As we are still evaluating the direct and indirect effects of the coronavirus outbreak on the global economy, there has been increasing speculation over the future of the tourism sector in general since it has suffered a huge setback from this crisis and all the challenges it inevitably brings.
Considering that the Croatian economy is extremely dependent on tourism, which directly generates a significant share of the country’s GDP, it is not surprising that investors and rental property owners found themselves in an unenviable situation overnight, facing numerous inquiries from concerned guests who wanted to cancel their reservations or inquired about the current epidemiological situation in the country, as well as the procedures that would be implemented at border crossings. A fierce battle for each and every reservation ensued since the confirmed reservations could have been canceled at any moment due to the introduction of quarantine in certain emitting markets, or the recommendation to postpone travel until further notice, but also due to a number of new rules introduced on a weekly basis.
Exposed to a large amount of often contradictory information, and the recommendation of global booking platforms counseling implementation of high-risk cancellation policy without any penalties for last-minute cancellations, vacation rental owners and travel agents had very modest expectations for the so-called ‘new normal’ tourist season in unprecedented circumstances.
Given that the epidemiological situation in the country has been stable, and that the spread of the virus has been kept under control, Croatia has been recognized as a safe destination, and despite skeptical announcements and cautious forecasts of expected numbers and results, there has been an increased interest in luxury holiday villas.
Tourists’ expectations and demands
What conclusions can be drawn about the profile of travelers who were not discouraged by the Covid-19 and who decided to take their seaside vacation nonetheless?
First of all, it is clear that new time brings new expectations and standards that property owners must successfully meet in order to gain the trust of customers and provide them with absolute security that they can spend their vacation carefree regardless of the challenging circumstances we are currently facing. According to the latest inquiries and trends, most clients seek to book luxury villas in prestigious locations and oftentimes tend to book longer stays and additional services such as daily cleaning, grocery procurement, and a private chef who will take care of all meals during their stay. Such requests were more easily accommodated by the owners of prestigious villas who had previously been in contact with clients who want a little something extra for their vacation and by that, we don’t mean just modern amenities or a picturesque sea view.
A new era of travel – trends, and opportunities
Current trends again lead us to the conclusion that these extraordinary times have not by any means seen a downfall in demand for the most luxurious properties in exclusive locations. Moreover, the demand for facilities of this type seems to greatly exceed the supply, so customers are often compelled to change their plans and choose another destination that can meet their expectations. The largest number of confirmed reservations has been made by guests from neighboring countries who, thanks to the favorable geopolitical position of Croatia and excellent infrastructure, traditionally arrive on vacation by cars, and due to shorter trips prefer to choose holidays in the northern parts of the Adriatic and Istria.
It is very difficult to predict future developments in the global market and the dynamic world of the travel industry, but we are certainly at the dawn of a new era of travel that will be defined by adaptation to a new lifestyle promoting strong awareness of values such as health safety, environmental protection, and socially responsible behavior.
With growing awareness of the effects of mass tourism, clients are nowadays looking for more ecologically sustainable destinations and accommodating facilities, therefore we are presented with a unique opportunity to position Croatia as a destination that can meet new challenges and readily accept new conditions that might potentially result in a more responsible and innovative offer tailored to the current market needs.
When buying a property, often the foremost is the aesthetics or location of the property itself. However, the purchase of real estate is a legal process, so we must not neglect the legal side. What should you do, and how or when should you do it to make your purchase neat and easy as possible? All of this shall be explained through a series of blogs by our tax advisor Ivica Baban.
Foreign citizens who buy real estate in the Republic of Croatia are generally divided into two groups, depending on where they come from. Citizens living within the European Union make one group, while those living outside the EU make the other.
Why is this important?
While foreigners from the European Union may purchase real estate in the Republic of Croatia under the same conditions as nationals of the Republic of Croatia, those living outside the EU must obtain consent for the purchase of a real estate in the Republic of Croatia from the Ministry of Justice of the Republic in the administrative procedure. Without this consent, the new owner could not registrar his ownership of the land he purchased.
The only exception from this rule are agricultural land, for they are subject to a moratorium on their purchase by foreign nationals from the EU until June 2020.
There is an additional requirement concerning non-EU citizens. Only citizens coming from countries with which Croatia has reciprocity in acquiring the ownership rights of their nationals may go to administrative proceedings and seek the Ministry of Justice’s consent.
Consequently, other non-EU nationals coming from countries with which the Republic of Croatia does not have the principle of reciprocity in acquiring ownership of their citizens’ real estate may not, as natural persons, purchase real estate in Croatia.
Yet, there is another option for them. They may decide to set up a company (most often, it is a limited liability company or abbreviated d.o.o.) in Croatia. As owners of companies with headquarters in the Republic of Croatia, they may acquire ownership of the real estate.
It is necessary to know that the owner of the purchased property is then the company, not the owner of the company himself.
Don’t forget the taxes.
When buying a property in Croatia, in addition to the purchase costs, the buyer may be obliged to pay a real estate tax (PPN). The height of this tax can be defined in two ways. It is either 3% of the property’s purchase price or 3% of the estimated property value by the Croatian Tax Administration.
This will occur when the seller does not calculate value-added tax (VAT) for the property sold, as evidenced by the seller’s purchase contract or invoice issued.
Notaries are obliged to submit a copy of the purchase contract to the Republic of Croatia’s Tax Administration, which will send a decision on the obligation to pay real estate taxes.
In case that a notary does not certify the real estate transfer documents, the buyer is obliged to declare the obligation to pay real estate sales tax in Croatia within 30 days for those real estates that have not been subject to value-added tax on the sale.
Taxes apply to all – a foreign citizen from outside the EU who requires the Ministry of justice’s consent becomes taxable at the moment of obtaining that consent.
The sun, the sea, beautiful weather, and Mediterranean lifestyle, combined with great properties in great locations, are the recipe for a successful business year when it comes to Croatia’s luxury real estate market. The numbers have gone up and are expected to continue growing throughout the following year.
Retrospective of the luxury real estate market in 2018
2018 has generally been kind to Croatia’s luxury real estate market since demands for this sort of property were up by 25 percent compared to 2017. At the same time, the prices of luxury real estate in Croatia rose by 10-15 percent. The average price for a villa ranges between 5000 to 6000 euros for a square meter.
Clients opting for these properties are mostly foreigners, coming primarily from Germany, Austria, the Czech Republic, Slovakia, England, and Scandinavian countries. Also, some inquiries came from Russia and China. The average age of property buyers varies between 45 and 60. Russians and Chinese want the property they buy to match the highest standards, while Europeans are more open to redecorating and reconstructing the property themselves.
Clients have their preferences regarding location, choosing mostly properties at the coastline between Primosten and Trogir (especially in Split) and around the town of Dubrovnik. Besides their beauty, these areas owe their popularity to the proximity of airports, motorways, and marinas. When it comes to the islands, the most popular ones in 2018 were Brac and Hvar.
Despite great results, the market has its issues. The most prominent ones are the somewhat closed banks towards supporting investors and the lack of offer suited for clients aiming at luxury properties.
Predictions for the luxury real estate market in 2019
Still, positive market trends are expected to continue in 2019, with expected price growth of up to 10 percent, followed by even greater demand for luxury real estate in Croatia. The start of construction of several tourist resorts with 5-star hotels is expected in 2019, along with some world-class hotel brands to the Croatian market, such as 4seasons and Marriott.