With notable real estate market expert Borom Vujović, we discussed subsidies for apartments and prices that are soaring to the sky

When Minister of Construction Predrag Štromar announced the new September wave of subsidies for housing loans, which the Government aims to help young citizens with housing problems and "lure" them to stay in Croatia – he emphasized that he does not believe that this model of subsidies causes any disruptions in the real estate market. In other words, he has been trying to quash his own doubts about this form of government intervention for the third year in a row causing dramatically increased prices, particularly for small apartments. On this issue, as well as trends in the Croatian real estate market scene, we spoke with Boram Vujović, vice-president of the Association of Real Estate Business of the Croatian Chamber of Commerce, owner of the "Opereta" real estate agency and a well-known analyst who already in the first wave of these subsidized loans warned of market disruptions caused by them. NET.hr: What's your view today, three years after the first series of subsidies under the Štromar model? Have they significantly alleviated housing problems for young people or are they just a cosmetic solution? VUJOVIĆ: Any intervention in the market is questionable if it's not properly analyzed at the very least. I agree with the Ministry of Construction on this, but they're not brave enough to say it publicly. These measures may have made sense in 2011 or 2012, when the market was dead, but later, in 2017 and beyond, when the market was active – they don't make sense. Now, given the labor deficit and prices soaring into the stratosphere, it's completely wrong to push for these incentives. It's clear that these incentives were a product of plain improvisation. When the tax relief for the first property was abolished in 2016, anything was thrown at people under the guise of a demographic measure, or a way to prevent young people from leaving, etc. Our reaction as an association was: okay, give similar measures for areas where people move away the most. Give them for Slavonia, for Lika, but why – Zagreb? Immediately, we warned that it would drive up prices in Zagreb. Of course, there are other factors at play, but it definitely contributes. We suggested an analysis be conducted to determine how we can genuinely prevent emigration of young people and those with low qualifications. NET.hr: Minister Štromar cites a study by the Economic Institute and claims that prices are rising due to the growth of the economy and tourism, not due to subsidized loans. VUJOVIĆ: Of course, prices have risen due to economic growth and the proliferation of apartments. The fact that many people bought apartments to then rent them out is true. It's also true that the interest rate drop in banks for apartments has had an effect. As long as it's cheap to take out a loan to buy property, it's clear that it will drive demand. Furthermore, if interest rates are low for savings – it's only logical that people will buy property as a form of savings. I'll give you an example from my own agency's experience: over 50% of buyers are paying cash. These are people who don't want to keep their savings in the bank but rather buy property that they then rent out and make a profit of 4-5%. All these are factors that positively affect the real estate market, but then comes this September with subsidized loans and it's like a bomb has gone off. The biggest problem with this measure is its short-term nature. Do you remember Minister Štromar's statements that those who submit an application in the first week will be safe? Then it all got extended, but it was still a short-term solution and there was immense pressure on the market in a short time frame. NET.hr: How does it look in practice? VUJOVIĆ: It looked chaotic. There was a huge push to assemble documents quickly. The seller knew the buyer wanted a subsidy, and of course, they were holding onto the price. What could the buyer do, under pressure from the deadline? They were forced to accept the price. There was no time for negotiations. The buyer agreed, to then get the permit, to then go to the bank... And so on. This is the kind of shock to the market, and it's been up and down from the first moment warning about its negative effects. Minister Štromar labels us as speculators, but that's unfair. What do we have to gain from this situation? We just want to warn about the effects. If there wasn't this short time frame, the effect would have been milder. It's good that it was announced that next year, in March, the process will start, which is undoubtedly better than these September shocks. However, I still don't believe these measures are effective in the way they were intended. NET.hr: You mentioned a measure that existed until 2016 – the tax exemption for the first property. Do you think that was a better measure? VUJOVIĆ: Yes. It was ongoing throughout the year, and it was fairer. In fact, it was constitutionally more justifiable. It didn't discriminate against anyone. This measure currently favors buyers who take out loans, while it discriminates against those who have saved, have been frugal, or inherited. I remember when I was with the Otvoreno (Open) TV, with former Minister Kuščević, and he announced that he would commission an analysis from the Split Economic Faculty on all past POS measures and determine what the best course of action was. However, it seems that analysis has still not been conducted. And it should have been conducted. There's no indication that this model has achieved the desired demographic stimulus effect. Only those who are already creditworthy are granted a loan. Of course, it's nice that the state helps pay off the loan over five years, but that's just for people who are already working and have already established themselves in Croatia. Those in trouble, emigrating in search of work, are not helped by this measure in any way. If you ask me, I'd always bet on using those millions to build a factory. Yes, for example, build a factory in Županja; people would stay there even without this model of subsidized housing loans. Of course, I'm not saying the state should intervene and build factories. I'm just using it as a metaphor, to illustrate that the opening of working positions could keep people here. NET.hr: Who profited the most from this model? Where were people buying and selling the most? VUJOVIĆ: The most in Zagreb, Rijeka, Split. People who would have bought apartments under any circumstances anyway. NET.hr: And what do you say to the latest explanation that banks have largely offset this price increase by lowering their interest rates? VUJOVIĆ: Prices have risen beyond all expectations, and that should not be obscured in any way. Some new constructions still don't have a use permit, and therefore can't compete in the competition for subsidized loans. As a result, older apartments are selling at unbelievably high prices that do not remotely justify them. That situation needs to be rectified. New apartments will soon come onto the market, and old ones will no longer be able to hold onto these prices. And the pool of consumers is gradually emptying, with levelization inevitable. If you ask me, it's not the buyers who are responsible for these prices. NET.hr: Do you blame the buyers? Some people are forced to buy an apartment at this moment… VUJOVIĆ: I'm not talking about them. There will always be those forced to buy at a particular time due to certain circumstances, and that's true. However, they're not the majority that drives the trend. I'm talking about those who buy – because they can, because it's a cool thing, because they got caught up in the herd mentality. I'll start with an example from my own life. Until six months ago, I was a subtenant, regardless of whether it was a sublease or not. Because I thought it was a more favorable option than buying property. NET.hr: What a unique situation – the owner of a real estate agency "advising" us not to buy property! VUJOVIĆ: Don't buy anything at any price, especially not at an outrageous price. And there are already too many of those on the market, especially in Zagreb. I'll always suggest to every subtenant that they do a cost-benefit analysis: is their subrent within the range of the interest rate on the loan with which they could buy an equivalent apartment? But the others – don't rush into it. Sellers are waiting for a miracle. They're holding out for crazy high prices. I'll remind them of 2009, when some sellers were keeping high prices, only

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