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New Tourism Act – What is the Impact on the Real Estate Market?

New Tourism Act – What is the Impact on the Real Estate Market?

Issue 10.12
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According to the government, the act is designed to tackle certain perceived downsides of excessive tourism, such as the lack of affordable long-term accommodation for the housing needs of the local population, a negative impact on the environment (especially the sea, sea coast, and islands), as well as a negative impact on cultural heritage sites.

The act proposes various solutions to over-tourism and attempts to encourage a more sustainable development of tourism by providing for more even, year-round, and regionally-balanced tourism, and increasing the resistance of tourism activities to external influences.

One of the most notable – but also the most controversial – novelties of the new act is the possibility of limiting the number, type, category, and capacity of accommodation units. The act grants power to the representative authority of the local municipality facing excessive touristic flows to adopt such limitations. Furthermore, the representative authority of the local municipality may also adopt a decision on the capacities of accommodation units within the destination. Such representative authorities’ decisions have to be based on the destination management plan which is proposed by the tourist boards and should be adopted on an annual basis by March 31 for the following year.

Prior to its adoption, the act already generated a great public debate and divided the opinion of the public and the stakeholders. The Parliament’s Tourism Committee expressed concerns about the potential unconstitutionality of the above-mentioned provision of the act, since it may easily lead to limitations of entrepreneurial freedoms. A similar argument was articulated in the proposed amendment made by a member of Parliament. However, the government did not take these concerns into consideration and did not amend the proposed act, keeping the controversial wording that was ultimately adopted by the Parliament.

The effects of the new Tourism Act on the real estate market in Croatia are multi-layered. The above limitations are likely to discourage investments in currently typical short-term rentals such as vacation houses/villas and apartments. As a result, at least some local players on the tourism market could be switching to investing in boutique or heritage, family-owned small hotels. Another expected outcome (which is also one of the reasons why the act has been introduced in the first place) is greater availability of housing and long-term rentals. A spike in long-term rental availability may, in turn, lead to a decrease in rents and stronger competition on the market for long-term rentals and housing.

Considering the controversy the act has already caused, it will also be interesting to see whether the act is going to be challenged before the Croatian Constitutional Court due to unconstitutionality concerns that so far do not appear to have been adequately addressed by the government. In the meantime, it remains to be seen how the local authorities and various stakeholders will be adapting to the new regime and the new powers that come with it.

By Iva Basaric, Partner, and Marta Telebuh, Associate, Babic & Partners

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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