The pandemic strongly affected the Croatian property market, and especially Zagreb, as its biggest part. Although real estate agencies were not banned from operating during the ’20. Spring lockdown, mediating in the sales and lettings of flats, houses and offices requires lots of direct contacts, so most real estate agencies closed. Only part of the mediating job could be done via phone, mail or videocalls, while the most important activites-valuations, viewings, negotiations and meetings-could not take place because of the epidemiological safeguards. Psychological factors of fear and uncertainty additionally affected the property market. Real estate agencies recorded sharp drops in turnover, in some cases 100%. Most agreed transactions in March and April were cancelled or postponed, and there were very few new enquiries.
Business started picking up with the easing of the lockdown, though most agencies recorded a drop in turnover at the end of '20. The economy and property market are still influenced by the pandemic, but continue to be affected by trends which were emerging before it.
The market was at its peak at the end of ’19., and beginning of ’20. Emerging trends which indicated the need for adjustment were a drop in the number of sales of all property types, especially flats, a rise in the difference between asking and completion prices, both affected by a lack of offer in various segments and the unjustifiably high asking prices of flats in older buildings.
Property transactions and prices in Zagreb:
In Zagreb, Croatia's largest market, sales of flats, which are the most sold of all property types, dropped by '17% in ’19. compared to '18. This shows that buyers started to postpone purchases, which was due to a lack of affordable flats in both older buildings and new builds. The number of issued building permits in ’19. was still half of those issued in ’06., which was the highest recorded number ever, and developers were maily focused on the high-end and luxury segments, which only a small number of buyers could absorb. The offer of flats in older buildings on some of the most sought-after areas of Zagreb, its immediate and wider centre, became limited due to the development of the tourist sector. A lack of offer of flats at average prices in all segments caused the fall in transactions.
Prices rose for several reasons. The media reporting had been superficial for several years, not taking into account the differences in prices of old and new properties, between asking and completed prices, and the need for better price differention based on the location and characteristics of the property. This resulted in the impression that prices were generally on the rise, while reality continues to be exactly opposite: although the average price of flats rose in ’19., and even slightly in ’20., this was affected by the relatively small number of very expensive developments in the whole of Zagreb and older flats in the wider centre. Owners of flats in older buildings, instead of setting their asking price based on the comparison with prices of similar flats at completion, used the asking prices on property search engines as their reference, which is flawed, because prices on property search engines represent the owners' wishes, not reality. The lack of a publicly available source of prices at completion continues to be a major issue in Zagreb's property market. Owners of old flats in areas with lots of new development also raised their asking prices, which is unjustifiable, as the new developments are completely different product. And finally, several studies have now proven that the government's programme of subsidised loans has had a strong effect on prices rising.
The market needed to cool at the beginning of ’20., and even before the pandemic, in order to remain healthy. Sharper differences in price had to be introduced based on the location and characteristics of the property, and this remains a need in ’21. There continues to be a lack of average quality and priced new builds in the whole of Zagreb, with the demand for such products remaining high.
The number of transactions will continue to be affected by the epidemiological situation, the rate of recovery of GDP and unemployment, interest rates, and the tourism sector, which represents a large portion of Croatia's economy. The rate and speed at which prices of certain properties might fall, cannot be forecasted, as the property market is in a state of uncertainty. We hope that the neccessary corrections will happen, so that market continues to remain active. We also hope that owners and developers will rely more on the input of high quality and exprienced real estate agencies when forming their asking prices, as the industry has insight into prices at completion. And finally, we hope that all the stakeholders will react quickly, in order to minimise negative trends.
Long-term lettings of flats and houses to ex-pats in Zagreb:
This niche segment stagnated until the Q2 ’20. Enquiries from ex-pats employed in embassies and interantional companies started to rise in Q3, but remained at lower levels than in previous years. We expect enquiries to remain stable in ’21. Rent levels will also remain stable for now.