The risk is the emigration of young people, who are the main buyers of real estate. If the trend continues, the question is how the market will behave and who will buy, asks our interlocutor.

On the real estate market since mid-2015, it is clear that things are moving in a more positive direction. In 2016, the general number of transactions increased and was still the highest in the tourist sector, brownfield investments and renovation of existing hotels, but there were also significant transactions in the retail sector, which barely existed in the previous years. This indicates that there is an interest in investors, but how it depends on the quality of the proposed projects, it is very important that future projects are well prepared and are based on real market needs, evaluates Mojca Kufner, head of the Department of Brokerage and Marketing of Zagreb Real Estate.

The basic question is what follows, namely, is there a genuine reason for the real estate market in this year. The analyses of our interlocutors, in addition to Kufner, are also the director of the real estate agency Opereta and the vice-president of the Association of Real Estate Business of the HGK Boro Vujović and Vedrana Likan from Colliers International, indicate this possibility. According to Vujović, the key motors of recovery are the growth of GDP, the shortage of construction in the past eight years and the geopolitical situation that puts us in the first row as a tourist country.

With the season come the buyers

The real estate market follows the mood of the society and when the mood is positive, so is the market. GDP is growing and so is the market, i.e. prices and demand. In the past few years, it has not been built, and buyers who bought a 40 m2 apartment 10 years ago, now need ones with 2 or 3 bedrooms, as they have started families in the meantime. There are not many good, quality apartments on good locations.

Vujović

This tourist season should be very good, and with it, real estate buyers will arrive, says. After all, prices here are relatively low compared to other EU countries, and many EU citizens find real estate in Croatia very interesting: it can be used for a holiday and still generate income through rent, which brings a higher income than bank interest. A good season, he warns, means earnings for people by the sea, from whom the capital that some of them redirect to apartments in Zagreb. As the main potential risks, Vujović names the emigration of young people who are the main buyers of real estate, and concludes: "If the trend continues, the question is how the market will behave and who will buy."

As a second major uncertainty, he cites the tax on real estate that will be introduced in 2018, i.e. if it remains as it is currently announced, it will not happen anything revolutionary, but if it gets higher or different, he thinks, could lead to a shock on the market. "Still, the uncertainty is how the subsidies for home loans will affect the market. I think they will lead to an increase in prices, which is not good because it took us eight years to get to the real thing," he adds, saying that not any measure that is not permanent is good for the real estate market, and the announced subsidy is scheduled to last until the money in the budget for this purpose is spent. The basic premise of real estate market growth is the continuation of economic recovery, thinks Mojca Kufner.

In 2017, she expects the continuation of the positive developments of the previous year and the beginning of the revival of optimism on the market. "Although the general statistics related to our market are still relatively unfavorable, some segments of the market are recording a significant increase and increase in the number of transactions, which is, in my opinion, the key factor in the recovery. This is primarily the new significant transactions announced in the tourism sector, wholesale space and office space, which will continue to consolidate these segments and bring new liquidity and opportunities to the market," says Kufner, adding that as a proponent of the renewal of existing real estate, rather than new construction, she hopes that a part of these funds will be redirected to urban renewal projects of the existing real estate fund, not only in the renovation of real estate for tourism, but which has been the main trend on developed markets in Europe for a number of years and is complementary to the general trend of resource and energy savings and other "green" elements that are current on the market.

Furthermore, if the positive trend continues in the economy in general, and it seems that it will, it will certainly strengthen individual demand, which is ultimately a milestone for the real estate market. If people buy more, they buy more apartments and houses, and tenants in shopping centers are more satisfied and can pay rent, companies are doing better and expanding to larger offices and the like. According to Kufner's opinion, a significant contribution to recovery has also been made by various changes in legislation that are directly or indirectly related to this segment, such as measures related to the use of funds to improve the energy efficiency of buildings, changes in taxation of real estate transactions, the announcement of new subsidies for the purchase of residential real estate and the like.

"All these measures are leading to a higher degree of market regulation, which is also very important for recovery. We are still waiting for further development of the tax on real estate, i.e. its practical application from 2018, and a lot more work needs to be done on regulating the rental of residential space. The new regulations in the field of construction, urban planning and spatial planning will also certainly have a significant impact on the market. It will depend a lot on the investors themselves, as banks are still quite conservative in terms of funding projects related to real estate, so it is crucial to present them well-prepared and market-based projects," concludes Kufner.

We've entered a new cycle of growth

The key drivers of real estate market recovery, besides economic growth and employment growth, are also easier access to lending and positive sentiment primarily created by expectations among all market participants, according to Vedrana Likan. "The state of the real estate market in the first quarter of 2017 shows that we have entered a new cycle of growth: there has been an increase in prices and volumes of transactions both in the residential and commercial segments. After investors increased their activities in 2016, in 2017 we see active participation and investment of developers," says Likan, adding that 2016 was marked by several significant transactions in the commercial real estate segment, including shopping centers, retail big-boxes, office buildings and hotels.

Investors have mostly bought prime real estate that allows for a good return (higher than the return on domestic markets), as well as cleaning up bank balances through the sale of non-performing claims whose collaterals are real estate. "We expect that a good part of these real estate will find their way to the market in 2017. We expect a continuation of the increase in demand and the growth in the number and volume of transactions on the real estate market. However, we warn of the possibility of a new bubble, especially in residential real estate and all related risks," says Likan, noting that in 2017 and 2018, they expect an increase in greenfield investments, mainly in residential and tourist segments, and for Zagreb, in addition to the mentioned segments, an increase in new investments in office buildings. Our forecast that 2016 would be a turning point has been confirmed, says Vujović, and, as he notes, according to the data of the tax administration, it is clear that there were more transactions last year than in 2015. Although we are still without data on the average price last year, the statistics of the agencies show a turnaround. However, it is clear that there are differences on the market segments, and, as he notes, residential real estate is much more attractive than commercial when it comes to buying, while commercial is more leased than bought.

Bureaucracy is pushing investors out

As a barometer of the overall situation on the market, and despite the recent acquisitions of shopping centers by funds, which, as Vujović notes, are not to be ignored, residential real estate is still more interesting. Therefore, he thinks that the recovery of the market will also affect commercial real estate. Similarly, it is the case with non-residents as buyers - their number will grow, and the most interested are in houses and apartments for holidays, but Vujović's experience shows that investors are still hesitant to put their hand on Croatia, first and foremost due to our known bureaucracy, which will do everything to make the investment and project not happen. "Given the market situation in 2016, what we can see now is that it is recovering faster than expected and things will end better than in the previous years. Subsidies will come into play and it is difficult to predict their impact on the market after they are over. We have started moving upwards and it is difficult to stop it now. We should not expect a sharp increase in prices, nor a return to the prices before the crisis, but it is clear that there will not be a fall in prices anymore!" says Vujović.

Some segments of the real estate market are recording significant positive developments, and, as Kufner explains, an example of this is the sector of construction of residential buildings, but only in the part of construction of houses for buyers with higher purchasing power, on quality locations and with a well-thought-out structure of houses.

Decrease in transactions

The number of completed apartments in 2016 has increased slightly, which is "the first positive development after several years of continuous decline, and although the offer still exceeds demand, more and more buyers are unable to find an apartment they want, so the prices of quality apartments have started to rise slightly". Kufner also notes that the wholesale space market has experienced a number of transactions, within which the consolidation of ownership is continued in this segment, which will certainly bring positive developments for all involved. Kufner expects new brands to enter the market, further development of the offer of accompanying services in shopping centers and a better offer in general. "The office space segment is relatively stagnating, although positive changes have occurred in this segment as well, and quality office buildings are mostly fully occupied, and the prices of such office space may soon start to rise slightly," evaluates Kufner, noting that, despite Croatia's excellent geographic position and importance in transit, the country still has the least developed sector of logistics and industrial real estate. Despite stable demand, significant investments are absent, mainly due to the high costs of acquiring land and the way of categorization and taxation of industrial real estate (except for real estate used exclusively for production purposes), which still far exceeds the burden of taxes on other types of real estate. He also notes that the most investments relate to the construction of space by companies for their own needs.

Lack of quality

'We would invest 100 million euros, but we have nowhere to'

Unlike residential real estate, there are currently not enough offers of commercial real estate that meets demand in terms of quality and size of investment, says Likan, and as an example, he cites the following: "Demand for the purchase of operational hotels greatly exceeds the current offer, or we have the case of an investment fund that wants to invest 100, and more million euros, but has difficulties in finding suitable operational real estate or land for such investment size!".

Vladimir Žerjavić, regional director of RE/MAX Croatia:

Commissions have risen by 36%

"Based on the increased number of inquiries from foreign and domestic clients, we definitely expect a continuation of the positive trend of growth of the real estate market in 2017. Regarding domestic buyers, the result is the positive economic indicators in the previous period that will have a long-term impact on improving the standard of living of our citizens, which, as our experience has shown, is directly related to the number of realized sales on the real estate market. On the other hand, the unmistakable attractiveness of our coastline continues to attract foreign buyers whose real estate prices in our market are unreachable, so transactions in this market segment will also contribute to the overall growth. The confirmation of the positive trend are also the results that RE/MAX Croatia, through its system of 15 offices and over 90 agents, achieved last year, when it achieved a growth rate of 17% in the number of realized transactions and 36% in the commission income in relation to the previous year. We can say that the long-term recession has traumatized the market and it has just barely welcomed the positive developments, but it is too early to talk about the final recovery of the real estate market. To reach such conclusions, a number of preconditions need to be met, first and foremost, the mentioned economic factors, and also the legal regulatory framework dictated by legislation," says Vladimir Žerjavić, regional director of RE/MAX Croatia.

Source poslovni.hr

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