Considering that it went through four years of civil war as recently as the last decade, the fact that Croatia is now much sought after by British property buyers may come as a surprise to many. But then those who have doubts are unlikely to have ever visited Croatia.

With attractive mountains, wooded hillsides, deep blue lakes and sweeping white beaches adorning the country's lengthy Adriatic coastline, Croatia is arguably home to some of the most stunning scenery in the whole of Europe.

And with an economy which is becoming more stable by the year, in 1995 – the year the civil war ended – GDP per capita was $6,620, by 2004 it was $11,200, Croatia is fast emerging as one of Europe's top new property markets.

Why buy property in Croatia?
Croatia's popularity as an overseas property destination is largely fuelled by the very thing that has for so long made destinations such as Spain and Portugal popular with British buyers: sun.

Croatia's Adriatic coastline boasts an average of 2,600 hours of sunshine a year, with the Dalmatian island of Hvar enjoying 2,718 hours. In the summer, temperatures in this region tend to be around 25oC, comparable to those experienced in the Spanish destinations of Alicante and Malaga.

Unlike many countries located in the central and eastern reaches of Europe, Brits have long had an affinity with Croatia and the country was already a fairly popular holiday destination back when it was still a republic of the former Yugoslavia. The country's southern European-influenced culture – especially evident along the Adriatic coast – combined with its natural beauty has long stood Croatia apart from many other destinations in this part of Europe.

However, while you would think that, with Croatia being an already established holiday destination and a country that is as scenic as any in Western Europe, property investors would be falling over themselves to make use of the letting potential of their Croatian home, it has only been in the last year or so that the country's buy-to-let market has taken off. This is partly because owners have understandably been more than happy to use their property for their own personal holiday use, but also because in order to let the property they would first need to go through all the hassles of obtaining a rental licence.

Where to buy property in Croatia
The most popular areas for Croatian house hunters are located along the stretch of southern Dalmatian coast between Dubrovnik and Split, along with some of the many islands that lie off this part of the country's coast – there are no fewer than 1,185 islands situated off the Croatian coastline in total. Overseas purchasers tend to be drawn to this area by a combination of scenery, lifestyle and sun. Further north up the Adriatic coast the Istrian Peninsula, which is separated from Italy by just a few miles of Adriatic Sea, is also fairly popular with British buyers.

To ensure Croatia's picturesque coastline remains as pleasing to the eye as it currently is, the Croat government has introduced strict measures to limit mass development. However, this isn't to say that  there aren't any new property resorts specifically designed for overseas buyers currently springing up in the country, especially in the more popular locations such as Dubrovnik, and the islands of Brac and Hvar. It is fair to say, though, that there are far fewer of these types of developments being built than can be found in other emerging Eastern European countries, with a majority of Croatian property buyers still preferring to buy a traditional stone-built house rather than a new-build property.

Those looking to purchase a property on Croatia's Adriatic coast should also expect to pay a little more than they would for a similar-sized property in other countries that can be termed as 'emerging'. While, on the whole, property in Croatia is still cheaper than in, say, Spain, the interest that properties located on or close to the Adriatic Sea have received in recent times has seen house prices there more than double since the turn of the Millennium. Demand for properties all along the Adriatic coast is currently easily outstripping the supply, and this is another factor that has helped drive up the region's prices.

In Dalmatia a fully renovated villa near the sea would probably set you back around £150,000, and prices are almost certain to  be even more expensive the further south down the Dalmatian coast you travel. Don't be surprised to find a three-bedroom restored stone house with some land and sea views in Dubrovnik on the market for in excess of £300,000. In Istria, where properties are in even shorter supply than they are in Dalmatia, prices are similarly high.

However, if you are prepared to do some restoration work yourselves, then property drastically in need of renovation can still be picked up in Dalmatia and Istria for between £30,000 to £50,000.

Aside from the Adriatic coast, the country's capital, Zagreb, along with some of its nearby suburbs, have also started to experience some interest in their property market during the first half of 2006 as purchasers begin to look away from the coast for their property in Croatia.

Property investment potential
Until recently any buyers hoping to make a profit on their Croatian home will have been banking on capital gains rather than income acquired through letting.

Ever since Croatia started to attract widespread purchasing attention in the early 2000s prices in the country have been rising rapidly. Since 2003 prices have risen on average by 20 per cent per annum nationally, and by a lot more in the most popular areas for overseas purchasers. And with the country hopeful of joining the EU in 2009, and the demand for properties expected to remain high, prices are far more likely to rise than they are to fall in the coming years.

That said, for those who do plan to obtain a rental licence and let their property then the introduction of direct low-cost flights from the UK to either Dubrovnik, Split or Rijeka in Istria in early 2006 can only be good news for investors. And with temperatures in a popular location such as Split averaging over 17oC between May to October, and only falling to as low as 7oC in January, there is definitely a fairly lengthy potential rental window in which buy-to-letters can attract clients.

Meanwhile, for those not confident enough to continually let their property on a short-term basis, Zagreb does offer the chance of long-term lets, although it is as yet an unproven city for investors.

How to buy property in Croatia
1. Before you will be allowed to purchase a Croatian property you will need to be allocated a special buyers' permit (suglasnost) by the Ministry of Foreign Affairs (MFA) of the Republic of Croatia. The Ministry of Justice, Administration and Local Self-Government must all approve the application for this permit before the MFA will be able to award it to you. Without this approval local courts will not allow you to be entered in the Land Books. This permit can take as long as 12 months to come through, which can be problematic in some instances as many sellers can be unprepared to wait that long.  

2. One way around this lengthy wait is to form your own Croatian company and buy your property through this. This way you will not need to be in possession of the suglasnost to purchase a property. Most agents will be able to make the necessary arrangements for you, although it will obviously cost you extra to carry out the process in this way.

3.  Once a sales contract is drawn up and agreed you will need to pay a standard deposit of 10 per cent. This contract, once signed by the vendor, is then sent to the MFA along with the application for a suglasnost.

4. When you receive the permit, which should be a formality providing you haven't previously annoyed the Croatian authorities, you can then sign the contract and pay the rest of the money into the notary's fund. Some agents may advise you to pay all your money up front, rather than a 10 per cent deposit, as this way there is less chance of you being gazumped should the vendor receive a better offer while you are waiting for purchasing permission from the MFA.

5. The vendor will only receive the money from the notary's account on the completion date agreed upon in the contract. Once this is paid you can take occupation of the property.

Croatia factfile:
Timezone: GMT+1–2
Exchange rate: GBP1=HRK10.45 (July06)
UK mortgage availability: Moderate
Deposit required: 10%
Agent's fees: 1–4% legal fees: 1–3%
Capital gains tax: 35% for first three years
Peak letting season: May to September
Average daily temps celcius (Jan–Dec):
7, 8, 10, 13, 18, 21, 25, 24, 21, 17, 12, 9 (Split)
Average property prices: 1-bed apart: £75,666; 2-bed apart: £100,119; 3-bed villa: £249,352

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Article published in August 2006