With Economic Growth and Wage Increases, There is No Room for a Significant Drop in Real Estate Prices

As long as the Croatian economy and the real wages of citizens are growing, no significant correction or drop in real estate prices can be expected, stated Velimir Šonje, director of Arhivanalitika, at the RE:D conference.

Šonje assesses that the Croatian economy will grow this year, estimating it may exceed three percent, and growth should continue in 2025 and 2026, albeit with some slowdown, with rates closer to two percent, “but far from any recession or ugly scenarios.”

– Therefore, from the perspective of the real estate market, no significant changes should be expected – assessed Šonje.

However, he noted that a certain slowdown in the growth of real estate prices has been observed since the third quarter of last year, and we still need to wait for data for the last quarter of last year. Therefore, he expects prices to stagnate, ‘perhaps correct a little’, but he believes there is no significant room for a substantial drop.

As long as economic growth continues, along with higher real wages and optimistic expectations that are currently very present among Croatian citizens, there will still be some pressure on demand, he emphasized.

The situation in Croatia is significantly different from that in other EU countries

He also noted that the situation in Croatia is quite different from that in the European Union, where the entire real estate sector and construction are in a ‘shallow’ recession. The correction of real estate prices at the Union level currently amounts to about four percent, primarily due to rising interest rates.

The rise in interest rates on housing loans has also occurred in Croatia, Šonje noted, but it has been significantly lower in the past two years than in other European countries.

– So with the current average interest rate of about 3.7 percent, Croatia is practically at levels with countries it has never been able to compare with before, such as Austria, Germany, or Italy – said Šonje.

In the second half of the year, it is expected that the European Central Bank (ECB) will begin lowering key interest rates, so at some point in the months after, a pressure on the decline of interest rates on housing loans can also be expected. “But we still need to wait a bit for that,” added Šonje.

Real estate prices reflect supply and demand

When asked whether real estate prices have become too high for Croatian citizens, where, for example, the price per square meter of new construction in Zagreb’s Trešnjevka and Knežija reaches four to five thousand euros, Šonje agreed that this is ‘a lot’, however, he said, the market dictates prices, which means that demand exists.

– People are obviously willing to pay such prices – said Šonje. He believes that this most expensive segment will ‘correct’, but he does not expect any significant ‘collapse’ of prices, as was the case about 15 years ago.

And Vedrana Likan from Colliers stated that the prices of residential new construction in Zagreb reflect the relationship between supply and demand, where supply is still insufficient. Therefore, she believes it is essential and crucial for public state property, which includes a large number of apartments, to ‘flow’ into the market.

– As long as the construction dynamics remain at the current level and without a significant volume of new products on the market, this imbalance between supply and demand will continue – assessed Likan.

In Croatia, 500 million euros were invested in commercial real estate last year

Likan reported that last year, investments in commercial real estate in Croatia reached a value of 500 million euros, surpassing the 400 million euros from 2022. This refers to built properties that already generate a certain yield on the market, such as hotels, office buildings, and warehouses, and does not refer to the construction of new properties.

Specifically, in the case of Croatia, the past year was marked by several larger acquisitions, such as the companies Sunčani Hvar and Novi Vinodolski resort in the tourism sector.

Likan stated that due to entering the Schengen area and the eurozone, Croatia ‘behaved’ differently than other European countries, where, for example, Poland, Hungary, the Czech Republic, and Slovakia have recorded a noticeable decline in investment volume over the past two years compared to previous years.

With the entry into Schengen and the eurozone, Croatia has solidified its position on the investment map, and investors view it much more seriously than before, thus completely separating itself from global trends, especially those in Central and Eastern Europe, Likan emphasized.

She also stated that despite the significant growth in real estate investment volume last year, there has been much more ‘interested and active’ capital in Croatia in recent years than there have been realized transactions.