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Croatia - Buying Property
Reasons To Buy Property In Croatia
Croatia is a country which has many interesting geographic areas that offer tourists and residents the opportunity to enjoy mountains, woodlands and beaches. It has plenty of small and large cities, each with their own distinct character. The climate is pleasant.
Croatia joined the North Atlantic Treaty Organisation (NATO) in 2009 and the European Union (EU) on 1st July 2013. It is legally obliged to join the borderless Schengen Area and the Eurozone, although a number of financial, security and legal barriers mean this has yet to be achieved in 2018. The expectation is that Croatia will develop commercial and cultural relationships with other EU partners, which will benefit the country and its residents in numerous ways. The long-term value of housing stock is therefore seen as secure, albeit subject to fluctuations, especially as Croatia’s tourism market has grown strongly.
Factors To Consider When Buying Property In Croatia
Croatia first formally applied to be admitted into the European Union in February 2003. Progress towards this was delayed. The International Criminal Tribunal for the Former Yugoslavia, operating from the Hague, wanted to try a number of military leaders from the Croatian War of Independence, which lasted from 1991-1995, for war crimes. Since these leaders were seen as national heroes, this process took years to achieve.
By 2008, the EU warned Croatia that they needed to take tougher action against corruption and organised crime if they wanted to conclude EU negotiations by 2011. A number of high-profile trials have subsequently occurred, including those for the murder of investigative journalist Ivo Pukanic as well as a trial against former Prime Minister Ivo Sanader on corruption charges.
This history is important to bear in mind, because the independent country is still relatively young. Expats must therefore be culturally sensitive when talking to local people.
Waterfront Properties Are Rare And Expensive
Croatia has thousands of miles of coastline, and numerous islands. The Istrian peninsula in the north-west of the country is particularly popular with overseas buyers who are looking for a holiday home.
In the 1980s, development on the waterfront was legally constrained. This was to protect the nation’s coastline and prevent over-development. As a result, it is difficult and expensive to find homes that have waterfront views or are located in beachfront resorts, especially if you want to obtain a freehold property.
Find a Reputable, English-Speaking, Independent Solicitor
International buyers who are looking for property to purchase must be very careful about confirming their right to buy, as well as ensuring that the property is owned by the person from whom they are buying it. They will need assurance that a local developer has building permission and is likely to complete the promised homes. Even purchasing an existing property from a large family can cause legal headaches.
Furthermore, there are a number of ongoing costs and obligations you incur by buying property. Some of these may be significant, and hidden. If you are buying a holiday home, you may be subject to a legal requirement to rent out your property when you are not resident there. Local property companies can offer services to help you do this, although this may cost as much as 50 percent of the rental income. If the property is part of a resort or development, you may have a number of management and maintenance charges to pay each year.
We cannot stress enough that you need to find a reputable, English-speaking independent lawyer who can undertake important checks before you hand over your money. If this lawyer is based in Croatia, they will have an awareness of the systems and any potentials for abuse, as well as useful local knowledge.
As a minimum, the lawyer will check the ownership title, land registry, Kataster register, building permit and usage permits, as well as preparing the contracts, keeping your funds in a client account and transferring them to the correct parties.
The ministry of justice sets the maximum fee any solicitor in Croatia can charge for their work on a property purchase transaction. It is currently one percent of the purchase price plus standard VAT of 25 percent. This is money well spent to protect your investment.
Real Estate Agents In Croatia
If you use the services of a licensed estate agent, especially one who has been recommended to you, many of the pitfalls of dealing with unknown individuals may be avoided. You are less likely to be the victim of a property scam, and can ask for information in English.
Estate agents in Croatia receive commission from both the property buyer and seller. Somewhere between three and six per cent is normal, plus the standard rate of VAT at 25 percent. You should be advised of the rate – along with all other terms and conditions – in writing before the agent does any work for you or property viewings begin.
Estate agents usually have websites displaying properties currently available, with photographs. You will see properties advertised for sale in euros, rather than the Croatian kuna.
However, do ensure that you visit the property before making an offer. You can’t tell from the pictures whether the property is set in an undesirable area, has a hidden damp problem, or has noisy neighbours.
Buying A Croatian Property As An EU Citizen
In expectation of joining the EU, Croatia changed some of its property purchase rules. EU citizens can now purchase property in Croatia with the same rights as local people. They no longer require additional approval, nor do they need to set up a local company to purchase the property.
As long as you remain the owner of the property for at least 24 months, you will not be liable to capital gains tax when you come to sell.
Buying A Croatian Property As A Non-EU Citizen
This is a complex area which you must resolve before you embark on a property purchase.
If you are a migrant who is not an EU citizen, you can only buy property in Croatia if there is a reciprocal property purchase agreement in place with your country of citizenship. And even then, you need to obtain permission from the ministry for justice.
Agricultural land, woodland and properties that have a cultural monument are all excluded from sale to international buyers. Permissions will otherwise depend on the reciprocal agreements in place with your nation of citizenship.
Permission is likely to take about six months to obtain. In practice, you will buy your chosen property, take possession of it and await permission. When that is granted, the court approves your property purchase and the new title deeds are issued.
If a reciprocal arrangement is not in place between Croatia and your home country, you cannot legally purchase property there as an individual. Instead, you must set up a local company which will become the property’s legal owner. This is a common procedure, so your solicitor should be able to arrange this without any problems. The one issue for you as the company owner is that you will have to place a deposit in a bank account, pay the lawyer and notary for setting up the company, and be liable for a number of annual taxes.
If you are a US citizen, your right to purchase Croatian property as an individual will depend on which state you come from.
The Property Purchase Process In Croatia
Once you have found your ideal property and wish to buy it, you can make an offer. If it is accepted, both parties will sign a contract and you will immediately pay a 10 percent security deposit.
If you pull out of the process later, the deposit is forfeit. If the seller pulls out, they must back the deposit and pay you an equivalent amount out of their own funds as a fine.
You must also pay a five percent purchase property transfer tax, known as RETT, at the time of registration. If the property is a new build, you will pay standard VAT of 25 percent instead, but this will normally have been included within the agreed purchase price.
Mortgages for expats in Croatia are not common. They can be obtained through Croatian banks if you meet their eligibility criteria, although you will probably be asked for a high level of deposit, such as 40 percent of the property purchase price.
Alternatively, you could obtain a mortgage from your home country, especially if you are buying your property in Croatia as a holiday home. Look for a mortgage broker who has experience of lending for property purchases in Croatia. Be careful to check they are reputable and regulated by the relevant financial regulators.
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