NIS PROPERTY CROATIA

According to the National Classification of Economic Activities, real estate activities include companies engaging in operations with own property, i.e. real estate development and sale; buying, selling and letting of own real estate as well as agencies for real estate transactions and management. The real estate sector registered 4135 companies in 2006. Turnover in the real estate market (excluding newlybuilt real estate) in 2006 amounted to 1.321.454.700 EUR, i.e. 3.8% of Croatian GDP. In 2006 in the total number of effected real estate sales the share of residential real estate was 47%, farmlands amounted to 28 %, building land to 21%, and business premises to 3%.

During past several years the banking system started to operate efficiently and enabled the citizens to tale favourable loans which created a new generation of real estate buyers and the increased demand for residential accommodation. The quality real estate and the real estate on the Adriatic coast are much sought after.

One of the most dynamic segments of the real estate market in Croatia is the retail real estate market. In the past ten years in Croatia over 1.000,000 m2 of retail real areas has been built in projects larger than 1.000 m2. The business office market has been influenced by the construction of quality real estate through denationalisation, i.e. property return. The returned real estate was very interesting for the market because new business offices were now available in the centres of the towns. In the past few years, however, over 500.000 m2 of moder n office space of A and B category have been built in Croatia. Almost 85% of the total office space market in Croatia is in the City of Zagreb.

Some properties (land, old real estate, real estate in commerce between citizens and legal persons which are not subject to Value-Added Tax) are subject to Real Estate Transfer Tax, while the acquisition of newlybuilt real estate properties (those built, delivered or paid for after December 31, 1997) is subject to Value-Added Tax at a rate of 22%. Real estate transfer tax is paid by those who acquire real estate (including: purchase; exchange; inheritance; gift; acquisition and withdrawal of real estate property from a company; property acquisition in liquidation or bankruptcy procedures and on the basis of a court decision). Real estate transfer tax is paid at a rate of 5% on a tax base calculated as the market value of the real estate at the moment of acquisition. The law provides for numerous exemptions from real estate transfer tax (general, tax exemption for real estate property brought into a company).

Provided the condition of reciprocity is met, as regulated by agreements between the Republic of Croatia and the country of the respective foreigners residence or business domicile, foreign legal entities and natural persons may acquire real property in the Republic of Croatia if this is approved by the Minister of Justice. In the administrative procedure conducted before the Ministry of Justice to decide on the request, it shall be determined whether there is reciprocity (mutuality) between the Republic of Croatia and the country of applicants nationality. This particular requirement is met if Croatian citizens have the right to acquire property in the applicants country.

Aliens may not acquire ownership of real property in excluded areas, on agricultural land, in protected natural areas, forests, or on forest land. If the respective real estate is a protected cultural monument the local self-government has preemptive rights, while maritime property as a whole is governed by a special maritime property regime. If approval is granted, the alien may apply for the registration of ownership in the land register and must pay real estate transfer tax. The signature on the contract of sale may be notarized only upon receiving approval from the Ministry of Justice.

The long-standing tradition of construction in Croatia is characterised by rich experience and workforce skills in using state-of-the art equipment, materials and organisational concepts. In addition, Croatian construction companies work on building sites globally, where, by constructing even the most complex buildings, they have demonstrated the capacity to meet all demands made on them by investors. Croatian construction companies have earned an enviable reputation by observing deadlines while meeting high standards in performing various tasks and constructing a variety buildings: geotechnical engineering, industrial plants, power facilities and hydraulic structures, transport infrastructure, residential and commercial buildings, amongst others. A great achievement at a global level is the wellknown bridge between the Island of Krk and mainland, built in 1980, which, until recently (1997), was the largest arch in the world made of reinforced concrete (length = 390 m).

According to annual figures, the value of construction work in 2004 amounted to HRK 16,899.253,000 kuna or EUR 2,254.686,052 (according to the CNBs mean exchange rate). This means a growth of 5.33% in comparison to 2003. The construction industrys share of GDP was 5.7 % in 2004, indicating overall growth in construction activities of 4.8% and 5.6% when compared with the two preceding years. 2001 marked the beginning of positive trends in construction, which is reflected in the continuous growth of all three indicators analysed to 2004: value of construction work, number of employed persons and productivity. In 2004 employment grew by 4.6% compared with 2003, while productivity per employee grew by 0.7%.

Broken down by type of structures in 2004, the composition of work shows that transport infrastructure accounted for 47.5% (due to less intensive motorway building; it comprised 51.3% in 2003). Pipelines, communication and power lines accounted for 11.7% (10.8% in 2003); and the remainder, slightly below 41%, was accounted for by building construction, in which the residential construction share was 13.9% ( 12.2% in 2003).

A total of 18,763 flats with a total area of 1,568.000 sq m were built in 2004. This includes residential construction carried out by building companies as well as private construction by individual owners. It should be noted that the average figures for residential building in the last two years constitutes 76.1% of the average achieved in residential construction over the period from 1981 to 1990. Laws have been adopted in Croatia that allow the establishment and operation of building societies as an important depository for domestic earmarked long-term savings. Annual budgetary incentives are added to these savings which, in return, has made housing loans much more accessible and favourable for all citizens. So far, four building societies have been set up. With a view to further invigorate residential construction in order to meet the needs of the population, expectations are that, in addition to the already adopted project for socially stimulated housing construction, commercial banks and other long-term assistance programmes will be even more active in the field.

Croatian building companies have been primarily oriented towards international markets in recent decades, because their experience in the construction of all types of structures has guaranteed the successful completion of even the most complex projects. For example, the construction industry’s contracted work in the markets of Europe, Asia and Africa amounted to USD 320 million in 1990. In recent years, the export of services has been primarily focused on European, especially German, markets, where the majority of contracts are carried out through quotas and, although this primarily implies subcontracted work, the positive effects come from the application of state-of-the-art equipment and materials, workforce training, etc. In order to strengthen the export of services, more active involvement by domestic banks in loan assistance to exports is necessary, as well as strong diplomatic support, since a stronger export of services associated with investments would also facilitate the export of Croatian products and equipment to the markets made accessible in this way.