Experiencing a rise in unsold apartments up to 13.000 and pricing decrease, the panic in the real estate market might also have an affect on those that have already ensured their housing needs.

In addition to facing higher loan installments caused by hard currency clauses and changing interest rates, bank clients with mortgages might be facing new appraisals of their real estate starting the 1st of July. According to the new Law for Loan institutions (regulating the banking sector), as a part of their risk management program, the Croatian National Bank (HNB) instructed the banking sector to monitor continuously the value of real estate, which is a loan insurance instrument. In the case of office space, banks need to conduct appraisals once a year, while residential properties need to be reevaluated once every three years. The time limits are not fixed. In case there are ‘’significant changes’’ on the market, the financial institution needs to conduct appraisals more often. However, the frequency has not been defined. The key issue for loan takers is who will be responsible for covering these appraisal expenses? The Croatian Bank Association (HUB) tells us that this question should be answered by HNB, but we were not able to get any answers from them. The banks themselves give very diplomatic answers to this question. ‘In the meantime, in case the financial regulator does not issue a more detailed set of regulations, the expenses occurred by additional appraisals will depend on several parameters, one of which is the contract with the client, bank policy, the method used in calculating the value etc.’’ says the representative of the Erste Bank. Since the market is experiencing a decrease of property value, the clients are afraid they might be asked to cover the difference. It is yet not clear if this will mean having a new loan insurance instrument or increasing the value of the existing one, such as a life insurance policy signed over to the bank. In order to determine if the value of the mortgaged property is sufficient to cover the loan amount after a client ceases to pay installments and classify the risk of market placement, the bank can use statistical methods. If the bank estimates there is a sufficient loss of property value on the market, it has to get value appraisal from an independent appraiser. “When calculating the value of the mortgaged property, the bank takes into consideration its value lessened by certain leveling factors that are defined by internal bank regulations, according to the type of property,’’ says a representative of the Erste Bank.