Rising apartment prices in Croatia: Is low construction productivity to blame?

(Photo: DOMinvest grupa)

Although many believe that construction is booming and new apartments are more abundant than ever, the reality is quite different. The truth is that the construction sector in Croatia is not productive, but what does this actually mean?

Productivity reflects how much output (e.g., buildings or square metres) is achieved with specific resources. High productivity indicates faster, better quality, and more economical work, whereas low productivity suggests slower progress, higher costs, and weaker competitiveness.

“Construction in Croatia is unproductive because it relies on outdated building technologies, sluggish administrative processes in public administration, frequently disengaged and unqualified workers, and inadequate investment in innovation and education.

Project documentation is often prepared solely to obtain permits, rather than to develop the best possible solution for the investor. Since the last financial crisis, the market has become highly fragmented.

Large companies willing to invest significantly in employee training and innovation have virtually disappeared. Unfortunately, over 50,000 skilled workers have emigrated, leading to a loss of expertise and know-how accumulated over the years.

(Photo: DOMinvest grupa)

Administrative processes have also slowed dramatically—sometimes it takes over a year to obtain a building permit. The focus is still too heavily on the lowest price; public procurement prioritises cost over quality and efficiency, which creates numerous long-term problems,” explains Saša Perko, a civil engineering expert.

To become more productive, decisions must address the entire project cycle—from project preparation, design, and construction to the often-overlooked maintenance of buildings.

Each phase can be expedited; better project preparation alone can shorten construction times by months and save significant amounts of money.

Automation and digitalisation can accelerate processes, but these must first be thoroughly specified. Surprisingly, more apartments were built in Croatia in 2007 than today.

“That’s right—it’s paradoxical that property prices are still rising, but the reason is simple: we’re not building enough! In 2007, Croatia produced 25,600 apartments annually, while in 2023, that number was just 16,552.

The situation in Zagreb is even more critical: in 2007, we built 8,895 apartments, but in 2023, only 2,945. That’s over three times fewer apartments! How can prices not rise when supply is so low? I’m afraid the situation won’t significantly improve in the future, given the upcoming stricter General Urban Plan (GUP),” reveals Perko, from the DOMinvest group, who is surprised that Croatia still lacks a digital strategy.

(Graphic: DOMinvest grupa)

“A digital strategy is a plan that outlines the application of digital technologies, such as BIM (Building Information Modelling) and AI (artificial intelligence), to increase efficiency and quality in construction.

Croatia doesn’t have one due to the slow adoption of new technologies; as a society, we’re generally resistant to change. Another problem is the lack of funding for education and the slow transition from old to new technologies.

Many companies, especially smaller ones, couldn’t withstand the shift and would likely go bankrupt, in a sector already suffering from a shortage of experts and workers.

Recently, some digitalisation initiatives have been launched. For instance, the Croatian Centre for Digital Construction is doing excellent work, and they’ve recently signed a strategic agreement with Algebra to launch a BIM education programme.

However, unless the government implements a concrete strategy and plan for digitalisation, we’ll only see isolated efforts that won’t significantly impact the industry,” Perko elaborates.

“Digitalisation greatly benefits construction as it extends beyond just BIM or AI. It also includes tools for monitoring site operations and organising processes.

(Photo: DOMinvest grupa)

The key advantages of digitalisation are faster and simpler communication, more precise tracking and documentation of construction, and improved quality.

It speeds up processes, reduces errors, and shortens project cycles, resulting in faster delivery of our products (buildings) to the market and lower costs for two main reasons—reduced resource consumption (time, energy, labour) and increased market supply,” says the expert, expressing hope for changes in the construction sector.

According to Eurostat, the construction sector today is 9% less productive than in 1995, despite the presence of cranes, excavators, advanced tools, and mobile phones, which were less common back then. Ironically, more work was done manually in the past.

(Graphic: DOMinvest grupa)

Many industry professionals believe the problem lies in insufficient employee engagement.

Saša Perko, director of the DOMinvest group of companies, frequently speaks about the challenges in this sector. His goal is to push for key changes that would make a difference.

While there have been some improvements over the past decade, he believes progress has been exceptionally slow.

Saša Perko (Photo: DOMinvest grupa)

Consequently, it is unlikely that property prices will decrease in the near future. However, if legislators could accelerate administrative processes, encourage greater accountability among designers and contractors, initiate the creation of a digital strategy, promote education and innovation, and, most importantly, retain hard-earned expertise within the sector, the industry might experience less drastic price increases in the years to come.