After the rise in interest rates, money will be more expensive, which could make real estate prices more affordable. However, this is just one factor, and Dubravko Ranilović, president of the Association of Real Estate Traders at the Croatian Chamber of Commerce, talks about the entire real estate market at Net.hr

Several circumstances have already been affecting and will affect the real estate market in Croatia. First and foremost, the rise in interest rates linked to inflation, and then probably the introduction of the euro. At the last session of the Croatian National Bank Council (HNB), where the discussion was about economic and financial developments and financial stability, it was emphasized that "the challenges and risks for the domestic financial system in the coming period in Croatia are related to the development of geopolitical instability and inflationary pressures, the effects of the expected normalization of monetary policy, and the continued growth of prices for residential real estate".

Earlier, the HNB released data showing that residential loans rose by 9% last year. At the end of February of this year, with 142 billion kuna of all loans, there were over 68 billion of residential loans. The average interest rate of all residential loans in February was 3.08%. Taking into account that house prices are rising, and interest rates are expected to rise, the HNB estimates that there may be a difficult mortgage repayment process with variable interest rates, especially for heavily indebted households.

'Interest rates rise, demand falls'

We asked Dubravka Ranilović, president of the Association of Real Estate Traders at the Croatian Chamber of Commerce (HGK) and partner of Kastel real estate, how interest rate rise and the introduction of the euro will affect the real estate market

"Of course, the increase in interest rates on mortgages will decrease the pressure on the market and demand, which will then affect house prices in the long term by reducing them. We announced this earlier, two or three years ago. If there wasn't a pandemic, interest rates would have probably risen earlier given the historical inflation rise. At the same time, the interest on savings is at best zero, and sometimes even negative, and that's why investors have been even more pushed towards real estate. We don't expect any scary changes this year, but by the fall, trends could start to turn."

"Definitely, with rising interest rates, we are slowly entering a cycle that will lead in the opposite direction. It's illusory to expect that the market can continue to grow both in terms of sales and prices. This has never been the case, and it's not realistic. Growth and decline cycles always alternate, and that's what will happen this time, just the question is when. The real estate market is quite inert, as it is based on the subjective opinion of the owner about their own price, so it will take months of unsuccessful sales for the price to start falling. That being said, there are some specific circumstances on the domestic market, such as a huge shortage of quality real estate and quality construction, which has been exacerbated by the earthquake in Zagreb"

According to HNB data, a large part of transactions on the real estate market is not financed by loans. Ranilović says that they do not have exact data on how many properties are bought for cash and how many with a loan, but that a significant portion of purchases is made without credit support. "This is not uncommon, as citizens keep large deposits in banks," she says.

'I don't expect a scary 'crash' after the euro introduction'

Dubravko Ranilović does not expect anything spectacular or a scary "crash" on the real estate market after the introduction of the euro.

"It was similarly expected when we joined the European Union, and we even had a decline in sales and a drop in house prices that year. The market was more influenced by economic factors. This isn't some crucial moment, and what will be important is the current economic situation. Maybe the introduction of the Schengen area will have a more significant impact, which will make it easier for owners from central Europe to come to their Croatian properties. In any case, the introduction of the euro will have a positive effect. But, I repeat, all this depends on other economic circumstances," says Ranilović.

There are currently suggestions that measures similar to those introduced or to be introduced by some European countries, such as Austria and Spain, could affect the growth in house prices in Croatia (i.e., in Zagreb and along the coast). These are tax measures related to empty apartments.

'Tax policy can affect the real estate market. In Croatia, one of the problems is a very low stamp duty on renting tourist real estate compared to income tax. This encourages the construction of apartments and the conversion of residential space into tourist accommodation, which further reduces the offer of homes for residential use in cities. I'm not in favor of any new taxes on real estate, as there is already a communal fee that homeowners pay. However, we could introduce targeted taxes that would aim to eliminate anomalies that further exacerbate the situation. So, I see it as logical that we should focus on reducing the rent of apartments without making them available for sale on the market. Cities determine zoning and expect life there, and that properties are created as homes, not as investments. This needs to be addressed and encouraged to increase the offer of rentals on the market, which may also lead to more sales," emphasizes Ranilović.

Real estate should not be looked at 'piece by piece'

Finally, we asked Ranilović if we should get used to long-term high prices for residential real estate in Croatia.

"Firstly, I don't agree that all real estate in Croatia has a high price. We often hear about the highest prices on the market in the media, but that's an exception that confirms the rule, and we need to be careful. Many real estate sales are reported as selling at the highest prices, but that doesn't mean they were actually sold at that price. The real estate market in Croatia is very polarized, and we should not simplify trends or look at real estate superficially, as each property is its own story. Some will be affected by rising interest rates and the introduction of the euro, while others won't. Some will have falling prices, while others will maintain their existing prices - there's no general answer. In the end, most people in Croatia cannot afford their own real estate, and most of them are not creditworthy, so it's absurd that the media focus on so-called luxury extremes as if they're trying to intentionally frighten everyone who can't afford it. When the market starts to go in the wrong direction, there will be reports about extremes in a negative sense. All participants need to be responsible and serious when spreading information. That applies to the media, us intermediaries, and all other market participants," concludes Ranilović.

Izvor: net.hr

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