SUNDAY BUSINESS POST
15 June 2008

The Croatian capital Zagreb has been overlooked by overseas investors, but that may be set to change, writes Graham Norwood.

Buy-to-let apartments from only €65,500 are instantly appealing.

Put them in a fast-emerging central European market and the deal looks better still. So, even in these straitened times, it may be worth investors considering Zagreb.

The Croatian capital has realised the benefits of western investment rather more slowly than neighbouring Budapest and Sofia. But now, residential developers from Ireland, Britain, Spain and Canada are building homes there, and a block of 150 units in a scheme in the western suburb of Spansko is being marketed solely to Irish and British buyers.

Savills is the first major western estate agency to open in the city, and in doing so, has formed an alliance with a small existing agency, Avenia, which is owned by Irishman and central European property expert Kieran Kelleher. He has a sales office in Dubrovnik on Croatia’s Adriatic coast, already a popular holiday home market for Irish buyers, and also sells homes across the border in rapidly developing Montenegro.

Now, he thinks Irish investors should consider Zagreb. ‘‘I see a lot of parallels between Zagreb and the Dublin of ten years ago,” he said. ‘‘It’s got roughly the same population, similar demographics and culture, even the same religion. EU membership changed Ireland generally and Dublin particularly, and its property market has boomed. I see the same about to happen in Zagreb.”

The current property slump in Ireland, Britain, Spain and other parts of western Europe is not a problem to Kelleher’s team. ‘‘The timing is good. We offer an emerging city with strong prospects for capital growth,” said Tatjana Tosic, managing director of Avenia Savills Zagreb operation.

The country has just been invited to join NATO and has been a nominee for EU membership since 2004; most observers believe it will be a full member of the union by 2011 at the latest.

‘‘We’ve analysed the property growth pattern of other east European locations that have joined the EU, so we expect 5 to 10 per cent annual growth for each of the first five years after we join. That’s very appealing to Irish investors right now,” said Tosic.

There are signs aplenty that Zagreb is already a city on the move. The airport is being enlarged, new trams are being introduced to the 15 daytime and four overnight lines, and underground car parks are planned for the centre. Motorways opened in 2004 have made Zagreb a convenient hub for business and tourism - Istria is 90 minutes away, Venice four hours and Istanbul six hours.

The city is home to 25,000 new students seeking rental accommodation annually, while major multi-nationals, like Siemens, Eriksson, T-Mobile and Coca-Cola, have set up bases there.

Meanwhile, there is a shortage of affordable accommodation for first-time buyers, producing a strong rental market, as young people save to purchase.

Rival estate agent Knight Frank is also flagging Zagreb as an emerging location for investors. The firm’s most recent quarterly world price index identified Croatia generally as one of Europe’s best performing markets throughout 2007, and gave special praise to the capital.

‘‘The annual rate of 11.6 per cent growth appears to resemble something of a return to form for Croatia, after rates of house price inflation dipped to below 6 per cent towards the end of 2005.The highest values per square metre for residential property are found in apartments in the capital,” said Liam Bailey, Knight Frank’s head of residential research.

Croatia performed better than most east European countries, according to Bailey. Its properties are improving, too. Build quality is high in contrast to some other eastern European locations. Most units have large terraces, ash flooring and granite worktops as standard, with parking spaces and high levels of landscaped surroundings.

More expensive new properties include pools, private gardens, remote-control heating and lighting systems, and sophisticated video entry phones and CCTV security.

Croatia has come in out of the cold and now wants a piece of the global property action. Unexpectedly, it may just be the place to look for investment, now that the sharp winds of the downturn are blowing through traditional markets.


Buying in Zagreb

* Buying a property built before December 31,1997 attracts 5 per cent real estate transfer tax (RETT).

* Buying a property built after that date attracts 5 per cent RETT on the land plus 22 per cent Vat on the building, which is normally built into the asking price by the vendor.

* Agency fees are usually 4 per cent plus Vat, but with a minimum charge of €4,900.

* Legal fees are 2 per cent plus Vat, plus €150 administrative costs, but with a minimum charge of €2,000.

* Most overseas purchases are made by individuals. It is possible to buy via a company, but any tax advantages need to be offset against other charges. Average set-up costs are €3,500 and there is a legal requirement for an accountant to preside over company accounts, adding up to €250 per month to the cost.

On the market

* Studio, one, two and three-bedroom apartments in the new Spansko suburb in west Zagreb have oak floors, terraces, granite worktops and security doors. The area is soon to have a brook and park, a nursery and school, plus local shops. Flats from €65,500,with parking spaces from an extra €7,800, are available through Avenia Savills on 0038514882750 and www.aveniacroatia. com.

* Bukovac in the northern hills of Zagreb is one of the most sought-after parts of the city. On the market there is a scheme of three-bedroom apartments which vary in size - some come with a pool, others with extensive terraces and private gardens. All have high level security, open plan rooms, floor-to-ceiling windows, air conditioning and central heating, and start at €550,000 through Avenia Savills.

For a full list of available Zagreb properties, please visit www.aveniacroatia.com