Abolition of incentives for housing savings for all payments made after January 1, 2014.

The Ministry of Finance has opened a public discussion on its website regarding the Draft Proposal for amendments to the Law on Housing Savings and State Incentives for Housing Savings, which proposes the abolition of state incentives for housing savings for all payments made after January 1, 2014.

The Ministry assesses that the housing savings system has not fulfilled its fundamental purpose, namely significant credit activity in addressing the housing issues of citizens in Croatia. Therefore, it proposes the abolition of state incentives for housing savings, which are paid at a rate of 10 percent of the paid contributions, with a maximum contribution on which state incentive funds can be calculated being 5,000 kuna per year per saver.

The public discussion will be open until October 14 of this year, and it is proposed that this law be adopted through an expedited procedure and come into effect at the beginning of 2014.

The Ministry of Finance explains that, despite the fact that Croatia has so far paid out more than 2 billion kuna in state incentive funds, the credit activity of housing savings banks has remained at a very low level.

Currently, the volume of loans granted by housing savings banks is around 3.5 billion kuna, and the share of these loans in total housing loans in Croatia is only 5.5 percent, indicating that this system has not fulfilled its original purpose, namely significant credit activity in addressing the housing issues of citizens.

The relevant ministry also notes that the average ratio of loans to deposits in the housing savings system is 54.1 percent, which indicates that savers primarily use this system for savings, which is more favorable than in commercial banks to obtain state incentive funds, and after the expiration of the five-year term, they withdraw the saved money along with the corresponding interest and state incentive funds and use it for purposes other than the primary one, namely not for solving their housing issues.

This way of functioning of the housing savings system indicates that housing savings banks are directly dependent on state incentive funds, as attracting a large number of savers who receive state incentive funds, and then have no interest in taking out a housing loan, allows financing of housing loans for a small number of savers who actually use it.

Furthermore, the Ministry emphasizes that the number of housing units in Croatia exceeds the number of families by almost 30 percent, partly due to depopulation, and largely due to the fact that investments in purchasing apartments in the past decade have often been motivated by increasing wealth rather than solving housing issues.

They state that the saturation of the real estate market is also indicated by the fact that there are more than 20,000 unsold apartments in Croatia.

The conclusion of the Ministry is that further encouragement of housing savings in Croatia is unjustified and that the funds amounting to around 200 million kuna that are annually paid from the state budget need to be used more purposefully. Therefore, by amending the Law (the encouragement of housing savings for all payments made after January 1, 2014, is abolished), the Ministry of Finance explains.