When the sea no longer sells everything: A moment of truth for developers

The Croatian coastal real estate market has entered a phase in which it is no longer possible to hide behind the comfort of rising prices and tourist demand. This is not a temporary slowdown nor a typical cyclical correction, but rather a structural weakness in the spatial development model that has accumulated over many years, while market euphoria and exceptional returns from short-term rentals masked systemic shortcomings. Today, as demand becomes more differentiated and interest from a segment of foreign buyers slows, it is becoming clear how exposed the coastal market is to its own internal contradictions.

The starting point of this chain is neither financial nor marketing-related, but urbanistic. Urban planning is the foundation of overall spatial value and the initial phase of every serious development cycle, from infrastructure to the final real estate product. In successful European coastal regions, urban planning functions as an operational framework that predictably directs private capital while simultaneously protecting the public interest. In Croatia, however, it is too often treated as an administrative obstacle or a political compromise, ultimately producing space without a clear development logic.

As a result, the coast today simultaneously faces a misaligned supply, prices that have risen faster than the actual quality of the product, and infrastructural deficits that further erode the perception of value. These are not isolated symptoms, but consequences of the same systemic failure: development without preparation, without a clear strategy, and without a professional industry capable of continuously delivering a quality product.

Land consolidation as a prerequisite the system fails to recognise

Land consolidation, or the aggregation and rational restructuring of land parcels, is not a technical detail in European practice but a prerequisite of urban planning. Croatia has a legal framework for the consolidation of agricultural land, but in the urban and coastal context this instrument does not function in practice as an operational tool for preparing new development zones. Without the ability to unify fragmented ownership and organise land in a planned manner, local authorities remain trapped within existing settlement boundaries and inherited parcel structures, while development is reduced to adapting what happens to be available, rather than strategically shaping space.

In Austria, Germany or the Netherlands, land consolidation is a standardised procedure in which the public interest is strong enough to prepare space before construction, while at the same time sufficiently regulated to guarantee transparency and fairness for landowners. On the Croatian coast, such a balance has yet to be established, forcing urban planning to operate in a fragmented, site-by-site manner, without creating larger, coherently planned residential and mixed-use zones. As long as consolidation is not treated as a key reform, the coast will lack the spatial prerequisites for the development of a serious market.

Infrastructure lagging behind spatial development

Development without infrastructural preparation reduces spatial value to the level of short-term speculation. Local and regional investments in transport and utility infrastructure along the coast generally do not keep pace with the intensity of construction, resulting in settlements expanding on networks designed for past decades. Undersized roads, unresolved access routes, and limited drainage and energy capacities are not merely issues of comfort, but measurable factors of market value. A buyer paying a premium price expects premium functionality, and this gap is becoming increasingly difficult to ignore in Croatia.

In France, Spain or parts of Italy, the development of new zones is typically conditioned by infrastructure programmes implemented before or in parallel with construction. In the Croatian model, infrastructure often “comes later,” as a political promise or a subsequent remediation, which in practice means that spatial quality lags behind the price being charged. This makes the market fragile: as soon as demand weakens or the structure of buyers changes, high prices are left without a convincing foundation.

Tourist rentals as a substitute for professional development

The phenomenon of private tourist rentals is not a problem in itself; it is a rational decision for households in tourist regions. The problem arises when the tax and regulatory framework makes renting so favourable and almost an automatic exit strategy that it becomes a substitute for professional real estate development. In such an environment, anyone can become a developer without a clear architectural programme, without a market concept, and without an analysis of the highest and best use, as sales risk is offset by expected rental income. The result is a supply that is large in volume, but qualitatively uneven and often misaligned with long-term market standards.

In Portugal or Greece, where tourism logic is equally strong, the state has nevertheless established clearer distinctions between professional development and private improvisation, raising product quality through planning and standards. Croatia has allowed the amateur model to become dominant, and this spills over into the pricing layer as well. Owners who generate stable rental income increasingly set sale prices that are not based on product quality, but on an internalised perception that a property is worth what it earns during the season. This creates a market that is sensitive to any cooling of demand.

Policies that fail to match market ambitions

This spatial and market picture is further compounded by fiscal and migration policies that do not strengthen coastal competitiveness, but unnecessarily constrain it. The standard 25 percent VAT rate on new construction, without targeted adjustments for residential or development segments, in practice raises project entry costs and reduces the flexibility of professional developers. At the same time, Croatia lacks a clearly defined, competitive investment residence programme for non-EU buyers, such as those Mediterranean countries have used as a tool for market internationalisation. While the formal possibility of residence based on property ownership exists, it has not been transformed into a predictable and strategic instrument capable of attracting new demand.

When combined with slow progress in transforming destinations towards a year-round, content-rich and internationally competitive model, the coast enters a dangerous cycle. Premium prices require premium destinations, premium infrastructure and premium products, yet the Croatian system too often delivers average quality at above-average prices. The consequence is that Western European demand is becoming increasingly selective, while new markets are not being systematically developed. This is not a dramatic forecast, but a logical outcome of the lack of coordinated spatial, tourism and tax policy.

If we want to avoid a market correction turning into prolonged stagnation, we must return to the starting point: operational consolidation of urban land, infrastructural planning prior to construction, professionalisation of development through changes in incentives for tourist rentals, and fiscal and migration policies that provide the market with international breadth. The coast is a strategic national resource, but a resource has value only to the extent that the system knows how to shape it. It is time we finally understand this and act. Space without vision always presents the highest bill in the end.

Blog author: Ivan Kovačić