Although the year 2020 was full of challenges with ups and downs, the fact is that the real estate market in Zagreb surpassed experts’ predictions. The demand for properties and the prices per square meter have been increasing since 2015, and in 2019, records were broken. However, the challenging year of 2020 indicated trends that lie ahead. With all this in mind, there is currently one big question: will the real estate market in 2021 follow an upward trajectory, or are we facing a possible decline? In this text, we will delve deep and make a projection of the market movements for the year 2021 to provide you with the relevant data you need to make successful decisions in the current year.
In 2021, the same or lower interest rates
One of the biggest drivers of the mentioned real estate market boom were record-low interest rates on housing loans, ranging from 2.5 to 3 percent. The state agency APN’s subsidies for housing loans for young people lowered the interest rates to 2 percent.
A few years ago, the cost of money was artificially reduced through the policy of the European Central Bank. The aim was to ensure that economic processes did not stop – that people did not save, but instead embarked on new investments, new consumption, and new projects. The policy remains the same, so we can expect the same interest rates and more likely a slight decline in the next period. In the next year, interest rates could further decrease by 0.2 to 0.3 percent. There is room for that because capital is cheap, and on the other hand, there is a slightly reduced demand for loans. Thus, interest rates could range between 2.2 and 2.7 percent, according to Pro Group. Another good news for demographics in Croatia and the preservation of demand stability in the market came at the end of 2020 from the Ministry of Construction in the form of official information that APN subsidies for young families will last until December 31, 2023. Although property prices in Zagreb, especially for new construction, have been rising since 2015, the low interest rates and APN subsidies have made purchasing more affordable, and it is expected that this trend will continue in 2021.
Impact of GDP on the real estate market
Development of the real estate and construction sectors is important for the national economy and people’s lives, as well as a significant macroeconomic indicator. The total value of real estate sold in Croatia in 2019 amounted to 39.8 billion kuna, which represents 10 percent of the country’s gross domestic product (GDP) that year. In terms of property type, apartments accounted for 41.9 percent of the value of transactions, followed by building land with a share of 21.1 percent, and family houses with a share of 19 percent. According to the World Bank’s report, Croatia’s GDP declined by 8.6 percent in 2020 compared to the previous year, but the forecast is that the Croatian economy will grow at a rate of 5.4 percent in 2021, with vaccination against COVID-19 and investments being key factors. Analytics show that the real estate market trend is proportionally related to the GDP trend, albeit with a certain delay. The decline in GDP in 2020, caused by the COVID-19 pandemic and the associated economic shutdown, also had an impact on the real estate market, specifically on the decline in demand and the number of transactions. However, property prices in Zagreb did not significantly decrease, partly due to the earthquakes that further increased demand and the attractiveness of new constructions. There is still a portion of industries in Croatia that remain closed, and the government provides subsidies to companies in those industries to preserve jobs. According to the Croatian Employment Service (HZZ) data, the surveyed unemployment rate was 6.3 percent in the first quarter, 6.5 percent in the second quarter, and 9.3 percent in November 2020, with a halt in the growth of average nominal gross wages. If the worst-case scenario occurs where the economy does not grow at the predicted rates in 2021, accompanied by a higher unemployment rate, there is a possibility of a significant decline in prices and new constructions.
Earthquakes and the reconstruction of Zagreb:
In March 2020, Zagreb was struck by a powerful earthquake with a magnitude of 5.5 on the Richter scale, which brought significant changes to the real estate market. Another devastating earthquake occurred at the end of December 2020, with a magnitude of 6.2 and its epicenter near Petrinja. This earthquake strongly affected decisions made by buyers in Zagreb. The earthquake in Zagreb in March caused the most damage in the city center, where older buildings (80 years or older) were most affected. The eastern part of the suburban area also suffered damage, where the epicenter was located. Older family houses and, in some cases, poorly constructed newer buildings were affected. Prior to the earthquake, the city center was one of the most attractive locations in Zagreb, and prices were growing at the highest rate compared to other neighborhoods. After the earthquake, prices in the center generally did not decline (with some exceptions) because the earthquake practically halted real estate trading in that area. Buyers did not feel secure, and the COVID-19 pandemic halted tourism, resulting in a significant drop in the daily rental market. The center is currently a large construction site, and property owners are expecting the start of reconstruction, mainly financed by EU funds. Although the Law on the Reconstruction of Buildings Damaged by the Earthquake has been passed, along with the establishment of the Fund for the Reconstruction of the City of Zagreb, Krapina-Zagorje County, and Zagreb County, it is still unclear how this will work in practice and when the reconstruction will commence (May 2021 is mentioned). Only after complete reconstruction and the return of tourists to Zagreb, demand and prices in the center may return to the levels of 2019. As mentioned earlier, the earthquake has led to increased demand for newer earthquake-resistant properties with reinforced concrete construction capable of withstanding an 8 on the Richter scale, especially in the urban neighborhoods of Trešnjevka North and Trešnjevka South, as well as other neighborhoods within the public transportation zone, particularly those served by trams. The reconstruction of Zagreb and the Banovina region after the devastating earthquakes is expected to have a positive impact on real estate market activity, as well as the overall construction sector. Besides the direct effects on activity growth, it will also contribute to the growth of various other sectors, providing an additional boost to economic activity and GDP in 2021 and the coming years.
Trends in 2021:
The COVID-19 pandemic and the quarantine period, during which people were confined to their homes for over a month, combined with the earthquakes, have further influenced changes in purchasing trends that will continue in 2021.
Buyers are increasingly turning to purchasing building land, houses with larger yards on the outskirts and surrounding areas of Zagreb, and apartments with gardens or larger terraces. Read more.
Additionally, changes in business practices and remote work have led to increased demand for additional workspace within residential properties.
