The European Systemic Risk Board (ESRB) has warned Croatia that the residential real estate price growth could pose a danger to the country's financial system in the foreseeable future, Vecernji List daily said on Monday.

Similar warnings have been sent to Bulgaria, Hungary, Liechtenstein, and Slovakia. They are expected to take steps in time to prevent the real estate market from overheating.

Last year the prices of flats in Croatia went up by 9%. Since 2015, the prices of flats in Zagreb have gone up by 55%, on the coast by 40% and elsewhere in Croatia by 22%.

The ESRB was established after the 2008 financial crisis and has extensive powers in the oversight of banks and other financial institutions. Its task is to prevent systemic risks which could jeopardise the stability of the financial system and thereby the economy.

The warning to Croatia was addressed to Finance Minister Zdravko Maric. The ESRB notes that residential real estate prices have increased in part because of the two 2020 earthquakes, which eliminated older and demolished buildings from the market. It also mentions the government’s housing subsidy scheme via which 35% of all flats and houses in the country were sold in 2020.

The scheme has been in place since late 2017. Maric’s response to the ESRB says the housing subsidies will be in place until 2023 but he did not say if the scheme would then be discontinued.

The ESRB believes politics should not encourage household borrowing and that subsidised loans have that effect. It notes that housing loans in Croatia grew faster than other loans and that banks approve them easier than the ESRB would like.

The central bank recently published the findings of its own survey which show that one in four new housing loan borrowers pay more than half of their salary for the monthly rate, Vecernji List said.