Building Permits Drop 14 Percent: Is a Cooling in Residential Construction Coming?

In the first six months of 2026, according to DZS data, 5,083 permits were issued and the construction of 8,902 apartments is planned. Last year, in the same period, 5,932 building permits were issued for the construction of 10,427 apartments. Thus, there is an evident decline in issued permits this year by 14.3 percent and a decrease in the number of apartments by 1,525 compared to the same period in 2025, which is a decline of approximately 14.6 percent.

However, everything can change, and one should not immediately conclude that a decline in construction activity is imminent, although the latest data, from the second quarter of this year, suggest that some changes may be on the horizon. Namely, the value of the work has not decreased; on the contrary, in the first six months, it increased by 12.8 percent compared to the same period last year, and in the second quarter, this value increased even more compared to last year’s second quarter – by 13.5 percent.

Nevertheless, this increase in value can largely be attributed to rising construction prices since the volume of construction work has grown significantly slower – in the second quarter by 3.1 percent, and in the first half of the year by 2.8 percent. The nominal growth in the value of work is also influenced by the structure of the completed work and higher construction costs. After all, the prices of construction materials in June were four percent higher than a year earlier.

However, what may concern entrepreneurs, or at least emphasize the need for caution, is the DZS data that in the period from April to the end of June this year, the value of new orders fell by 4.3 percent compared to the same quarter last year, although at the level of the entire first half of the year, it was still four percent higher than a year earlier.

Slow Administration

This data for the second quarter, combined with the decline in issued building permits in the first six months of this year, was sufficient reason to ask construction entrepreneurs if something is happening in the market.

Marko Akmačić, head of the Residential Construction Department at MDK Građevinar, believes that the decline in the number of issued building permits should not necessarily be interpreted as a direct indicator of declining investor interest in new residential construction. One of the reasons for the decline in the number of issued building permits is the increasingly slow and complex administrative procedures that precede the actual start of construction.

– From our experience, the procedures for obtaining the necessary permits have become more time-consuming in recent years, while at the same time, some competent authorities have limited staffing capacities relative to the number of cases they handle. In addition to the issuance of the building permit itself, investors go through a series of preliminary procedures, obtaining special conditions, approvals, confirmations, and other documentation, which is why the preparatory phase of the project can take significantly longer than optimal – says Akmačić.

He adds that several factors have influenced the predicted number of apartments, specifically 1,525 fewer apartments in the first six months of this year. In addition to administrative deadlines, the dynamics of launching new projects are influenced by the prices of construction land, construction costs, the availability of quality labor, financing conditions, and increasingly demanding technical and regulatory standards. Investors, therefore, he adds, analyze projects in more detail before launching them and more cautiously determine the dynamics of new investments.

It is possible that some of these factors contributed to the decline in the value of new orders in the second quarter by 4.3 percent. However, Akmačić emphasizes that the demand for quality new constructions still exists, which is not disputed; it is just a question of whether buyers will indeed ‘hit the brakes’ harder. The interlocutor himself states that buyers today are more informed and cautious, and in addition to the location, price, and quality of the apartment, they are increasingly paying attention to who is behind the project.

Plans Remain the Same

– In this regard, the experience of the investor, previously realized projects, quality of execution, adherence to deadlines, and the relationship with customers after the completion of construction are observed. We believe that this is a positive direction for market development as it further encourages the professionalization of the entire industry and gives a long-term advantage to investors who continuously invest in quality and build customer trust – says Akmačić.

The trend of declining building permits and the value of new orders, for now, he says, does not affect the plans of MDK Građevinar. In that company, they have not revised them; moreover, he claims, there are more projects in various stages of development, and they continue to prepare new residential investments.

– What represents the biggest challenge is not the lack of interest in investing, but the time required for a project to move from the initial development phase to obtaining a final building permit and actual realization. We believe that speeding up and further digitizing administrative procedures, along with strengthening the staffing capacities of competent authorities, could significantly contribute to the faster realization of private investments and increase the supply of new apartments on the market – says Akmačić.

The Decline Had to Come

Mirko Habijanec, president of HUP – Association of Employers in Construction and president of the Management Board of Radnik, says that in the past decade, we have witnessed very intense investment in residential construction, primarily due to our tradition of saving by purchasing real estate due to bad experiences with inflation. This is one of the reasons for the rise in apartment prices, and the earthquake in 2020 intensified the current demand for apartments in new constructions due to better static stability of buildings, as well as other essential requirements for construction.

On the other hand, relaxed banking policies for financing the purchase of apartments, in relation to high rents of existing apartments, motivate a wide range of apartment buyers who decide to purchase with a loan.

– Due to the aforementioned influences, the prices per square meter of apartments in Croatia have constantly risen and reached an enormous level, and it was only a matter of time before a gradual decrease in demand would appear. The company Radnik and its associated companies are not significantly involved in residential construction, so we do not directly encounter a decline in demand for that type of work. However, any negative trend on the demand side for construction work will negatively reflect on the operations of the construction sector. In this context, it is necessary to react as quickly as possible towards increasing productivity, rationalizing costs, and raising competitiveness. Economic entities that will raise their level of competitiveness can more successfully weather the period of stagnation. Therefore, we believe that the decline in the number of issued building permits for apartments will not significantly affect the economic activity of our company for now – says Habijanec.

Questionable Land Reclassification

He took the opportunity to say something for Lider about the high prices of apartments, considering that construction companies have the least to do with it. Apartment prices depend, as Akmačić also said, on a large number of factors. However, Habijanec notes that we still do not know whether these are the prices reported to the Tax Administration (25 percent VAT is paid on every square meter) or the prices provided by real estate agencies to DZS.

– Unfortunately, in Croatia, we have different prices: some are in the contract, and others that are actually paid to sellers partly in cash. And that, of course, should not happen. Construction companies are rarely investors in residential construction. This situation has arisen because there are not enough control mechanisms. It cannot be allowed for non-construction land to overnight become construction land without very substantial justifications and checks. If there has been a reclassification from agricultural to construction land, it should be taxed according to the real increase in the value of such land. Unfortunately, there are situations where land is grabbed below market value, reclassified, and then enormous prices per square meter are dictated – says Habijanec.

He emphasizes that high apartment prices, in addition to the reaction of the market mechanism, should be countered by the affordable housing model prepared by the Ministry of Construction. For the success of the model, a significant contribution from local government units is needed, which can and should know what kind of apartments and in which areas are needed. Thus, he is not talking about social housing, but about apartments that should enable easier access to housing for the working population.

– If planning is done well and more qualitatively, if it is known that the construction of, for example, ten thousand apartments is being prepared, it will facilitate the functioning of the construction sector, bring quality, and positively affect the price of work. If much is known in advance, it is easier to plan logistics and rational and economical business plans – says Habijanec.

His response also suggests that construction companies are not currently facing a serious blow due to the decline in the number of issued building permits and the value of new orders in the second quarter. However, the first signs of a slowdown exist, which is sufficient reason for caution – especially in a sector that has become accustomed to strong growth in recent years.