The unpredictability of political, economic, and social developments, as well as the uncertainty that marks various aspects of life, is reflected in the real estate market. The real estate market is sensitive and susceptible to changes influenced by a range of factors. Compared to politically more stable and economically advanced countries, participants in the real estate market in Croatia face issues arising from operating in a newly emerging market characterized by insufficient development and the absence of activities that would facilitate a more efficient exchange of goods.
While buyers in Croatia mostly purchase real estate for residential purposes or tourist rentals, in the United Kingdom, investing in real estate is often viewed as an additional job that enables citizens to earn through the process of buying and selling properties. Prior to the last global financial crisis, British citizens purchased numerous properties in Croatia, as real estate prices in the UK market had reached a peak. The global financial crisis shocked Croatian citizens, particularly those who believed that the prices of their homes, land, and apartments would continue to rise following previous trends. However, the laws of the free market in times of crisis may result in the sale of property at a lower price than could be achieved under normal conditions, or even below cost. Trading in real estate does not necessarily mean making a profit, as it can also lead to a loss due to changed market conditions or insufficient knowledge and experience of those managing the process.
When it comes to investing in real estate, it is essential to familiarize oneself with the legal regulations that influence the profitability of individual investments. For example, it is important to consider the property tax that is expected to come into force at the beginning of next year. As announced, the utility fee will be transformed into a property tax, so the tax for owners of properties of average age and quality will be the same as the utility fee. In recent years, the utility fee has not been increased or has seen only minor increases. However, if the change in the name from utility fee to property tax is perceived as a precursor to further steps in increasing the tax burden on citizens, it could seriously affect the household budget of many families.
Investors, as legal entities in the VAT system, have been obligated to pay VAT on construction land for new apartments sold to end users since 2015. Similarly, the abolition of the relief for purchasing the first property may contribute to a reduction in interest in purchasing, but it is believed that the reduction of the real estate transfer tax, which is paid by the buyer when purchasing a used property (from 5% to 4%), should have a positive effect on the real estate market. EU member countries, such as Slovenia, can serve as an example and indicator of what can be expected in Croatia in the near future regarding tax reforms and legal regulations related to real estate. The first law on property tax in Slovenia was passed by the Slovenian Parliament in 2013 and was set to apply from the beginning of 2014. The Constitutional Court annulled that law in part, specifically the part regarding the determination of property values. This law proposed that owners of homes and apartments in which they live would pay an annual tax of 0.15% of the value of their property if its value did not exceed 500,000 euros, or 0.40% if the property value exceeded that amount. Furthermore, the law provided for an annual tax of 0.75% of the value of a property if it was not in use, 0.45% to 0.75% for commercial and industrial properties, 0.30% for agricultural buildings, and 0.15% for agricultural land.
In accordance with this, there is a possibility that a similar property tax will be discussed in Croatia and that a law will be passed whereby owners of houses or construction land in desirable locations will be required to pay high taxes to the state if these properties are assessed as high-value.
Since 2005, Libertas Homes has been involved in performing construction works and mediating real estate transactions, offering owners of attractive construction land or houses where multi-family buildings can be built a deal in which owners contribute land as their stake, while Libertas Homes commits to obtaining building permits, paying utility fees, and constructing the multi-family building in a “turnkey” phase. With such an agreement, owners put their unused property to good use and obtain much higher value in apartments than the value of the land or house with land. If the apartments are then put to use, their owners pay lower property taxes while retaining a higher value in apartments compared to the land’s value. In case of need, owners can sell some of the apartments, while the land is primarily sold as a whole, and as an individual property, it has a lower value than the combined value of the apartments. Additionally, the landowner avoids the risk of frequent changes and amendments to spatial plans on their plot, which may lead to unfavorable changes that would significantly reduce the land’s value, or the land may be excluded from the construction area. A similar arrangement is offered for land with a sea view where villas with pools can be built. The owner participates in the investment with the land and receives a completed villa in return. All costs – from geodetic surveys, project preparation, utility, water, and other contributions to construction works – are exclusively borne by the investor, while the landowner receives the final product in exchange for their land.
