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Buying Property in Croatia

Practical Information for Buying Property in Croatia

Top 10 Tips

1. Property prices are much cheaper than in Western Europe but they are starting to grow.
2. Typically, estate agents charge about 2.5% of the selling price to both the buyer and the vendor.
3. A public notary is responsible for completing the sale.
4. You will initially have to put up a non-refundable deposit of 5 to 10%.
5. Check that the two registries for land contain the same information about the property.
6. You will have to pay a 5% stamp duty on all property.
7. The planning process is quite slow.
8. Old properties to renovate can often be very cheap but will often be without any electricity or mains water.
9. The Government is attempting to restrict further development alongside the coast in order to protect the environment.
10. You are likely to need the services of a Croatian lawyer or one in Ireland with a good knowledge of Croatian property.

The Croatian Property Market

• Before buying in Croatia, determine your budget and if you are obtaining a mortgage from an Irish financial institution, make yourself aware of the sum available to you and any terms and conditions applying.
• The Croatian property market has been experiencing steady growth in recent years due to its popularity as a tourist destination and investor’s anticipating its future accession to the European Union. Annual price rises are in double figures in attractive coastal resorts.
• The Government is also attempting to restrict further development alongside the coast in order to protect the environment so existing properties will gain in value. Croatia is still much cheaper in comparison to other property hot spots in the Mediterranean.
• Dubrovnik remains the most expensive location. Property there is selling at up to €6,000 per square metre. Further down the coast is much more affordable with prices rarely topping €2,000 per square metre.

How to Find a Property Agent

• There are some agents in Ireland who assist in buying Croatian property and occasionally advertise on the web and in magazines and supplements in Ireland. It makes sense to contact such agents before you travel to an area to look at property. Most Irish buyers tend to buy as part of a new development scheme or increasingly with the advice of Croatian friends or colleagues based in Ireland.
• You will need to decide on the type of property for which you are looking. Is it a holiday home to be used a few weeks in the year, a more permanent residence or a rental investment? A holiday home ideally will require little maintenance.
• Give the estate agent a clear understanding of what you seek in a property. Be prepared for the types of property you are viewing i.e. wear appropriate clothing. Take a good local map and have a list of questions prepared.
• Structural surveys are not very common in Croatia, not least because most properties for sale are of fairly recent construction. There is nothing to stop you having a survey done though. There are any number of architects and surveyors in the large towns who would be happy to do a survey for you.

The Legal Issues

• Most real estate purchases in Croatia are done without a lawyer. However, since all documents concerning your sale will be in Croatian, it is advisable to have a lawyer to help you go through it all. He or she can do a proper search of the Land Registry to see if the property title is clean and also prepare the contract of purchase for you.
• Before buying, carry out a full examination of the location and price of the property.
  Most important is to have the house inspected carefully, if not by oneself, then by a knowledgeable person in the area. This can be a broker or someone with relevant expertise.Any renovations or repairs of damages need to be checked. The roof should be examined by an expert or a good eye before buying.
• When you have found your desired property, an initial contract will be drawn up and you are expected to make a deposit of 5-10% of the sales price, the amount being decided between the contractual parties. It is usual to write a condition in the contract that the vendor pays a sum equal to your deposit if they pull out of the sale. The pre-contract is prepared by the estate agents, not the Public Notary, so you should involve your solicitor at this stage.
• Always review the contract carefully and have it translated if necessary. Prepare any questions you have in advance, don't hesitate to ask them and allow sufficient time for getting full answers.
• For non-Croatian nationals, in certain circumstances, you may require the permission of the Croatian Ministry of Foreign Affairs to make your purchase. You should inquire from your legal adviser.
• In some circumstances, you may find it easier to register as a Croatian company in order to make the purchase. You will need to do quarterly returns for your company, for which you will need an accountant. How complicated, and therefore how expensive, your returns will be depends on what you want to use the property for. If you want to use it as a holiday home and to let it out during the periods you’re not using it, then your returns won’t be too costly. You will, of course, have to pay corporate tax on any profits your company makes.
• The contract of sale when agreed is signed in front of the Public Notary. As a foreign purchaser the presence of an official court translator is obligatory. The notary’s fees are very low since the notary only certifies the signatures, and the translator’s fees are usually in the order of €60.
• The Land Registry records legal title over real estate. The estate agent or your lawyer requests the registration of the property on behalf of the buyer. The data kept by the Land Registry Office is public and the contents can be relied upon to ascertain and establish ownership over real estate.
•  The Cadastral Registry Office plays a different role. It serves as a guide to the real estate that falls within its jurisdiction. In serving as a guide, the Cadastral Registry Office maintains records of real estate and objects built on the real estate. These records contain data on parcels of real estate, including their location, shape, surface area, nature, classification and the possessor of the real estate. These records, particularly the Cadastral Registry Office’s demarcations of real estate, serve as the basis of the Land Registry’s records of title. For this reason, the Cadastral Registry Office’s records are relevant in proceedings to establish title. The Cadastral Registry Office also keeps records on the actual possessor of real estate.
• Prospective owners need to ensure that the physical descriptions of a plot of real estate in the Land Registry and Cadastral Registry match. If the two descriptions do not match, then the purchaser must obtain an abstract from the Cadastral Registry explaining the changes and submit that extract to the Land Registry so that the certificate of title can be updated. In theory, the Geodetic and Cadastral authorities in Croatia (governmental offices that oversee the zoning of real estate and collect information on the use of real estate) are responsible for notifying the Land Registry of any changes in the status, description and use of real estate, hence ensuring that the data in the Land Registry matches the data in the Cadastral Registry. In practice, the burden of notifying the Land Registry often falls on the owners or other interested parties of real estate.
• The data in the Land Registry (as evidenced on a certificate of title) constitutes the only legal record of land ownership in Croatia. Nevertheless, purchasers should be wary of purchasing real estate when the Cadastral Registry and Land Registry descriptions do not match. Also, if you do purchase such real estate, it is in your best interests to initiate proceedings to harmonise the two descriptions so that your rights to enjoy and own such real estate are safeguarded and any eventual resale is not hindered due to conflicting records.

Insurance

From the signing of the final contract the buyer is responsible for the insurance of all the buildings on the property.

Taxes, Fees and Charges

• Typically, estate agents charge about 2.5% of the selling price to both the buyer and the vendor.
• There is a uniform tax rate of 5% on the value of real estate when sold, the value being determined by a commission of the local tax authority. The value may or may not be the same as the price paid for the real estate in the sales contract. The reason for the commission is because it is quite common in Croatia to have a contract for only 75% of the value of the property and to pay the remainder in cash, thus avoiding tax. Foreign buyers in Croatia should not to get involved in this kind of transaction.
• Value Added Tax (VAT), or PDV, as it is known in Croatia, is currently at 22%. This is charged on all professional fees. Check if this is included when you are being quoted a price.
• Lawyers will typically charge 1.5% of the selling price, which will include a search of the Land Registry and preparation of the purchase contract. There are no legal guidelines for lawyers’ fees so it is advisable to agree a price with your lawyer before engaging his or her services.
• Although the price of the sale in the contract will be in euros, the transaction must be completed in kunas. You have to transfer the amount of euros in the contract to a euro account in Croatia and then transfer this into a kunas account. This means that you are likely to have to add on about 0.75% of the sales price for the transfer of funds to the vendor.
• You should consult your tax advisor on these matters.

Planning Permission
 
Check with the local authority where you plan to build or renovate. The Croatian government is very determined to protect its natural and architectural heritage and consequently has very strict regulations concerning building on new land. The further the land is from an urban zone the harder it will be to get a building permit, and for some land, it may never be possible. So, unless you are very big risk taker, your best choice is to buy land that already has a building permit. If the land has planning permission for a building, you can proceed with that building. If not, you will have to reapply for planning permission for the building you’d like to erect. Getting planning permission is a long process and on average takes from between one and two years. If the land already has planning permission and you only want to make small changes you might only need to apply for an amendment, in which case it won’t take so long. In all cases when applying for planning permission you are advised to keep in regular contact with the planning authorities to check up on the progress of your project.

The cost of making an application for planning permission is very expensive. Typically, depending on the local authority, you have to pay €50 per cubic metre of living space envisaged in your plans. You also have to pay up front the costs of getting services like electricity, water and telephone to the property. Some land sold with full planning permission may seem expensive but when you take these costs into consideration it is not really. Before purchasing land with planning permission you must establish with your agent that the costs of the planning are fully paid.

Old properties to renovate can often be very cheap but will often be without any electricity or mains water, so one has to look carefully into the costs of getting these services to your house. With most of Croatia being mountainous and quite rugged it can be very expensive.

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