Other hotspots include Kvarner Bay and Rab Island, not far from Zagreb, Croatia's capital city. "It's an absolute nautical paradise," says Michael Grimm of the bay, "surrounded by many islands, hidden bays and crystal clear clean waters." Indeed, though coastal development is restricted, Croatia's shoreline has much to offer those seeking nautical adventures, and it is still possible to acquire berths quite cheaply. Novigrad's new marina and recently constructed five-star Nautica hotel has received significant buzz – as well as the new Kempinski resort in Umag, which has its own berths.

In the period leading to Croatia's accession to the EU, prices are expected to further increase by around 25 to 30 percent per annum. "As the wealth of the country grows through investment and economic improvement, domestic buying power will also increase, which will provide overseas investors with a higher rental return and will increase the number of domestic buyers when an investor decides to sell" says Liliane Scully of Adriatic Riviera. Judging from the way European property prices doubled in a very short time in 2002, considerable appreciation in Croatia appears inevitable. "A thriving tourist industry, a low inflation economy and steady growth, now makes Croatia an ideal place in which to invest," says Scully, "It is expected that average property prices will increase between 100 to 150 percent over the next three to five years".

"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".

Many European countries hold a reciprocity agreement with Croatia, which means citizens of countries in which Croatians are able to purchase property have no buying restrictions. All foreign citizens and enterprises, however, must obtain consent from the Ministry of Justice, according to Croatian Law on Property Ownership. Property may be purchased as a private or company purchase, and in both cases, buyers must pay an additional five percent RET (Real Estate Transfer). Private approvals, however, are granted with significant delay, sometimes up to two years, where local legal entities, even if they are foreign-owned, are not required to obtain such a permit. Therefore, foreign buyers interested in renting their properties, as the majority are, typically establish a special-purpose local legal entity, allowing them to begin renting property immediately.

"Most clients form a Croatian limited and buy the property with the company," says Andreas Dussmann, "This is the quickest and easiest route. You can own the company 100 percent. You also pay 22 percent VAT on any new build. If you buy the property with a company you can reclaim the VAT paid on the villa".

Setting up a Limited company can be arranged through a lawyer for about US$2,700 and is obtained within two days. As a company, individuals do not bear any restrictions on property purchases in Croatia.