Croatia, the new darling of the Mediterranean tourist scene

Bathing in the warm Adriatic sun
By Faith Glasgow
Published: May 13 2004 15:26 | Last Updated: May 13 2004 15:26

Croatia, basking in the glory of its 1,400 miles of unspoilt coastline and 1,165 idyllic islands, is the new darling of the Mediterranean tourist scene.

British holidaymakers looking for an affordable alternative to the CĂ´te d'Azur or Tuscany have certainly voted with their feet.

According to the Croatian tourist board, the number of visitors more than tripled from 1999 to 2003 (though they are still only around a third of the level in 1990, before the Yugoslavian conflict).

Tourist enthusiasm has spilled over into the international second-home market - still in its infancy and with rough corners yet to be sorted out, but growing rapidly. In April, for example, UK-based estate agent FPD Savills announced a formal link-up with Dubrovnik-based property agent Croatiansun.

"Quite a few of our clients have expressed interest in buying a villa there after yachting around the islands, and we felt Croatiansun had done their homework on purchase procedures," says Charles Weston Baker, head of FPD Savills' international department.

The same week, the London launch of a scheme by property investment company Letterstone, offering investors the opportunity to buy into an upmarket island development with guaranteed rental returns, attracted so much interest that the venue had to be changed at short notice.

The attractions, beyond issues of stunningly beautiful scenery and sailing paradise, are several. For a start, Croatia is only a two-and-a-half-hour flight from the UK and has become more accessible to Britons with the introduction in March of thrice-weekly British Airways flights to Dubrovnik.

Second, the international property market there is still so immature as to offer interesting opportunities for investors. Paul Keppler, managing director of Croatiansun (which has a sister company based in Spain), estimates that new apartments in Dubrovnik, the most expensive place to buy, are about half the price of comparable properties on the Costa del Sol in Spain. "Admittedly, prices in Dubrovnik have risen about 20 per cent in the past 12 to 18 months, but they came from a very low starting point," he says.

But the youthfulness of the market brings its own challenges. Maria Bennett is an enterprising Irish woman who fell in love with the country and bought a flat in a 11th-century convent in old Dubrovnik for £25,000 six years ago. Fired with enthusiasm, she and a Croatian partner set up a UK-based search agency attempting to find Croatian properties for UK buyers.

"We had more than 500 people registered and tremendous support from the Croatian ambassador in London, but the big problem was a massive shortage of supply," she explains.

"Basically, Croatian families prefer to leave property to their kids rather than sell it, and local estate agents didn't want to deal with foreigners; so we would be offered the dregs for our clients - things that had been started in the 1980s and never finished, or old ruins, often belonging to an extended family and therefore very difficult to negotiate on.

I planned initially to team up with a local estate agent but there just weren't any I felt I could work with and trust." Lack of money and the complexities of the market finally defeated Bennett, though she still owns her flat (now worth about £65,000).

"The biggest difficulty remains the supply of suitable holiday property," says Keppler. "We just don't have any smart new three-bedroom villas for an international market at this stage, so it's a matter of building your own or picking through the limited domestic market." That will change gradually as developers become more active and also as existing foreign owners put their properties on the market.

Meanwhile, Keppler estimates that around £100,000 would see you comfortably installed in your own custom-built Mediterranean beachfront idyll on one of the islands.

So far, though, most of Croatiansun's buyers have been investment-oriented, looking for capital growth and rental yield from good quality holiday apartments that can easily be rented out to the growing tourist market.

"Two bedroom apartments are currently around £100,000 in Dubrovnik, and we're seeing yields of around 8 per cent, net of management charges," says Keppler.

British and other foreign developers are now in evidence, building schemes geared to this international tourist demand.

But the Croatian government is reassuringly keen to avoid the architectural eyesores blighting other parts of the Med, and strict building controls limit the number of storeys, building density and proximity to the sea.

Deep Blue is a marina development, near Zadar in northern Dalmatia, complete with health-spa hotel, bars and restaurants. Fifty of the 400 apartments are being offered to investors by Letterstone, with a guaranteed rental yield of at least 6 per cent for the first three years (or 5 per cent if you opt to use your property yourself for up to four weeks a year). Prices range from £60,000 to £150,000.

But, as chief executive Simon Hill explains, this is not an opportunity for novice buy-to-let investors. "At the moment the property scene is still pretty backward, both in price terms and as far as the market infrastructure is concerned," he says.

For example, it's not easy to arrange a mortgage for properties. "We have arrangements with two local banks, and have also persuaded Royal Bank of Scotland to create a product for UK buyers in Croatia, but it requires a minimum 30 per cent deposit," says Hill. "To be honest, though, we expect many buyers at Deep Blue will come with cash."

Land ownership is another challenge awaiting the unwary buyer. A property may well have been in the same family for generations, so that several different branches of the family have a stake in it and all must sign up to the sale. However, Keppler stresses that Croatiansun will do all that work before marketing any property. "Anything we sell is offered with a clean title and ready to go," he says.

Furthermore there are few estate agents on the ground catering for international buyers and the industry is entirely unregulated, though from July estate agents will have to be registered with Croatia's Chamber of Commerce.

Croatia is set to join the EU in 2007, and Simon Hill expects that will help speed the process of modernisation, encouraging system computerisation and the introduction of more accessible mortgages. But it will also narrow Croatia's price advantages over Spain, Portugal and France.

DETAILS

Buying in Croatia: You can buy as a private individual, but this involves finding a property you want and then obtaining permission from the Ministry of Foreign Affairs which can take up to a year.

Most people buy first and then try getting approval (given to 95-98 per cent of applicants) The alternative is to set up a Croatian company, which can take a month and a half. There’s no need for government permission if you take this route, but there are various other legal and financial considerations and you need a good lawyer either way.

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