While some are recently wondering if they should sell real estate, others are wondering if it is right time to buy real estate. At the very beginning of the pandemic, the predictions of some experts were that real estate prices would drop drastically. But did that actually happen?
It is undeniable that COVID-19 had a strong impact on the economy, and thus on the real estate market. But what kind exactly?
According to the State Statistical Office of the Republic of Croatia, the pandemic has significantly slowed down the Croatian economy since March 2020. In the second quarter of 2020, Croatia experienced the largest real drop in GDP since 1995, and the figures show that the crisis in 2020 was significantly worse than the one in 2008. On top of that, it was difficult for experts worldwide to predict whether the pandemic would lead to inflation or not because there were too many factors at play.
But what about the real estate market? Many think that real estate is a stable bet and always will be. Therefore, demand for real estate has not necessarily declined during the pandemic. After all, people always need a roof over their heads.
Basically, it all comes down to supply and demand. Both before the pandemic and during it, the demand for real estate was (was) high, at least when it comes to city centers such as Split, Zadar and Dubrovnik. This is mostly a consequence of the population growth in general and precisely in these centers.
The rule is that the price increases with the increase in demand. Thus, real estate prices (both for sale and for rent) rose drastically before the pandemic as a result of a larger population influx. The demand was so great that new construction projects could not meet the needs of the market.
Especially when it comes to cities along the coast, tourism has largely contributed to the increase in population. In them and in other major urban centers in Croatia, subsidies for the purchase of real estate such as those of APN (Agency for Legal Transfer and Real Estate Brokerage) are obtained. In addition, in the first half of 2020, the real estate tax was 25% lower compared to the first half of 2019.
There are already two factors in the question. An increase in demand leads to an increase in prices. In addition, those who sell real estate, counting on subsidies, allow themselves to increase prices knowing that buyers will be willing to pay more because they pay less from their own pockets. In addition, low interest rates on savings have encouraged some to instead of saving money, invest in real estate that can pay off in the long term, if nothing else, by renting.
There were no rules - the prices of new buildings (even slightly) and even older properties, some of which were on the market for a long time!
Experts predict that this growth trend will not last forever. Although real estate prices will not necessarily fall, price growth will at least slow down.
Prices temporarily continue to rise in all major cities. By far the most expensive properties are in Dubrovnik where the average square footage of an apartment is 3800 EUR. Next comes Split with EUR 3,000 per square meter apartment. In Split, the prices of apartments at the end of 2020 had increased by EUR 18 compared to the end of 2019.
Although we are currently also experiencing a kind of crisis, it is different from the one in 2008 and therefore the price bubble in the market real estate should not repeat. The unemployment situation and the general economic condition of the country is simply not as unstable as it was then.
Since real estate prices vary the most in city centers, it is important to touch on the changes in apartment prices in Zagreb, the largest city in Croatia . During the last crisis, real estate prices in Zagreb experienced the biggest increase, but also the fastest decline. This time the situation is somewhat calmer.
As experts predicted, Zagreb is the first to see some market corrections because prices do not continue to rise. This gains weight if you take into account the fact that the price of a square meter apartment in Zagreb has increased by EUR 61 in just one year (from September 2019 to September 2020). The market actually regulates itself.
There are several factors that could have influenced this slow growth/stagnation of prices in Zagreb. Although the March 22 earthquake in Zagreb cannot be ignored and was devastating (materially and emotionally), experts do not link changes in real estate prices to the earthquake because the downward trend in prices started a few weeks before the earthquake.
The second factor is the reduced tourism of the city center. An increasing number of apartments, which until recently were rented out to tourists, are now appearing on the real estate market. Now, when there are no tourists, people are forced to manage and pay back the loans they took out to renovate or even buy those expensive apartments in the center.
So, the supply in Zagreb is gradually catching up with the demand, which will ultimately lead to the stabilization of real estate prices, or at least slowing down their growth when it comes to larger urban centers. Again, the biggest price changes in Zagreb will be seen in the center itself, which, as a more densely populated part of the city, will certainly be hit harder during the pandemic.
The initial impression of a drastic drop in real estate prices was largely due to absurdly inflated real estate prices just before the pandemic. When the prices started to fall at least a little, it was a shock and the impression was that they were falling significantly. However, the situation is crystallizing and experts predict price stabilization in the coming period.
However, the correction will take a little more time, possibly up to a couple of years. In that period, the requested and achieved real estate prices will be balanced.
In the long term, due in large part to the projected decline in population, real estate prices are also predicted to gradually decline over time , especially older buildings. It looks like 2021 will bring some stability, at least in terms of prices in the real estate market.
Šibenik
Šibenik
