Croatian Government on a Mission to (Re)attract Real Estate Investments

Ownership disputes between the state and local community

In principal, real estate registered in the land register as ownership of the local community is to be sold via a public tender. However, this may prove not to be that simple or true. Here the well-known Croatian problem of the former regime of state ownership may strike once again. In cases of nationalised (during the former Yugoslav regime) real estate assigned for use to the respective local community, which was thereafter based on special law(s) ex officio transferred into the ownership of the Republic of Croatia, such transfer was often not registered and thus not (clearly) visible from the land register. So, if the investor decided to further pursue the project and purchased the real estate from the local community, he actually purchased it from its unlawful owner.

Unfortunately, situations were/are not uncommon where the investor then suddenly finds himself unable to register his ownership due to the registered ownership of the Republic of Croatia finds his ownership deleted and the Republic of Croatia registered as owner. An unfinished project or a planned disposal over the final project is put on hold, along with a bitter taste of uncertainty over the outcome of the dispute and the faith of the investor’s project.

By introducing the new mechanism (in the Croatian media popularly referred to as “the famous Art 78¹″) excluding investors from disputes between the Republic of Croatia and local communities on ownership over real estate purchased by an investor (acting in good faith) from the local community in a public tender, the Croatian legislator hopes to regain investors’ trust in transactions with real estate attributable to local communities. In such cases it will be deemed that the real estate was acquired directly from the Republic of Croatia, the investor will be entitled to seek the required land register registration permission from the Republic of Croatia, and the investor may carry on with his project.

Compensation-free acquisition of state-owned real estate

As a further encouragement to invest in and develop real state, the Croatian legislator introduced the possibility of compensation-free acquisition of state-owned real estate for projects of interest for the Republic of Croatia, in particularly those beneficial to the economic prosperity of Croatia and the social welfare of its citizens.

The interest of the Republic of Croatia is to be determined by the Croatian government based on submitted complete documentation (the project with all required permits and consents, secured financing, opinion on the alignment of the project with zoning plans, etc.) and the proposal/recommendation of the governmental committee for administration of state owned real estate.

This new possibility may prove applicable especially to infrastructure projects, socially sensitive housing projects, and similar projects.

Changes to construction legislation

The adoption of a new spatial planning act, construction act, and building inspection act, under which the Croatian government plans to accelerate the construction permit issuance procedure, cut corruption, and encourage investments was announced.

The ultimate goal is to make life easier for investors, who consider slowness in obtaining of necessary permits as one of main obstacles to investing in Croatia.

One of the announced changes is replacing currently required location and construction permits with only one permit. A location permit will, however, still be required in certain cases (eg, exploitation of mineral resources, construction in phases). This – along with the announced reduction of documents required for obtaining a construction permit, the possibility of disciplinary proceedings against officers violating prescribed issuance terms, and the to-be-established zoning information system (showing the status of applications for issuance of construction permits, of building zones, overview of required approvals and consents, etc.) – should speed-up and simplify the procedure for issuing construction permits. Furthermore, the Croatian government believes that the announced changes (ie, reduction of required documents) will result in less costly procedures for obtaining construction permits.

As always, the announced measures are subject to public debate, being welcomed by some and criticised by others. Whether and how these measures and remedies will ultimately boost the Croatian real estate market is to be seen.

¹Art 78 of the Croatian Act on Administration and Disposal over Assets in Ownership of the Republic of Croatia, in effect as of 30 July 2013.

authors: Jana Cvirn Adamčić, Ksenija Šourek