Are you looking to buy a holiday home abroad – and hoping to fund your dream with some rental income? It may come as a surprise, but not all ‘tourist’ properties can be rented out … no matter how suitable they may look or what you are told. Before you make a possibly expensive mistake, read this article and ensure you understand how to assess whether a property may be suitable. While the specifics only apply to Croatia, wherever you intend to buy, never assume the rest of the world is the same as ‘home’ and check what’s possible before, rather than after, you buy!
Things have moved on since I wrote this article. Croatia is now part of the EU and EU citizens now have the same right as Croatian nationals – in theory. I am in the process of updating this article, checking the exact situation, and before I post, I want to make sure all my facts are correct. For now, I suggest bear in mind what is written below and double check things with your estate agent before you buy (as of 23rd Jan 2014)
What’s rentable?
In Croatia, every rental property for tourists must be inspected and registered. Like a hotel, it receives a classification depending on its level of facilities, and the certification plaque must be displayed. During the rental season, tourist police (MUP) patrol and any occupied property they find without certification is closed down and the owners fined. Don’t even think about running the property on the black, the MUP are scarily efficient!
Not every property in Croatia is eligible for a tourist rental certification. Currently, there are two sets of rules: one for private Croatian citizens, and another for foreigners and Croatian companies. It is hoped, when Croatia joins the EU next year, foreigners will be given the same rights as Croats, but for now…
Private Croatian citizens
There are certain local restrictions which vary regionally, but in general, Croatians are pretty much allowed to rent their own property to tourists with few limitations. They can do it privately and do not need to do it via a company, unless they are a large enterprise.
Foreigners and Croatian companies
Foreigners are only allowed to rent out their properties through a Croatian company. This can be their own company, or via an agent, and whether a given property can be rented via a company is largely determined by the building’s age.
Older properties
To be eligible to apply for a tourist rental certificate, older properties (those registered in the Cadastral record before 15th February 1968) just need a certificate confirming their age from the local Cadastral office (Ured za Katastar).
However, if the building has been extended beyond its registered pre-1968 footprint, even by the smallest amount, a building permit is required for that work (it can be issued retrospectively). Then, for rental classification purposes, the building is treated as a modern property.
By the way, if you see a pre-1968 building but it’s too small, it’s always worth checking the cadastral register because there may have been pre-1968 extensions that have since disappeared but which are on the cadastral map … and you can rebuild on that ‘additional’ footprint without a building permit and get your tourist certification.
Modern properties
Properties registered in the Cadastral Office after 15th February 1968 need a ‘commercial’ building permit (Uporabna dozvola za stambeno-poslovnu zgradu) if they are going to be rented to tourists. A standard ‘residential’ building permit (Gra?evinska dozvola) – which is what most buildings have – is not suitable and this is what can cause problems.
Building permits
Land usage in Croatia is strictly zoned. For our purposes here, the relevant zones are ‘residential’ and ‘commercial’.
Until about 2009 all houses had one type of building permit and, so long as they had a usage permit (Uporabna dozvola), could get a rental licence. Many properties were built for tourists with these permits. When the law changed, it became necessary for rental properties owned by foreigners to have a ‘commercial’ rather than a ‘residential’ building permit. Because things changed so recently, many modern properties currently for sale were built using old-style building permits, so now are only eligible for residential, rather than rental use. Great if you want a holiday home, but useless if you also want to rent it out.
Building permits can be altered retrospectively, so it is sometimes possible to convert a ‘residential’ into a ‘commercial’ permit, but usually only if the property is located in a commercial zone. Not surprisingly, most properties are in residential zones – where houses are usually built! – so they’re often not eligible for a commercial permit and hence to apply for a tourist rental certificate. This will hold, even if there are similar properties near-by which already have a tourist classification.
If a property was issued with a tourist classification certificate before the law changed, it is still possible to rent the house. But, if the property is then sold, the certificate cannot be transferred with the property ownership (there are some complicated exceptions to this).
This is the situation in black and white. How it is applied often turns into shades of grey. Some local councils, keen to promote tourism rental, will be willing to change a residential into a commercial permit, even if the property isn’t in a commercial zone. Others have gone so far as to re-zone their whole community ‘commercial’, enabling all properties to be rented (one such is Vabriga, a sea-side village close to Porec). But these are the exceptions and many of the larger ones, such as Porec in Istria, are strictly enforcing the zoning classification, severely limiting the number of buy-to-rent properties suitable for foreigners.
As a final remark, remember also that having the correct permit is only the first step – there is a long list of other requirements for the house to receive its classification, but all these are usually easily fulfilled. I’ll cover these in a separate article.
Your buy-to-rent choices
With the law as it currently stands, as a foreigner looking to buy a property which you will be able to rent, you have two options: buy one older than 1968 (which has not been extended beyond its original footprint), or buy one with a commercial building permit.
On our hunt, we chose to go the ‘old’ route and mainly looked at pre-1968 properties. But if you’re looking for a modern, rentable property, don’t be deterred – they are available. These are often properties in specially-built tourist developments, like the one we visited in Baredine. And despite having a commercial building permit, they can be in the most beautiful parts of the country.
Check before you buy
This article is based on my personal knowledge and experience of the situation in Istria while house-hunting over the course of 2011 and was correct up to January 2012. However, it is possible that, when you are reading it, the situation has changed, or may even be different in your specific location – things are very fluid in Croatia at the moment. I therefore strongly recommend you check the status of any property you are interested in buying, in advance, with the official responsible for tourist classifications in the appropriate local council. Don’t rely on the word of your estate agent, as my experience is they may not be fully up-to-date on the regulations (and of course, they have a vested interest to sell!)
While this may all seem negative, fore-warned is fore-armed and I don’t want to put anyone off buying a holiday rental property. Hopefully you are now aware of the main potential pitfall in Croatia … before you fall in! – and will have some idea of the types of problem you may encounter in other parts of the world. But if you keep your wits about you, check out all rules and regulations ahead of time, and be prepared to take some time over your search, you can buy a fantastic holiday home – a rentable asset, rather than a financial drain.
Also see:
Interested in buying? Make sure you check out the paperwork.
