a third consecutive quarter of price growth, however, still quite moderate 3% in the first three months of this year.

Vujović

From the point of view of the association to believe that the balloon will pop and take others with it, I do not think it is real. When it comes to real estate prices, I think we are close to or have reached the ceiling.

Market warming is particularly evident when looking at changes on an annual basis. On a scale of the entire Croatia, growth was 7.4%, with the highest annual growth rates recorded in Zagreb with a double-digit plus, even 11.4%. So, if the square of last spring was worth 2,000 euros, just three months ago, its price was on average 228 euros higher, and an average apartment of 50 square meters was 11,400 euros (almost 85,000 kuna) more expensive. Prices on the Adriatic rose in line with growth on a national scale, while in other parts of Croatia, growth reached just 1% over 365 days.

"Rises in the price of residential objects are a result of the return of optimism among consumers and increased demand, despite the fact that 90% of Croatian households live in properties that are their own," think in RBA. Apart from optimism and "historical predisposition" of real estate, the bank sees a significant increase in demand in the relatively high propensity of households to rent with the aim of increasing their available income. The propensity for a rental economy, to properly name things, is beneficial to historically low interest rates, which motivate new borrowing on one hand and savings in banks, whose interest rates on deposits are currently not enough to cover inflation on the other. Therefore, it is to be expected that a part of the money will flow into the purchase of residential real estate. Costs and Wages Boro Vujović, owner of Opereta real estate and deputy chairman of the Real Estate Business Association at the Zagreb Chamber of Commerce thinks it is difficult to conclusively say whether a bubble is being created on the market or not. "From the point of view of association to believe that the balloon will pop and take others with it, I do not think it is real. When looking at some prices, they are on levels similar to those in 2007 and 2008, but wages and construction costs are now different, so these prices are not even close to the levels back then," he says. About 60% of their customers pay "in cash", selecting money from savings in banks. While just a decade ago, property was bought outright on credit, today buyers take on debt for about 50 to 60% of the required amount, and the rest covers from their own means. Vujović notes that it is clear that the trend cannot continue indefinitely. "I think we are close to or have already reached the ceiling. Today, the realized price of apartments in Zagreb is around 1,800 to 2,000 euros per square meter, but that's with us in the agency because we don't have a lot of new construction. Prices are a consequence of the fact that there has been no construction for a long time, the market has been hungry for new apartments, and the government has launched a program of subsidized housing. In the meantime, a lot has been built, and the pool of buyers, of whom the majority are domestic, is slowly emptying," says Vujović. When asked whether a bubble is forming on the real estate market, Željko Lovrinčević, an advisor at the Economics Institute, has no doubts. "Yes, and that's very dangerous. While real estate prices are rising due to speculative demand, the effects spill over to the rest of the economy, creating new imbalances. Rent increases that open up the problem of mobility of the workforce. Employees whose wages do not keep pace with rent increases, and are talking about all sorts of salaries, come into a situation where they cannot afford apartments in Zagreb and larger cities. This is a problem of accommodation for students in some cities, as well as the accommodation of the elderly in the context of a lack of homes - in short, all citizens without their own property," says Lovrinčević. Savings are being channeled exclusively into real estate, unlike other countries, there are no developed alternatives for investing in other classes of property, such as the capital market, gold, agricultural land, investment funds. With the difference that today, most are not buying real estate for family needs, but it is a pure investment, speculative story. Lovrinčević thinks that the state has completely failed over the years by not offering a single quality company for listing on the stock exchange, which could attract a part of the free savings. Along with the capital market, he believes that other classes of property need to be developed to diversify. This means suspending the capital profit tax and the tax on interest-bearing savings, which could somehow relax the transaction costs in those investments. "The state must address the issue of this bubble. The guiding idea in the tax reform should be to deter the influx of capital into the real estate market and, on the other hand, encourage investment in all other markets and classes of property. In terms of taxation, this means the real estate tax, which is not just a matter of opening up space for work but also an instrument to prevent the creation of a real estate bubble and to encourage speculation. It is irrelevant to further reduce the general VAT rate from 25% to 24%, as there is no structural force to correct the imbalances, this can only be done by other taxes," concludes Lovrinčević. Lower prices "It should be noted that prices are still 5.3% below the average level of 2008. Measured by location, only the Adriatic has reached the average level of 2018, as prices in this region have been 0.3% higher. Prices of apartments in Zagreb are 5.3% lower, while in the rest of Croatia, the average price of residential objects is 14.3% lower than the average prices of residential objects in 2008," emphasize in RBA. The current forecasts paint a picture in which neither macroeconomic conditions nor conditions on the real estate market will significantly change, and in combination with higher construction costs, it is realistic to expect the continuation of pressure on price growth, even above that experienced last year. "We expect a continuation of growth in 2020, but at a slower pace of around 5%", say in RBA, with the caveat that this will, of course, depend on the location and quality of the object.

Government Subsidies

'Shook the shallow market' Although the government's praise for the program of subsidized housing is praised as a social measure, it has only shaken the shallow market, experts say. "We have been against it from the first as the Association, and still believe that it is the main trigger for the rise in prices, because the program is limited to a short period, raising prices and, once they reach a higher level, they are cemented," says the owner of Opereta. source: poslovni.hr

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