A new path to Croatia

Despite Croatia's low prices, it hasn't always been easy for British buyers to do business there. But Nick Lloyd Jones sees a new-build boom changing all that

The recent boom in residential developments in Croatia, especially along its coast, is good news for British investors looking for affordable holiday homes with healthy rental potential.

The war in Croatia in the early 1990s is now, thankfully, history, while growing economic and political stability, a strong building trade and improvements to the transport infrastructure have boosted the country's tourist industry. Croatia has vast national parks, beautiful medieval architecture and friendly people. But its biggest asset is undoubtedly the glorious Adriatic coast, stretching almost 2,000km and featuring an archipelago of more than 1,000 islands.

The country has become a popular destination for British holidaymakers since the budget airlines started flying there. Ryanair has been operating from London Stansted to nearby Trieste for several years, and is now flying to Pula; easyJet has started flying direct from Bristol to Rijeka, while Wizz Air has regular flights from Luton to the capital Zagreb and to the coastal city of Split, from where ferry services connect to most of the islands.

However, until now, buying property in Croatia has been fraught with difficulties. "It's an immature market," says Amar Sodhi, managing director of Avatar International, a UK-based agency that began doing business in Croatia four years ago. "We've never had any shortage in demand from British clients for quality properties in Croatia, but we've been let down on the supply side, with vendors overpricing and reneging on contracts."

A year ago, Sodhi decided to close the resell side of his business and focus on new-build projects, mainly on the coast, run by professional developers whom he felt he could trust. Other agencies are following his example. Croatiansun, another UK-based business specialising in buy-to-let properties, is marketing a new-build block in the charming seaside village of Zaboric, about 50km from Split, which has five flats in all - one three-bedroom, two two-bedroom and two one-bedroom. The price is €500,000 (about £340,000) for the entire block. The combined monthly rental income from all of the apartments would probably add up to about €5,000.

There is a lot of new-build going on in the Istrian peninsula, at the northern tip of the country. This region accounts for about half of Croatia's tourist industry thanks to a combination of laid-back charm, medieval villages and a turquoise sea.

Avatar is marketing a selection of villas and apartments in the Mali-Kosi development in eastern Istria, 3km from the sea and a 30km drive from Rijeka airport. Prices start at €78,100 for a one-bedroom apartment, rising to €232,485 for a two-bedroom villa. On the other side of the peninsula, in the regenerated coastal city of Novigrad, the company is marketing another selection of apartments in the Marina Marietta complex, where a one-bedroom flat costs €92,750. Again, one would expect year-round rental returns from these properties to be around the 10 per cent mark.

However, in spite of these attractive yields, it should not be forgotten that buying to let in Croatia can be a lot more complicated than it is in the UK. Dangers lurk for the inexperienced investor. "British people like to buy holiday properties in Croatia because they are so cheap," says Sodhi, "but one shouldn't be naive about the hassle involved.

"It should also be remembered that most holiday lets aren't long-term - they're more likely to be a week or two. To manage rentals, it makes sense to team up with a reputable local travel specialist who can help to market the property." There are agencies in most big resorts that specialise in marketing larger properties such as villas with swimming pools.

It is important to remember that, although potential rental returns are high, these may only be achievable in the peak holiday months, and even then they are not guaranteed.

Those looking to let on a more long-term basis might be better off with the many new-build developments in the larger cities. Hotspots include Dubrovnik in the south, a beautiful city and a Unesco World Heritage site that is a magnet for tourists all year round.

Buying into the capital Zagreb could be lucrative, too. "There is an increasing demand for longer-term rental accommodation in Zagreb because many international businesses are setting up there," says Paul Keppler, managing director of Croatiansun. He is marketing a three-bedroom flat in a residential suburb for €246,000, which he says would yield a rental income of €2,000 a month.

Avatar International: 08707 282 827; www.avatarinternational.com

Croatiansun: 00 3851 489 8010; www.croatiansun.com