Property prices in Croatia rose by almost 15% in 2022 compared to 2021, making this one of the highest price increases in the European Union, according to new state and EU statistics.

According to data released by the State Bureau of Statistics (SBS), property prices in Croatia averaged 14.8% higher in 2022 than they had in 2021.

Significant growth of property prices in Zagreb

Over the last quarter of last year – at a time when the Croatian economy slowed significantly – property prices in Croatia rose by 17.3% compared to the same period in 2021. In comparison to the previous quarter, property prices in Croatia averaged 4.7% higher in the final quarter of last year, according to SBS data. Of course, the growth of property prices was far from uniform across all parts of Croatia. As in previous years, new buildings continued to see the highest price growth, with an average increase of 17.5% in 2022 compared to 2021. In contrast, existing property objects saw a 14.5% price increase over the same period. Significant differences in price dynamics are also seen across the various regions. In Zagreb, for example, property prices averaged a 17.9% increase over 2021, while the region along the Adriatic coast saw a 12.3% increase and the rest of Croatia saw a 15.3% increase, according to official statistics.

The growth of property prices in Croatia roughly doubled compared to the EU average

On the EU level, property prices averaged a 3.6% increase over the last quarter of last year compared to the same period in 2021. Taking into account the entire 2022 year, the average annual rate of growth of property prices in the EU was 7.7%, which is roughly half the rate seen in Croatia. Property prices increased the most in Estonia (22.2%) and Hungary (21.9%) while falling in Denmark (0.5%). In Slovenia, the growth of property prices in 2022 was just slightly lower than in Croatia at 14.7%, according to EU statistics.

Property prices in Croatia 70% higher than in 2015

Compared to 2015, property prices in Croatia at the end of last year averaged 70.1% higher. While new construction over the period increased by an average of 45.7%, the prices of older buildings rose a staggering 75%. This is according to data from the SBS. Compared to 2015, the prices of property in Zagreb nearly doubled, with an average increase of 94%. The region of the Adriatic coast saw an average price increase of 60.9% while the rest of the country saw a 46.2% increase, according to official statistics.

The unbridled growth of property prices along the Adriatic coast

The significant growth of property prices in 2022 is also confirmed by agents for property. "In my company Opereta we see that the average price of a residential square meter in Zagreb last year reached 2450 euros," says Boro Vujović, the founder and director of the Zagreb-based Opereta agency. "However, these figures primarily cover existing property and our new construction offerings are currently under-represented in the market." Mr Vujović adds that if new construction is taken into account, the prices would also be higher. The growth of property prices in Croatia is also visible in coastal areas. He notes that new construction in Rovinj, inland from the coast, is sold on average for approximately 3,500 euros per square metre. "While prices decline as you move further from the sea, property located closest to the sea is often the most expensive. This is why new constructions in Rovinj, for example, are sold for around 5,000 euros per square metre," says Vujović. Property prices in the region of Dubrovnik also vary depending on proximity to the sea. For example, the prices of new constructions in Dubrovnik range from 3,000 to 10,000 euros per square meter, depending on the location, Mr. Vujović explains. "Euphoria on our property market is predominantly fuelled by people who are buying apartments in Zagreb or holiday homes in areas along the Adriatic coast," he adds.

The growth of property prices exceeds inflation

"I believe that the significant growth of property prices over the past seven years has been driven by a combination of factors, notably: low interest rates for mortgages, and a low interest on savings, which encouraged investment in real estate. The government's program to provide subsidies for property purchases was also a major factor, as was the significant growth of the tourism sector," says Mr Vujović. In the previous year, there was also marked inflation, which in combination with the shortage of labour, grew wages in the same period and increased the cost of building materials. The result was increased property prices. This is especially true in a context where building activity is not growing as was the case before the financial crisis of 2008. "The growth of property prices also somewhat exceeds inflation," Vujović explains. He also says that the Croatian government's efforts to improve the attractiveness of Croatia have resulted in an increase in demand for property and that tourism has been a key factor in this growth. This is especially true in the context of an EU which is seeing a slowdown in building activity.

Homeownership: A key advantage in times of crisis

It is also worth noting that the significant demand for property in Croatia is driven by the fact that the market for investments in other types of property is relatively underdeveloped. In Croatia, a significant proportion of the population has traditionally considered property to be the safest form of investment. In times of crisis, Vujović says that this can be an advantage. "If we take into account that in developed countries such as Germany many people no longer own property but instead rent it out, and in these times of uncertainty, they no longer know how they will live in the future, our model has so far proven successful," he notes. "Hundreds of thousands of Croatian citizens still own property, so in times of crisis at least they have the comfort of knowing they have a roof over their heads," adds Vujović.

Will property prices in Croatia soon reach a peak?

As for the question of whether property prices are about to hit a ceiling, Vujović warns that this depends on a number of factors. If higher inflation persists, then increased interest rates, which are rising currently, may also suppress the purchasing power of citizens, which in turn may lead to a decline in the demand for property, and therefore prices, Mr. Vujović explains. However, he adds that some property, especially older structures, may have been overpriced, with corresponding price corrections potentially in store. Nonetheless, it appears that Vujović does not see space for any significant reduction in prices in the short term. "Honestly, I do not see space for a significant drop in prices, assuming that nothing dramatic and unexpected happens in the country and beyond," says Vujović.

Membership in the EU, eurozone, and Schengen area contributes to rising property prices

As for what may drive future demand for property, in Croatia, then membership in the EU, the eurozone and Schengen area will likely continue to play a major role in attracting foreign buyers. As with all things, there is only a limited supply of property in Croatia, and this limited supply is often in high demand. However, for Vujović, there is no doubt that foreign demand will be the driving factor in the growth of property prices in Croatia. In fact, he notes that a staggering 38% of property buyers in Croatia last year were foreign buyers. He concludes that the market is likely to continue growing, albeit at a slower pace, driven by foreign demand. "The EU accession, the introduction of the euro and the Schengen passport will make Croatia an even more attractive investment destination for foreign buyers, which in turn should keep property prices high," Vujović explains. Source: euroactiv.hr

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