Three experts analyze future market movements in the real estate market in the capital, but also on the coast

After nearly three years of strong growth, the pandemic that swept the borders of Croatia in the late winter almost entirely stopped trading in the domestic real estate market. Only a month after the appearance of the coronavirus, Zagreb was hit by a devastating earthquake that ended even the little trade that remained in the city despite the restrictive anti-epidemiological measures. The media, particularly social media, quickly spread reports of a drastic drop in real estate prices in the most desirable locations, the Adriatic coast and the city center. In a country where a large number of citizens own their own homes, and a considerable number also own additional properties, such forecasts always cause unease. Estate agents have generally avoided publicly predicting how the situation would develop, asking that we wait until the normalization of extraordinary circumstances. As more than a month and a half has passed since the earthquake and the spread of the coronavirus has at least been temporarily controlled, we decided to check what three prominent mediators in buying and selling property say about the current situation and what they expect in the near future. THE MARKET WAS ALIVE UNTIL MID-MARCH EARTHQUAKE Although the first COVID-19 case was detected in Croatia as early as February 25, real estate experts we spoke to assure us that market disturbances were not noticed for a while after that, and not even when the daily number of new cases in Croatia had already reached two-digit figures. "Until the beginning of March this year, the real estate market was within the trend of growing demand and real estate prices, which have been ongoing for the past three years. It was only when the COVID-19 crisis escalated and emergency anti-epidemiological measures were introduced by the Crisis Management Headquarters that the market came to a standstill. It is now in a state of hibernation with a negligible number of transactions," says Dubravko Ranilović, president of the Real Estate Trading Association and director of the Kastel Realty agency in Zagreb.

TRADE FELL BY 90%

The same is said by Boro Vujović, deputy president of the Real Estate Trading Association and owner of the Opereta Realty agency. "We did well until March 15. It was only then that the market situation began to deteriorate rapidly. As it became clear that COVID-19 would be a real epidemic, trading came to a standstill. At a time like this, people are practically banned from leaving their homes, and under such circumstances, there can be no talk of serious business. However, you can't buy property over the internet," explains Vujović. Transactions were extremely low, and in some agencies even ceased completely, until Easter. In Zagreb, the only business done was in renting properties, likely due to the earthquake, our informants say. "There are always exceptions, but trade has fallen by over 90% in the number of transactions, with some agencies even reaching 100%. What is being realized right now are only transactions that began before the pandemic, and a small part of real estate trading related to subsidies," says Dubravko Ranilović. RELAXATION OF MEASURES LIFTS THE MARKET As anti-epidemiological measures were relaxed, the real estate market began to show the first signs of life, real estate experts told us. "As soon as restrictions were lifted, we started noticing increased activity. From this Monday, we have a significantly higher number of inquiries, and people are starting to inspect properties. However, so far, only sales concluded before this situation are functioning," says Lana Mihaljinac Knežević, president of the Real Estate Trading Association for the Zagreb region and director of the Zagreb West agency. Boro Vujović adds that the market started to move again in mid-April. This is, in his opinion, due in part to the APN's measures, with over 3,000 requests for subsidized mortgages, he says. In addition, some Zagreb residents had to buy new properties due to the earthquake, emphasizes Vujović. "Some buyers are aware that the situation is uncertain, and that in the fall they may not have the same credit conditions as they do now, so they have started buying. Sales are currently much lower than they were before mid-March, but they have indeed resumed. People are finally allowing you to bring interested buyers to their homes again, which is a very important part of the story," Vujović told us. THERE IS INTEREST, BUT NO DECISIONS Dubravko Ranilović points out a part of the market that has not been completely frozen, even in any moment. "The relatively active market is that of rent. This can be attributed to the fact that the rental of properties in tourist destinations completely stopped, and some properties have shifted to residential use. In Zagreb, there are many people who need temporary housing while their properties are being renovated. However, all of this together is not something that would significantly affect the frozen market," says Ranilović. "Lack of social contact has made it difficult to organize property viewings for a long time. Fearing infection, people are not concerned about property. When you are worried about your health, property is not your primary concern. People call and inquire about available properties and their potential values, but they still don't make decisions because there is too much uncertainty," explains Ranilović. PRICES ARE NOT DOWN Demand for real estate may have dropped to record lows, but experts who are concerned about a big drop in real estate prices or who have high hopes for one are misinformed, all the experts we spoke to agree. The basic prerequisite for a drop in prices is that there would be a drop in demand and a reduction in the number of transactions, Ranilović explains. The owner of the Kastel Realty agency believes that a significant drop in prices will not occur. Ranilović believes that we will first see a correction in prices for properties whose prices were unrealistically high even before the changed circumstances. "Idealistically, you can't expect owners to give up, for example, half of the expected price. This will not be possible, even for those whose properties have been severely damaged by the earthquake. Ultimately, properties, especially residential ones, are sold primarily with a certain goal in mind, and most often so that the sellers can purchase another property in which to live. If you accept a lower offer for your property, you will not be able to afford it," says Ranilović. OFFERS OF 50% ARE NOT GOING THROUGH Assertions that real estate prices have fallen by 30, or even 50% in some reports, are categorically denied by real estate agency owners. "The fact that we currently have so few transactions that we cannot say based on them that real estate prices have fallen. In any case, a 50% drop in prices is not possible, not even in buildings that have been most severely damaged in the Zagreb earthquake. The market simply does not function in this way. The longest time it takes to convince owners of their ideas, which are not realistic," explains Ranilović. He is in complete agreement with Boro Vujović, who adds that his agency has realized all the transactions that concluded after the crisis began at prices within the range of the sought and obtained prices that were valid before March 15. "Of course, some buyers have appeared who offer 50% of the sought prices, but such offers are still not going through," says Vujović. MUCH WILL DEPEND ON THE DURATION OF THE CRISIS All our interviewees are convinced that long-term trends on the market depend on the duration of the consequences of the pandemic, or the depth of the economic crisis we expect. Lana Mihaljinec Knežević says that it is premature to make serious predictions. "We are very cautious in observing all the factors that normally affect the market, such as GDP, consumer purchasing power, interest rates, and interest rates on deposits. The economic situation and the real estate market are intertwined. Understanding the situation is not helped by the fact that global institutions and the HNB have drastically different predictions about how much the Croatian GDP will fall. We will have to wait before making any serious estimates," says the director of the Zagreb West agency. Dubravko Ranilović describes to us how the real estate market looked during the last big crisis, caused by the recession that began at the end of the last decade. "It was only a year after the crisis began that prices began to fall, and it took almost six years for some properties to have their prices drop by 30%. Almost all properties did not experience a drop in prices. I expect the situation to be difficult and challenging, but I do not expect the market to collapse," says Ranilović. CORRECTIONS ARE EXPECTED IN ZAGREB The Zagreb city center has always been a unique micro-location on the Croatian real estate market. Although part of the center was severely damaged in the earthquake, experts we spoke to predict that properties in the city center will remain highly attractive to buyers. However, a correction in the prices of unrealistically high-priced properties is still expected, they emphasize. Mihaljinac Knežević says that the market has seen a rapid growth in prices over the past three years, due to the accumulation of capital, positive economic sentiment, and excellent tourist seasons. "The real estate market has been observing a strong growth trend since 2017, and this is also due to the fact that in the years leading up to the beginning of this period, the crisis was so severe that people did not have anything to buy. And the subsidies affected the state of the market, leading to overpriced prices for some properties. We have ended up in a situation where sellers are trying to get the same price for old buildings as for new ones. That will not be the case anymore. Prices for such properties will have to drop if such individuals want to sell," says Mihaljinec Knežević. Prices will not drop in tourist areas, nor will they drop in quality apartments in new buildings, she believes. This is especially true for the city center. "New buildings are scarce. Some new projects have been announced, which will be very expensive. As for the rest, we will have to wait and see before making any assessments. We will see which properties will remain unused, and it's likely that they will be sold more cheaply. After renovation, a segmentation will occur, street by street, but people will not buy in large quantities, as speculative buyers expect," Mihaljinac Knežević is convinced.

SECURITY WILL BE A KEY CONCERN FOR BUYERS Boro Vujović believes that there will be a drop in prices for buildings constructed before 1930, which were damaged in the earthquake. Owners of such properties will no longer be able to get such high prices as before the earthquake, he says, but adds that owners of high-quality properties in the city will be safe. "In new buildings in the city center, prices will not drop. It's a prime location, and there will always be people willing to pay top dollar. The earthquake will have the most significant impact on old buildings. Keep in mind that many people fear sleeping in buildings without reinforced concrete, regardless of whether they have a green or red sticker, and a sense of security is a very important factor in choosing a property," explains Boro Vujović. OWNING PROPERTY IS AN OBLIGATION Dubravko Ranilović shares Vujović's view, pointing out that the condition of the property and its structural stability will become a key question for buyers in the city center. "This situation has shown the anomalies of that part of the market. It has become clear that owning a property is not just a privilege but also an obligation, particularly regarding its maintenance. The market is changing as people's attitudes towards property are changing," says Ranilović. "For example, it has become clear that you cannot live in the center of Zagreb in a building over 120 years old, even with minimal maintenance, as you cannot afford to regularly maintain or renovate such a property, without which it cannot be considered safe," says Ranilović. THE CENTER OF ZAGREB WILL NOT BE SEVERELY AFFECTED The new situation in Zagreb's city center will have little impact on real estate prices outside the city. The same rules apply outside the city center, where our interviewees have already mentioned as key to determining prices. Owners of properties in newly built buildings in the wider city center do not need to worry about the loss of value of their property, but they cannot expect an increase in prices either. "There may be some increase in demand, but I do not believe that this will be accompanied by significant price growth. However, the situation in the city center is not typical of the surrounding areas. There has been a segmentation of buyers, with many unable to afford apartments in the city center. Many properties in the wider city center have shifted to daily rentals. We have been seeing an increased interest in apartments in the Novi Zagreb and Dubrava neighborhoods for several years now," says Lana Mihaljinac Knežević. Boro Vujović has a similar view. "On locations near the city center, where buildings are constructed by reputable investors, there is still a huge demand, and sales are going well. I wouldn't predict any price growth, but I would say that such properties will remain attractive. At any rate, prices should not continue to rise, and I don't expect a drastic drop," says Vujović. THE COAST WILL BE SUBJECT TO THE SEASONAL FACTOR In addition to the city of Zagreb, the real estate market in Croatia is particularly lively along the coast. The coat was not affected by the earthquake, but since real estate properties are particularly attractive to foreign buyers, it is reasonable to assume that the pandemic will have a significant impact on this area. Boro Vujović, owner of the Opereta Realty agency, notes that much will depend on the development of the tourist season and mentions the importance of the rule that the quality and location of the property are key to determining its price. "The key question is what will happen this season, and how the situation with COVID-19 will develop in the future. Foreigners account for almost 50% of property buyers along the coast. The question is, will they come this season? If there is no tourism as a potential for investing in real estate, there is no demand. Prices will be very dependent on this season, and the prospects for future tourist seasons," explains Vujović. "However, keep in mind that over 50% of buyers along the coast paid cash for their properties since 2017. They bought real estate as an investment, and these buyers do not have to sell their properties. From this, I conclude that there will likely be some corrections, but quality properties on good locations will retain their value," concludes Vujović.

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