Law Firm Planinic & partners
Real estate
Strategic Legal Advice for Real Estate Investors in Croatia
Clients frequently consider investing in real estate in Croatia and, in doing so, often seek legal support from an attorney to accompany such investments. Real estate is predominantly regarded as a stable and long-term form of investment, which consequently provides investors with a sense of security.
This perception is most commonly based on the increase in property values over recent years, as well as on rental income, which is generally viewed as steady and predictable.
Return on Investment in Real Estate – Why Yield Is Not Always the Key Factor
The issue of return on investment, whether it amounts to a gross annual yield of 5%, more or less constitutes a separate topic and is not the subject of this overview. In legal practice, our primary task is to clearly define the investment objective together with the client.
Defining the Purpose of a Real Estate Investment
For example:
• real estate intended for future rental
• construction land acquired with the intention of building a residential property or warehouse
• a family home or secondary property intended for personal use and enjoyment
Each of these objectives entails different legal and tax implications.
Tax and Legal Aspects of Real Estate Investment in Croatia
The tax dimension of real estate investment is particularly significant and includes, among other things:
• real estate transfer tax
• value added tax (VAT)
• future taxation upon sale (VAT or capital gains/income tax)
• differences in tax treatment depending on whether the property is sold before or after two years from acquisition
Legal Due Diligence and Hidden Investment Risks
Although a substantial part of legal due diligence today is digitalised ranging from zoning checks to land registry reviews we continue to encounter:
• inaccurate or misleading location information
• unforeseen and extraordinary costs
In practice, it is not uncommon for an investor to discover only at a later stage an obligation to finance infrastructure works, such as replacing several kilometres of water supply pipelines in order to enable a utility connection for a future development.
Legal Support for Institutional Real Estate Investors
As regards so-called institutional real estate investors, there is little need for specific guidance they are already well acquainted with the market and established procedures. In such cases, the attorney’s role is typically operational, focusing on legal due diligence and the structuring of the transaction itself.
How to Decide Whether Real Estate Investment Is Right for You
For all others considering investment in construction land, development projects, or the acquisition of property for rental purposes, the decision can be summarised in the following five considerations:
• If you are pragmatic and decisive, construction may be a suitable option.
• If you are middle-aged or older, rental income is often more appropriate than at a younger stage of life.
• If you prefer a tangible investment, real estate is a natural choice.
• If you value a sense of investment security, purchasing real estate often provides precisely that.
• If you seek an investment that is familiar and easy to understand, real estate is frequently the most logical option.
Real Estate Investment Is Not Just About Numbers
This overview is primarily intended for those who maintain that investment decisions are solely a matter of financial projections. While figures are undeniably important, when deciding on real estate investment it is equally crucial to recognise one’s own character, preferences, and expectations.
Krešimir Planinić
Considering an investment in real estate?
Before you commit, thorough legal and tax due diligence can help you avoid costly mistakes.
Contact us for clear, practical legal advice on real estate investment in Croatia.