All those who actively participate in the real estate market for more than 14 years with a warning look at the numbers of the market growth and fear a collapse from 2008. The real estate market has been disintegrating since that year, fueled by a wave that started in the US and spread across all continents. This was just an announcement of the global economic crisis, which we now call the 2008 economic crisis.

Real estate has, of course, only been a trigger in exposing unrealistic relationships within the market. Property sales have almost come to a halt in the following years, and Croatia was just one of the victims of such a global situation. Thousands of properties remained unsold, especially those from unrealistic residential projects by irresponsible investors and financiers. The entire Croatian market has been falling, particularly in terms of property sales, and after a year, in price as well. Banks have been resolving "bad stocks" at significantly lower prices than those envisioned prior to 2008. Seven-year cycle Looking a bit further back into the past, we'll find that the growth began in 2001, primarily due to a reduction in interest rates on loans. After seven years, in 2008, we end up in a recession, and then again after seven years, precisely in 2015, a decline in interest rates and market growth follow, and again, after seven years, here we are today in 2022. Every seven years, we reach the peak or the lowest point. The conclusion comes on its own. The real estate market moves in cycles, and it's clear that it cannot continuously rise or fall. This is simply the dynamic needed to function. The current state is not the same as in 2008, although it naturally reminds us of it, primarily due to the unrealistic optimism of investors who set exit prices. This applies not only to larger residential projects but also to individual owners. Rising prices in new construction also raise the optimism of other owners. Property owners create prices on the basis of "neighborly optimism". Often, you'll hear a property owner talking about how their neighbor just advised them that they sold their apartment at an extraordinary price... The key difference between the current situation and that of 2008 is that the number of produced properties is significantly lower, i.e., there is no significant construction as there was then. Banks are much more cautious in approving loans. Inflation is record high and pushes investors into real estate to preserve the value they have. Deposits from citizens are slowly, but surely, moving into real estate, which sounds utterly logical.

The Croatian real estate market is suffering from a lack of quality properties. There is not enough new construction, and existing used properties are mostly neglected. The earthquake has further exacerbated the situation. Of course, it's natural that, given the weak supply and increased demand, prices will rise. Everything is logical and predictable. If we also consider the upcoming membership in the eurozone and possible entry into the Schengen area, prices will continue to rise, and fortunately, there's no end to luck. But is that really so? Croatia joined the European Union in 2013 and, contrary to expectations, real estate prices and demand did not increase, primarily because the global economic situation was unfavorable. Croatia is specific in that a significant portion of buyers come from abroad. Foreigners participated in more than 30 percent of all residential property purchases last year. The latest data shows that this share has dramatically increased. Looking at the period from July 2021 to June 2022, foreigners acquired 12,518 properties, with a volume of 34,800 transactions, which is already 36 percent, meaning that the number of transactions in which Croatian citizens are buyers has even decreased. The key question is the capacity of Croatian buyers and how long they will be able to keep up with the current price rise, considering the steady decline in the population. It's illusory to expect that we will remain outside global trends, although many are predicting further growth. I'm not that optimistic, despite the huge demand from foreigners, the lack of new and quality apartments, the huge potential in deposits from citizens, and entry into the eurozone and Schengen. Simply, things don't work that way. People forget and a very important psychological moment – "neighborly optimism" quickly turns into "neighborly pessimism". When things start to go down, people simply tighten up and stop spending. Record prices Prices rose by almost 15 percent last year. Of course, sought-after prices are rising at a higher rate, but the rate of realized sales is slowing down. The tax office's data draws attention to the fact that the price volume of transactions has increased by almost 50 percent when comparing the first six months of this year to the same period last year. The transactions that make up that increase are primarily those in new construction and properties by the sea. But what is happening with the other properties in the rest of Croatia? Caution is necessary, even in the coastal area, as the rise in interest rates that must curb inflation can freeze investors from the EU overnight. Slowdowns have been observed in the market in many countries, including Germany, from which more than 3,500 buyers have arrived in recent years. In such complex circumstances, there is no clear advice. Each property is its own story, and each can have a different fate when it appears on the market. I don't expect the 2008 crisis, as the circumstances are entirely different, but the end of the growth cycle is coming very soon. Maybe even this winter. First, the sales will decline, and later, the prices will follow. Of course, it won't happen to all properties and everywhere in the same way. In this entire world that rhythmically goes up and down, the question is what we can do. It's true that record prices are being achieved, but those examples are published as a rule, although they are exceptions. The more we inflate the growth, the harder the fall will be.

Taken from: Jutarnji.hr

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