Since the Croatian war of independence came to an end in the mid-1990s, Dubrovnik has been one of the region’s standout success stories. The walled city of low, terracotta-roofed houses sloping into the azure blue of the Adriatic — which was granted Unesco World Heritage status in 1979 — has experienced a sharp and sustained rise in tourism since the conflict ended. With it came a boom in house prices.
In the past year, property prices have increased between 7 and 10 per cent, according to Kieran Kelleher, managing director of Dream Estates Croatia, Savills’ associate in the region. This is an increase on the annual 3-4 per cent growth over the past four years.
Kelleher puts this down to both the inherent lack of supply in the city — much of the old town was built between the 12th and 17th centuries — and the high rental yields concomitant with growing tourist demand. “In the old town you can comfortably get 200 nights’ [rental] occupation,” he says. Average net yields, he estimates, are in excess of 5 per cent.
Tourist numbers have been growing at a rate of about 10 per cent per annum in recent years, he says. Some have pinned this increase on the fact that parts of Dubrovnik featured as the fictional city of King’s Landing in Game of Thrones, the HBO TV series.
Today, prices for homes in the old town range from €5,000 to €8,000 per square metre, according to Marko Pažanin, chief executive of Croatia Sotheby’s International Realty. He describes it as the most important investment area for overseas buyers.
“The majority of properties are used as investments,” says Kelleher, “[with] good and stable yields, but low stock availability.”
Low inventory is the perennial problem, he says. “There just isn’t the land, and permits are cumbersome.”
Complex and lengthy planning restrictions have forced high-end volume developers to move further up the coast, to Split, Hvar and Brač.
Neighbourhoods outside of the famous city walls are still drawing buyers, Kelleher says. Ploce, to the east of the old town — where homes cost around €4,000 per square metre — can suffer from traffic congestion. Lapad and Babin Kuk are other popular options, says Pažanin, where prices tend to range between €3,000 and €4,500 per square metre.
For growth to continue, regional stability is a must, says Kelleher. Dubrovnik is separated from the rest of Croatia by a 12-mile stretch of Bosnia and Herzegovinian coast around the seaside town of Neum.
Today, buyers from Bosnia and Herzegovina make up a large part of Kelleher’s international buyers, he says. They are followed by buyers from Austria, Germany and Italy.
However, since the vote to leave the EU last June, and the subsequent drop in the value of the pound, buyers from the UK have been noticeable by their absence, agents report.
“In their heyday, [British buyers] would have made up 25 per cent of purchasers in and around the town,” he says. “Nowadays, it’s 10 per cent.”
While the boom in tourism has been the most significant factor in the growth of the local housing market, Dubrovnik is approaching something of a crossroads, Kelleher says.
“The tourist strategy is completely confused at the moment,” he says. “Every day we have 15,000 [tourists] coming off a cruise ship, and they don’t mix well,” he says. “The city needs to be going after the high-end tourism market, and focus on that.”
Photographs: Dreamstime; HBO