Location, location - a corner of Croatia becomes 'new Tuscany'

Resentment grows over spiralling house prices as foreigners move in

Ian Traynor in Stifanici
Tuesday August 8, 2006
The Guardian


Up and coming ... Rovinj on the Istria peninsula. Photograph: Alamy
 

"This bit here will be planted with olives and lemon trees," she says, pointing to the front of her rebuilt stone and terracotta villa. To the rear where the new lawn is beginning to peep through the rich red earth, she envisages a swimming pool by the terrace and built-in barbecue.

Mrs Grieve and her husband Elliott, who works at an investment bank in the City, have just spent €200,000 (£135,000) on a four-bedroom house in Croatia's sun-kissed region of Istria, a peninsula on the Adriatic sea with a quarter of a million people.

"We heard this was the new Tuscany. But you can't get places in Tuscany like this any more," she says.

Like thousands of other Britons high on the UK's property boom and desperate to secure a second home in southern Europe, Mrs Grieve is more than happy to have come to Istria, a rising star of the colour supplements and TV relocation programmes.

Irish film producers, Scottish lords and a descendant of Bismarck have long moved into Renaissance palaces and country estates around here. Now the international property developers are also moving in.

Around a dozen British estate agents are already active in Istria and the Dutch are snapping up what they perceive to be bargains. The Germans and the Austrians have been here for years. Suddenly, prices are soaring as the supply of dilapidated old stone cottages struggles to keep up with demand from the west European middle classes.

"The demand is huge and there's not that many houses left to sell," says Andrija Colak who runs a local property consultancy. "The locals don't like the old stone houses, they thought they were worthless. But the foreigners love them and are offering lots of money."

David Gasson, an estate agent from Chester living in Istria, says he sells 40 houses every year to Britons and that prices are rising by around 30% a year. "But it's still cheaper than France or Italy, though a lot dearer than Turkey."

Historically Istria is a poor region of farmers and fishing folk, occupied by fascist Italy, the Austro-Hungarian Empire, and medieval Venice. Now it is fast becoming a summer playground for the monied classes of Europe crowded out of the south of France, uninterested in the industrial scale of Spanish property tourism, and unable to secure the dream home in Italy at the right price.

Paradise has its problems, of course, and in Istria there are curses as well as blessings flowing from such rapid development.

In a country where the average monthly wage is around £500, it is already clear that the locals are priced out of the property market. A few miles from the Grieves' new home in the old coastal town of Rovinj, prices are hitting £4,000 a square metre. In Dubrovnik, 300 miles down the coast, the prices are higher still.

"It will probably become like Majorca here," says Rajko Radovanovic, an artist from Zagreb who lives in a magnificent old stone house on an Istrian hilltop.

"A few little pockets of locals surrounded by foreigners. Sure, when the Brits come here and pay stupid prices, it becomes a problem. But the locals hate living in these stone houses and when the foreigners come, they restore the old houses beautifully."

Resentment at the foreign invasion mixed with greed at the fortunes to be made has generated local ambivalence towards the property boom.

A survey by Mr Colak's firm found that in Istria three out of four people thought property sales to foreigners should be outlawed. When asked if they would sell to a foreigner offering triple the asking price, however, more than half said the foreigner was welcome.

With Croatia negotiating European Union membership and hoping to join the EU by the end of the decade, the government is under pressure from Brussels, and especially from neighbouring Italy, to open up the property market completely to all EU members.

When the government recently relaxed the notoriously complicated red tape and lengthy procedures surrounding outsiders' property purchases, the opposition accused it of selling off the nation's patrimony.

Given the huge disparities in wealth between western and south-eastern Europe and the eagerness of rich west Europeans to grab a slice of what is marketed as "the Mediterranean as it used to be", the experts are warning of the distortions and dangers inherent in opening up the property market completely.

Dubravko Mihaljek, senior economist at the Bank for International Settlements in Basel, has argued that the property market should be opened gradually to non-residents. Although Croatia, under its EU negotiations, is committed to abolishing all restrictions by 2009, a pledge likely to push prices higher.

The advantages of allowing anyone to buy include the renewal of housing stock, local wealth creation, and the revival of local communities in what until only a few years ago in Istria were ghostly villages, abandoned, empty and rotting. But Mr Mihaljek warned: "This process also bears potentially high risks such as environmental damage and skyrocketing prices."

Despite the pressure from Brussels, the government in Zagreb is in good company if it insists on a phased market opening or limits on foreign ownership.

In joining the EU, Malta won a blanket ban on non-residents buying property. Denmark, afraid of Germans buying land and houses, has a similar deal. Austria, Poland and the Czech Republic, all worried about German takeovers, also obtained curbs on foreign purchases of land and houses when they joined.

But Croatia, with more than 1,000 islands in the Adriatic, some 3,000 miles of coastline, a superb climate and some of the cleanest waters in the Mediterranean, is under pressure from Britain, Italy, Germany and Austria to put itself fully on the international property market.

New motorways, cheap airlines, the epidemic of television property programmes, and the travel pages of the weekend papers are all fuelling an insatiable urge in northern Europe for that place in the sun.

"The best move I ever made. I'm going to live here happily ever after," says Mr Gasson who married a Croat and moved to Istria six years ago before himself going into the property business. He bought an old house with a sizeable garden and seaview for £30,000. It has grown six-fold in value.

Just settling in to their Stifanici villa, the Grieves have already seen their holiday home gain €150,000 in value in a matter of months.

"We wanted somewhere like Italy. But here we got more for our money," says Debbie Grieve. "It's a good investment."