Follow these simple steps and that ideal property in Croatia will be yours.
1. Research the market
Before you fly out to Croatia, spend plenty of time researching the market online. Go through all of the information in the Croatian section of this site and then start looking for developers, agents or individual properties that look as if they might be interesting.
The Croatian Listings section of the site is probably the best place to start your search, but also check out the advertising in this section, and look at the Directory to get some more contacts.
If you are looking for a bargain, then think about subscribing to our weekly newsletter that gives details of selected properties that we think represent good value – these listings aren’t usually advertised to foreigners. Click here for more information on subscribing.
|2. Arrange Your Financing|
Although the situation is likely to change over the next few years in the run up to Croatia's entry into the EU, which could happen in 2010, currently the territory is one of the few in Eastern Europe that does not allow foreigners to obtain mortgages locally. As a result, if you would like to purchase a property in Croatia, you are going to have to raise financing in your home country, perhaps by re-mortgaging your current property or properties. Another option is to discuss the possibilities with a mortgage broker who is based in your home country and has experience of arranging mortgages on property overseas. But, be aware, that there are not so many mortgage brokers who are willing to lend on Croatian properties.
It is advisable to do this before heading out to Croatia so that you have a firm idea as to what your maximum budget is going to be. If you spend all your time over there looking at properties around EUR150,000 and then come back and find that the maximum amount you are able to finance is EUR100,000, your time will have been wasted.
Also, it’s recommended that you talk to an accountant about the best way of purchasing an overseas property in advance so that you minimize your tax liability.
You can find details of potential sources of finance in your home country in the International Directory section of the site.
3. View the Properties
Use the Budget Flights Tool to work out the most affordable way of getting to Croatia and then head out there to look at those properties that look most interesting for you. Check the properties, or the locations if you are looking at an off-plan property. Don’t just check the properties themselves; check out the areas that they are located in as they will all be new to you. Ask plenty of questions.
What kind of tenants are you expecting to work with? If you are looking for short-term tenants (i.e. tourists), then you are going to need something very close to the centre. Are there some good hotels close to the property? If so, you’re looking in the right place. If you are looking for long-term rentals, then make sure that it is in a desirable part of the city, if not the centre. Ask yourself the question, “would I like to live here?” If the answer is no, then chances are that the up-market tenants you are planning on renting the property will also not be so keen.
Take your time making a final decision as to which property to go for – get as many independent opinions as you can. Remember that agents and developers are all going to be trying to sell you hard on what they have available, so don’t expect an unbiased opinion from them. Also, be aware that many sellers list their property with a number of different agents, which often charge quite substantially different prices, so it is well worth shopping around to make sure that you are getting the best price.
4. Hire A Lawyer
Although it is worth speaking to a lawyer before you make an offer on a property, it is worth waiting until you have found a property that you are definitely interested in before making an agreement with the lawyer.
Unlike some territories where it is possible to complete the purchase process without employing the services of a lawyer, this is not the case in Croatia because the country is known for having the potential for problems with property titles, meaning that it can be difficult in many cases to ascertain exactly who owns the property, for a number of reasons, i.e. properties being bought and sold in the past without proper registration, properties being confiscated from wealthy families under Communism that could still be reclaimed by the families of the original owners, and as a result of ethnic Serbs being evicted unlawfully from the country and their properties being claimed by others and unlawfully sold on.
You really need a qualified professional to help guide you through the potential minefield of property ownership in Croatia and also to check the Division Document (for apartments), Certificate of Title, Building Permit and Usage Certificate.
As it is vital that you find a lawyer who is representing your interests and your interests alone, don’t ask the real estate agent or developer to recommend one – it’s better to choose one yourself. You can find details of Croatian Lawyers in the directory section.
One other advantage of using a lawyer is that, by giving them ‘Power of Attorney’, they will be able to sign legal documents on your behalf. This can offset some of the costs if it means your having to make one less trip to the Croatia in order to complete the buying process.
If you do decide to employ the services of a lawyer, reckon on paying around 1.5% of the purchase price to them, or a minimum of EUR2250.
Another service that your lawyer will be able to provide for you should you need it is the formation of a Croatian company. This, however, is probably not advisable unless you are considering investing quite a substantial amount into the country in order to purchase multiple properties. The advantages of owning property via a company rather than personally are that it is quicker because you do not need to undergo the long wait to get the final ownership documentation from the Ministry of Justice and, if the company is VAT registered, then it is possible to reclaim the VAT back. However, the company will be liable for paying tax.
Forming a Croatian company typically takes 4 – 6 weeks, costs around EUR2000 in fees and around EUR2700 in starting capital (although these funds can be used in order to purchase the property).
5. Finalize The Deal
Whereas in markets such as the UK, the initial price is known as an ‘asking price’, with both the buyer and seller expecting the final sale price to be somewhat lower than this, don’t expect the same in Croatia. There’s no harm in trying to negotiate a reduced price, but sellers here usually expect to get the full amount.
Make sure you know exactly what costs are covered in the final selling price to avoid any nasty surprises further down the line. Typically, the seller should be responsible for paying half of the estate agency fee, which is normally around 2-6% of the total purchase price, plus 22% VAT if the property has been built recently.
6. Sign An Initial Contract
If you’re buying an off-plan property, then perhaps the developer will require you to sign a reservation agreement before you get to this stage but the main document is an initial sales and purchase contract that will be drawn up by your lawyer on your behalf. This is a formal, legally-binding contract which contains all of the key information about the agreed deal including the details of the property, the total amount payable, the deposit, penalty clauses, etc. It will also include details of any conditions that the seller must complete before the final contract (i.e. repairs, etc.)
As with all contracts in Croatia, this will need to be signed in front of a notary. Typically, your lawyer will have three to four weeks to complete property checks with the Land Registry Office before preparation and signature of the final contract. Make sure that this is sufficient time for you to have all of your funds in place to complete the purchase because, if you aren’t ready to complete the purchase on the contracted date, you could very easily lose your deposit.
Immediately that the agreement is signed, the buyer will pay a deposit, usually around 10-15%, to the seller.
Once the initial contract has been signed, either you or your lawyer should apply to the Ministry of Justice in order to obtain approval for the sale, a process which costs EUR20. The good news is that this approval is fairly automatic. The bad news is that the process usually takes in the region of six months. If you have bought your property through a Croatian company, then you don't need to go through this long waiting period.
7. Inspection Period
While your lawyer is checking the status of the property, you will now have a certain amount of time to inspect the property. It is not so common in Croatia to request for a surveyor to make a full structural report on a property. If the property has been built recently, then a survey should not be necessary as the building will be under guarantee from the builders. Check the property out yourself. Chances are that it will be OK, but if you see anything that could cause you sleepless nights, then perhaps it is worth the money to get the property checked out first. A structural survey on a property is likely to cost you EUR300-450.
You can find details of Croatian Surveyors in the directory section.
During this time, you should also be arranging the final financing deal with your bank or mortgage broker so that all of the funds are available at the time of completion.
The final contract is signed once you have received approval from the Ministry of Justice and your lawyer has carried out all of the necessary checks and searches by checking the Land Registry Office which shows the ownership of all property in the country and the seller has provided all of the relevant title documents and permissions for use. As always, your signatures will have to be notarized. If your lawyer has prepared the contracts, reckon on paying around 1.25% in notary fees. If the notary prepares the contract, it is more likely to be around 2%. Additional fees payable to obtain all of the necessary paperwork amount to just under EUR50.
And naturally you are also going to have to pay the balance of the cost of the property itself. Often this is paid via your lawyer who keeps the money in an escrow account until the sale is finally completed.
In addition to paying the balance of the cost of the property to the seller, you will also have to pay Property Transfer Tax (the equivalent of Stamp Duty in the UK). For properties that were built prior to 31 December 1997, this is levied at 5% of the entire value of the property. For properties built after this time, this tax is levied only upon the value of the land that the property is built upon. VAT of 22% is also payable, but this should normally be included in the purchase price and so it is the seller's responsibility to take care of it. This tax needs to be paid within a month of signature of the contract or else you will be liable for interest on the sum and the property cannot legally be yours.
Once permission has been received, you will be recorded as the official owner of the property in the Municipal Cadastral Department's Land Book and the property is finally legally yours.
Congratulations! You’ve just bought yourself a property in Croatia! That wasn’t so difficult now, was it?!