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Free movement of capital, the real estate market and tourism: a blessing or a curse for Croatia on its way to the European Union?

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Mihaljek, Dubravko

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Corporate Editor Institute of Public Finance, Zagreb; Friedrich-Ebert-Stiftung Kroatien
Abstract This paper investigates how one particular aspect of the freedom of movement of capital – the right of EU residents to acquire real estate in EU member states – might shape Croatia's EU accession negotiations and affect its real estate market, the tourism industry and the national economy. It identifies potential benefits and risks of unrestricted foreign investment in Croatian real estate, and attendant dilemmas for economic policies. The main conclusion is that Croatia stands to benefit in the long run from foreign investment in the property sector. However, a gradual approach to the opening-up of the real estate market to non-residents can be justified on a number of grounds. These include inadequate legislation limiting property speculation; potential spillovers of price increases from the market for secondary residences onto the local housing market (of which there is already some evidence); costs of the adjustment in the housing market and construction industry to a sudden large increase in demand for secondary residences; loss of competitiveness in the tourism industry if there should be violations of building regulations and the resulting overdevelopment of coastal areas; and macroeconomic pressures arising from large and sudden capital inflows.
Keywords Croatia; post-socialist country; EU; capital movement; international capital movement; real estate; market; tourism sector; joining the European Union; national economy; foreign investment; economic impact; protection; market price
Classification National Economy; Economic Sectors
Method descriptive study
Free Keywords Croatian economy; European Union accession negotiations; new member states; free movement of capital; real estate market; housing prices; housing finance; secondary residences; travel and tourism; protection of public coastal domains; local government; capital inflows
Collection Title Croatian Accession to the European Union. Vol. 3, Facing the challenges of negotiations
Editor Ott, Katarina
Document language English
Publication Year 2005
City Zagreb
Page/Pages p. 185-228
ISBN 953-6047-58-6
Status Published Version; reviewed
Licence Creative Commons - Attribution-Noncommercial-No Derivative Works