The sun, the blue skies, the beach, fresh fish, fresh fruit, good wine, authentic locals, no traffic, no hassle, every day a dream. And, of course, capital gains.
All these are the pull factors driving hundreds of thousands of northern Europeans to recolonise the Mediterranean, in a north-south population movement not seen since the Visigoths sacked Rome.
If romance is the pull factor, the single biggest push factor – after our awful weather – is the northern housing boom. The dream has been made possible by soaring house prices, equity release, cheap credit, inventive banking and the giant pyramid scheme that has characterised the property-driven, credit boom in Ireland, Britain, Holland and elsewhere over the past three years. Exotic as the dream may be, realising it can be both stressful and more expensive than it appears at first blush. So here comes a cautionary tale, based on personal experience, about buying an idyllic hideaway on an unspoilt Croatian island – one of the hot spots of 2005 property supplements.
Without doubt Croatia is a spectacular country, with a magnificent coastline – most of it untouched. The planning laws are fairly strict, particularly on the islands, so there is little likelihood of a Benidorm springing up anytime soon. It is definitely cheaper than Spain, although not by that much.The days of picking up a beachfront villa for ï¿½100,000 are long gone and, like everywhere else, the locals are well ahead of the game.
So yes, there are still bargains to be had – but only in the context of prices in the rest of the Mediterranean. No matter what you pay, the locals will mutter that you have paid over the odds and, no doubt, they will be right. There are clearly two prices in this market, one for the locals and the other – much higher one – for the foreigners. Once you come to terms with the fact thatyou will be regarded in the village as a bit of an eejit, you’ll be fine. However, it’s only after the obligatory ï¿½salut’ï¿½ (or ï¿½bok’ï¿½ in Croatian) over a grappa, when the price has been fixed and the good intentions on both sides celebrated, that the real problems kick in. These are not usually severe enough to be deal-breakers, particularly as your own heady momentum is typically carrying you now, but they are annoying and can be costly.
Croatia is not in the EU – which means that certain simple standard procedures have not been put in place. This implies lots of paper, lots of chatter with lawyers and lots of bureaucracy, beginning with the notary public – something we in Ireland know little about. Suffice to say it is a verification device, the legacy of Roman rule and typical of all Roman legal systems.
Many Irish solicitors double as notaries public and you had better get to know one because if you buy in Croatia, almost everything you touch has to be verified by a notary public here and sent back to Zagreb. It cost about ï¿½15 per stamp – but this quickly adds up, given the amount of stamping involved. Apart from this annoyance, the main extra cost of buying in Croatia is tax, which is levied at the rate of 5 per cent of the face value of the property and needs to be paid on completion. However, the biggest issue is who owns the property. In Croatia, the system of title is appalling, so that establishing whether the seller actually has the right to sell can take many months, if not years. There can be as many as ten claims to the title – and unravelling which brother, cousin or uncle actually owns the place can be a nightmare.
Assuming you do find out who owns the house, the next hurdle is whether the foreign ministry will allow you to buy it. If you buy as a private individual – the route that makes sense from an Irish capital gains tax point of view – you need to be acceptable to the foreign ministry! This process will take between six and 12 months and can take up to two years, and there is no way of telling what the ministry’s criteria are. The best way to short circuit this is to set up a Croatian company -which costs ï¿½2,000; the company also has to have a further (minimum) ï¿½2,000 share capital in it to trade.
When you have your company, you need to have a bookkeeper who can make annual returns for you – not only to the tax authorities, but also to the National Bank of Croatia, which seems to want to know everything about every transaction. The national bank charges your company ï¿½500 per year for the pleasure of you keeping them informed of monies going either into or out of Croatia. The bookkeeper will also cost you a few quid. Croatian lawyers work hard, but they do not listen to their clients – which in a lawyer is an unforgivable trait. Be prepared to fall out with your own side! Legal fees for this dubious pleasure are likely to run close to ï¿½2,000.
If you buy on the islands – which you should do, for both capital gain and the beauty of the place – it is highly likely that your house will be covered by an historic preservation order. This requires the seller to offer the house to three separate state and municipal entities, to see if they want to buy the place from under your nose. They will all say no, but the procedure can delay the purchase for a number of months. If you sell as an individual within the first three years, you will be liable to 25 per cent tax. Obviously, if you set up a company, you can subsequently apply to transfer the title to yourself as an individual, and this appears to be common practice. Again, this will cost you a few quid.
So, on balance, is it worth it? Well,yes. Not only will you have your place in the sun, but you will own an asset that is appreciating at a rate of about 25 per cent per year. Croatia is hardwork, but worth the effort – and the trouble some procedures will only become more, rather than less, streamlined in the future. The country still has first mover advantage but, because of the above rigmarole, only a small proportion of buyers who first set their eyes on their dream property actually close. Demand is very high, particularly among yachties, and the tourist droves are driving that demand up every summer.
Some locals can be unscrupulous and regard every westerner as a potential John Paul Getty – which means that the first offer price is usually ludicrous. Haggling will get you well down on the opening price, but because they are not that versed in the market after 50 years of communism, they tend to quickly become indignant during the bargaining process. But persevere – property is about location, location, location and Croatia hits this right on the nose.
David, I have enjoyed your work over the years both on Agenda on TV3 and in the Sunday Business Post. I live in Co. Clare so was unable to hear you on Talk FM. I have being thinking for several months about buying a summer house in Croatia for my sons and I (my wife died suddenly last year aged 46). We spent a great family holiday there two years ago near Split. I was very interested in your article in the Sunday Business Post last sunday as I am trying to decide where would be the best location to… Read more »
I have been in croatia several times and it is indeed a
great spot, but in 2005 I fear the bandwagon has already
Casting my eye down the map I see Montenegro. It is still
attached to it’s imposing, corrupt big brother Serbia, and
apparently has very poor infrastructure, but I assume it
also has a beautiful coast like croatia.
Serbia will soon be jettisoned with a referendum and the
economy is only going to improve, dragging infrastructure
and cheap flights with it. Does yourself or anyone know
anything about the montegrin property market?
Good for the croatians!
By making it as hard as possible for the rich foreigners to
buy, maybe they are insuring that the local can still have
a roof over the head, communities that exist all year round
instead of during the summer holidays.
So much for slagging off property investors at home though!