Currently, property demand from foreign buyers primarily comes from Europe. "Croatia is situated close to Italy, Austria, Germany, Hungary and Slovenia and is easily reached in a few hours by car, so many of our clients come from these regions," says Michael Grimm, managing director of Engel and Vlkers in Rab. So far this year, 59 percent of approved foreign buying applications have been granted to German nationals, followed by Austrians at 19 percent, and Hungarians and British, at around four percent.

Properties proving most popular are contemporary-style apartments with block and render finish located along the coast, and stone villas inland, often finished with oak beams, terracotta roofs and featuring a pool, garden and barbeque area. Though much of the supply and concentration have been on mid-range property, the high-end sector is beginning to take shape. And despite continued appreciation, prices remain far below the European average. "Prices have doubled here over the past five years" says Dussman, "but are still very favorable compared to other Mediterranean destinations. Generally speaking, luxury real estate is still priced at around US$4,000/sqm in Croatia, but in Tuscany, for example, it is around US$7,000/sqm." Currently in Croatia, a four-bedroom stone villa with a pool sells for about US$690,000 while a large country estate with four bedrooms and a private 10,000 sqm vineyard sells for around US$2 million.

"Many investors have bought large four-bedroom villas with pools that are rented all summer for US$4,000 per week" says Dussman. "Most foreign home owners use their villas for two to three weeks every year and rent them out for the rest of the season. Such villas generally make around US$55,000 rental income per annum, so if you invest around US$700,000 you have a yield of about eight percent".

Currently, markets are strongest in Istria in the north and Dubrovnik in the south. The Istrian peninsula, once under Venetian rule and often referred to as the ‘new Tuscany' due to its rolling hills and medieval towns evocative of the Italian region, has been attracting significant investment in recent years. Stone villas adorn the undulating hillside, while fine wines, truffles, olive oil and fresh seafood grace menus and please palates all along the peninsula. It is not surprising that holiday home seekers are moving to the region to get a slice of the Mediterranean for a price significantly lower than in Italy or Spain. In particular, Istria's hilltop town of Motovun has established itself as an upmarket spot, and many celebrities and aristocrats from Germany and Austria have bought large country homes there. Five golf resorts and a polo resort are currently being developed in the region.

The priciest properties, however, are in Dubrovnik, where average asking prices vary from US$5,500/sqm to US$11,000/sqm. A whole range of international celebrities have recently been spotted in the historic city, including Tom Cruise, Steven Spielberg, Michael Douglas and Roger Moore, a telling sign of Dubrovnik's status.