real estate market

The changes caused by the current pandemic of the new coronavirus have not only affected our daily lives. The effects have been felt by numerous markets and economies, including the real estate market in Croatia and the world.
Croatia Sotheby’s International Realty Director Marko Pažanin takes a look at the current state of the luxury real estate market in Croatia, as well as expectations of real estate sales in the near future.

These days I have had some really interesting conversations with my colleagues about selling luxury villas by the sea. For a large number of investors, the main motive for the construction of such facilities was the tourist rental, and only then the sale.

The popularity of the Croatian coast, both among foreign and domestic guests, has enabled a real boom in tourism in Croatia, which records year after year records in the number of visitors, and thus the amount of revenue generated. The rise in average prices of tourist rent on the Adriatic and the development of cultural, entertainment and sports offerings have brought excellent income to owners of luxury properties during the season and even beyond!

We could also feel the impact of tourist growth on the purchase and sale of luxury real estate.
So far, we have frequently encountered a price formed by sellers that could not be accepted by potential buyers as being realistic. Therefore, the sale of these properties often failed to take place. The owners, more than satisfied with the income they earned through the tourist lease, were not ready to lower the sale price of their villas and apartments.

Luxury real estate in unique locations is a safe investment for foreign investors

This year, we expect much lower tourist rental revenue in the season than in previous years, which will have an effect on adjusting the sales prices set by property owners.
I may be wrong and that may not be the case, but it is certainly the most likely scenario given the logic of business, supply, and demand.

In this uncertain situation, there is another scenario involving the most important rule when investing in real estate, which is “Location, location, location!”. This scenario benefits all owners of properties in unique and exclusive locations.
If you have high-end real estate in a unique location it will not be compromised in a market context.
The drop in prices will be felt the least in the top locations, of course, if the starting price was based on the estimation of a specialist who had the experience to sell this type of real estate.

Foreign buyers are still interested in ultra-luxury real estate

In contact with the clients for whom I seek so-called “trophy real estate”, almost everyone has confirmed their interest in them, even in these conditions. This is a great indicator that investments in luxury real estate will not stop, and that exceptional real estate will always have its buyers, which will not hinder global change.

World-class luxury exists in Croatia, but in limited quantities. Personally, I can hardly wait to have real estate on offer again, such as the famous Villa Castello, as buyers of such properties are ready to make a purchase regardless of the new situation, in which unfortunately the fall in prices for most properties is unavoidable.

In recent years all the axioms on which the investing was founded were brought to question. Equities, bonds, funds, insurance, cryptocurrencies, commodities, real estate are fields where investment logic today is changing. In any asset class, Yields, which was considered even a little bit safer for EUR denominated capital, seemed to be fruitless. The culprit this time was the central banks flooding the markets with liquidity policy.

At this moment, real estate buying is a sure bet in Croatia if you buy a good location for a fair price with the potential of growth. Still, from an investment advisor’s point of view, you can own only a certain number of real estates in total, and the prices have also gone north following market optimism based on wings of cheap financing and growing tourism trends. Here is important to mention system country risk, diversification of the portfolio, liquidity, ect.as, criteria for investment decision in any asset.

Relentless buying by European Central Bank caused, let’s say, 3% yields for conservative investors to be just wishful thinking and relict from the past while just getting back a few dozen promises on your investment is a cruel reality.

So forget about the nice yield from German bonds or interest rates on deposits. For any return, you have to dip in the high yield area.

Jumping on the train with equities was always a risky ride all along; although nice profits could be made and some tailwinds for the companies were present, everyone was asking what will happen when the music stops? And even though nobody knows when it will be, with bull run making a new record every day, it is not easy to believe all blue skies ahead in the coming months.

 

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