Property Prices Continue to fall

[Kaskader]

So, for instance, I expect further downward adjustment of prices in the region of 20-25% overall, in next 2-3 years. Reasons being:

1. Introduction of tax on not-primary residences, holiday homes etc;

2. Banks will be placing on market thousands of properties;

3. Economic crisis pushing people to sell properties (which they in most cases own outright, but do not use)

4. Increasing tendency of people to save, rather than spend (last few months record savings registered)

Would I be wrong?

[Madgolfer]

So, for instance, I expect further downward adjustment of prices in the region of 20-25% overall, in next 2-3 years. Reasons being:
Bad for sellers - good for buyers.

1. Introduction of tax on not-primary residences, holiday homes etc;
Most people have enjoyed a tax free free situation for quite a while now, they always catch up with you in the end. Will certainly be something to consider for future buyers and will prompt many more sellers into off loading their property.

2. Banks will be placing on market thousands of properties;
Banks likely to auction of hundreds rather than thousands of props, I don't think they have that many. Unlike individuals and standard investors, banks are likely to get "dispensation" for tax due on empty property stock they hold so they may not have to act that quickly.

3. Economic crisis pushing people to sell properties (which they in most cases own outright, but do not use)
sad but true.

4. Increasing tendency of people to save, rather than spend (last few months record savings registered)
I see the figures but with such low interest rates on offer, savers may be tempted back into property investments if the prices are right.

5: You should also bear in mind that there is the requirement now for everyone to have a building permit prior to completion of a sale. This is adding upwards of €3000 - €5000 - €10,000 euros to their costs. Catch 22. No building permit no sale. Govt wins again.

Would I be wrong?
You are pretty much correct.

[Kaskader]

2. Banks will be placing on market thousands of properties;
Banks likely to auction of hundreds rather than thousands of props, I don't think they have that many. Unlike individuals and standard investors, banks are likely to get "dispensation" for tax due on empty property stock they hold so they may not have to act that quickly.


They do not have thousands at the moment, but I was indicating next 2-3 year period, where I anticipate they will have many more on their books.

[ivetron]

I think you two guys above are spot on with your assessments. Much of this real estate speculation/sub prime loan mess started in the US and I believe the US has already hit rock bottom in price declines. A number of report are showing a slight increase in pricing in recent months. I would think the bottom has not been found yet in Croatia and other Euro countries for that matter.

In my opinion, a real game changer in Croatia will be the introduction of this property tax. From what I gather on this board and talking to folks in HR, many Croats hold onto the property/homes they've inherited since there is no mortgage or annual property tax payments to make. In the process, they hold out for the "top dollar" offer on their home which may not be realistic. Now, if they start getting an annual property tax bill their strategy on pricing and selling will likely change quite a bit.

[Kaskader]

Yep, holding out for the top dollar offer is already living in a dream land. As may I ask (thinking outloud), where is the top dollar offer going to come from? There is no more remortgaging based on house price appreciation in the UK for the holiday homes purchases abroad. Most of other richer EUropean economies feeling the pain of recession and cost of living inflation. In simple terms, the number of buyers is declining (for instance in the UK the number of people struggling to buy first roof over their head is increasing, doubt they will be buying second properties under the sun).

Of course the super rich will always get even more super rich, and there will always be some people with money and property will always present considered assets class allocation option. But, paying a top dollar for a Croatian property, overlooking hundreds of thousands of properties being available in countries like Spain, Greece, Portugal, Italy, even France, in many cases larger and better properties in those countries being cheaper than asking prices in Croatia, plus in many cases offering much longer holiday seasons with many more cheap flights still available, etc, etc....so, yes, it is living in a dream land.

I know many pensioners who have built over years second properties and the following sentence from their mouth is this: "What I have been able to build in that "old, dark and evil" system, I can now hardly maintain in this new light and glorious system". So, yes, owners of at least 50-60% of second properties, holiday homes, are today's pensioners, or approaching pension age. It is not easy to maintain those as it is. Bringing on property tax may push many over the edge....but we Croatian and ex-YU people do find ways of surviving all sorts of tyranny.

[Ribaric]

Here in Varazdin there has, in my experience, always been plenty of empty houses and, typically, a 200m detached house in poor condition would be advertised at about E130k. Last week, one was sold for 83k and this week another went for 65k. Clearly somebody had to sell and so market forces set the real value. The chattering classes are now in shock that two places were "given away" but realism has now entered the market and, hopefully, a slightly more vibrant real estate activity will result. Of course, mine is worth millions

[Madgolfer]

We recently saw a property being "let go" for just the amount required to pay of the outstanding mortgage debt, in our estimation a genuine loss of at least €50k on its true value maybe €75k.

In the past 3 months we have received lots of inquiries from Croats asking us to sell their second home/weekend/unused property and land.

Unfortunately as almost none of them have clean title and/or a building permit there is little we can do for them and have to say no.

For example we were offered a lovely little weekend house with all infrastructure connected, great views, in a lovely location, but it had no building permit.

The cost of the owner getting a building permit (@€2.5k) would be around 25% of the price they were asking (€10k) and take them around 6 months.

Unfortunately they have neither the money or the time. Catch 22.

[Kaskader]

You can't eat a house, with or without building permit.

[ivetron]

So, if I get this right, any older home in need of repairs would need a building permit and this would cost in the neighborhood of 2,500 euros? That sounds rather high. If so, is that pricing normal?

Of course they can still just dump the home (sell below market value) without the permit as well. Correct?

[Madgolfer]

January.
Trouble is its not just houses that are taxable, any unused land is also included in the new law and liable for tax. Demolition of any old house prob wouldn't help.

Ivetron.
The cost of obtaining a building permit depends on the charges of a surveyor and architect, plus the sq M size of the property for paying the gov planning tax. €2500 euros is a fairly low starting figure.

Maybe a Croat could try selling to another Croat for cash and not notarise the sale, but anyone trying to register the sales contract at the notary will simply be turned away without a building permit.

[crojoe]

Sept 18, 2012 17:09:15 GMT 1 Madgolfer said:

January.
Trouble is its not just houses that are taxable, any unused land is also included in the new law and liable for tax. Demolition of any old house prob wouldn't help.

Ivetron.
The cost of obtaining a building permit depends on the charges of a surveyor and architect, plus the sq M size of the property for paying the gov planning tax. €2500 euros is a fairly low starting figure.

Maybe a Croat could try selling to another Croat for cash and not notarise the sale, but anyone trying to register the sales contract at the notary will simply be turned away without a building permit.

One Politician in HDZ went and purchased a load of agricultural land prior to the party loosing election. Seems he heard that the EU will be giving subsidies for un-used agricultural land. He had something to do with the military, as a scandal came out he was using military equipment and personnel to work his land. From what I heard, he bought huge amounts of land, so I wonder what his bill will be?

[Carol]

Can I just say regarding the head line... I wish!

Finally we've got buyers again, after several very elan summers, but now the challenge is to find properties whose owner dos not want pre-recession prices!

[Madgolfer]

Carol.
I know what you mean.
Even now when we explain to a seller about having to get a building permit, they ignore that and then want to hike the price as Cro is almost an EU member.

The sellers with a realistic attitude are selling though. ;D

Don't want to speak too soon, its been a pretty active summer, lets hope it carries on through the winter.

[mh]

I do not quite agree with the understanding of the property tax....

1. I am pretty sure no government will ever introduce tax on permanent dwellings nor agricultural land. That is a political suicide and it is not in a national interest. Any such government should be promptly dismissed and trailed for treason.
2. Housing stock is quite sufficient at the moment, so there is no need to tax building lots other to avoid short buying.
3. I hope the rules regulating primary residency will be relaxed for Croats. (every Croat will live in one house)
4. What we really need is an value appreciation tax targeting non-residents and non-commercial use of valuable assetts.
5. Fair Rental rules should protect tennants - primarily Croats and families - and at the same time encourage efficient use of property, lowering the rents.

I only hope the political realism will prevail in the Croatian interest instead of supporting sell-off of Croatia to the foreigners.

[crojoe]

Sept 19, 2012 13:55:12 GMT 1 mh said:

I do not quite agree with the understanding of the property tax....

1. I am pretty sure no government will ever introduce tax on permanent dwellings nor agricultural land. That is a political suicide and it is not in a national interest. Any such government should be promptly dismissed and trailed for treason.
2. Housing stock is quite sufficient at the moment, so there is no need to tax building lots other to avoid short buying.
3. I hope the rules regulating primary residency will be relaxed for Croats. (every Croat will live in one house)
4. What we really need is an value appreciation tax targeting non-residents and non-commercial use of valuable assetts.
5. Fair Rental rules should protect tennants - primarily Croats and families - and at the same time encourage efficient use of property, lowering the rents.

I only hope the political realism will prevail in the Croatian interest instead of supporting sell-off of Croatia to the foreigners.

The only point I would have is that if Croats played by the rules then it would be better, but they don't. You won't get protection of tenants if Croat home owners don't want to play by the rules, lower rents and make a legal rental contract and stick with it.
The ones selling their houses to the foreigners are Croats, and for a good sum I may add.
The Croat government in the past (and present) are selling of the countries assets all because they spent all the states income and savings (maybe pocketed some) and have a failed taxation system.
Compared to other countries Croats have a it real good in regards to low council tax and utility bills.
The percentage of Croats that own their own house outright is huge, not to mention owning a weekend house in the countryside or on the coast. Of course not everyone has a weekend home, but many do. Then you got the ones that own lots of property.
In all honesty, until Croatia can fix it's taxation problem, corrupt officials and underhand practices we will see major sell offs for a while. Then there is the unemployment problem which is huge. If you got both huge unemployment, major corruption, a messed up tax collection system and then the big boys not paying any taxes it all spells financial collapse.
Now that Croatia has gone cap in hand for loans it is now a slave to a master.