One of the newest emerging markets for property investors is Croatia, where house prices have more than doubled in five years. Rosalind Renshaw reports

Property investors in the UK surged into buy-to-let because spiralling house prices spelt capital growth. Now that house prices have cooled here, they are looking overseas for the rich prospects that first turned them on.

Increasingly that means emerging markets, where they are hoping to repeat the trick of getting in first, holding their nerve, and exiting at exactly the right time.

One country that could be worth looking at is Croatia. Its connotations are awful - Eurovision Song Contest, devastating conflict in Bosnia, and war orphanages.

On the surface, nothing could be less attractive, and certainly Croatia has barely featured, if at all, at property investment exhibitions - unlike those other emerging markets of Bulgaria, the Czech Republic and even Morocco.

But perhaps that could change as Croatia becomes the latest country to catch the eye of UK investors. Its property market appears healthy, in that prices have easily doubled since 2001, and there should be further to go since Croatia is likely to enter the European Union in 2007 - although some say it will not be until 2009.

It is a beautiful country, stretching along the east coast of the Adriatic, with Dubrovnik in the south, Split somewhere in the middle, and Zagreb and Ostiek in the north. It has more than 5,000 km of sun-soaked coastline, and there is a rich cultural history. Tourism has boomed since the end of the Bosnian war - which was mainly confined to the south - in the mid-1990s.

Croatia’s economy is also improving - it has achieved GDP growth of around 5% in the last two years - and it is working hard on social reforms.

But as a housing investment market, it does not obey too many rules. Virtually all lettings activity is to foreign tourists in the peak holiday months of July and August, and we’re talking day rates here, so forget six-monthly lets. Efforts are being made to ‘stretch’ the season, since Croatia enjoys warm springs and autumns, but culturally, the country is used to a virtual closedown for four or five weeks in high summer, when people head for the coast, mountains and countryside: for example, courts close and it can be impossible to get hold of a lawyer.

This pattern makes for a strong tradition of second-home ownership, so prospective tenants are unlikely to be from the native population. Then there is the scattered nature of the Croatian Republic, with no fewer than 1,200 islands - some of which record the most sunny days in Europe - and a history of industrial under-development, so you can also forget demand from affluent young city living tenants.

All this makes it a market that is currently highly - and some would say overly - reliant on the tourist industry.

However, with booming house price growth, property investors may not care too much about rental returns. And, when Croatia achieves its ambitions of entering the EU and NATO, the rental market may change as the business environment improves, attracting more foreign investment and expertise.

Grant Goss, a British investor in Croatia who set up a company for UK investors to buy in the republic, says his clients are not bothered by rent incomes, for the moment at least: "We tell them that they will be able to let their properties in July and August, and anything else is a bonus. They’re really looking for capital growth.

"That said, Croatia has a pleasant climate from April through to November, and we are also now developing schemes in the mountains, where there is skiing to be had in the winter. So, there are good possibilities ahead."

Goss himself first went to Croatia four years ago with his Croatian fiancée Tajana - the couple are due to marry next May - and says he also fell in love with a country that he recognised as an opportunity for investment, and which has remained largely unspoilt.

Goss has been involved in financial services and buy-to-let property in the UK since 1994, and still runs businesses here. But, with returns on UK property diminishing, he has not bought anything in this country for two and a half years, and has instead relocated to Zagreb.

He says that Russians and Hungarians are already investing in Croatian property. His company, Croatian Executive Properties, facilitates UK investments whether in new build, traditional properties or plots. Of the 40 or so units so far sold, he has retained half, via another company: "It demonstrates our faith - we’re happy to be in the same boat as other investors."

And it might not be such a bad boat to be in: had an investor bought a £50,000 property a year ago, it would now be worth £75,000. And if you had bought something three and a half years ago at £40,000, it would now be worth £100,000.

Today, it’s still possible to buy properties for under £50,000, although that would only get you a one-bed apartment. If you budgeted £72,000, that would probably be more realistic. However, you must also budget a 5% tax payable on the purchase price, plus legal and other costs.

So, is this a market that still has some way to run? Investing in emerging markets is all about risk and trying to see into the future. A 2009 accession into the EU could suit investors better than one in 2007. Access isn’t that easy - Croatian Airlines charge around £150 to £250 from London and the flight takes a couple of hours. Budget airlines fly into neighbouring northern Italy for around £30, however, and it’s a one-hour drive from there into some new developments.

The bureaucracy of property purchase is a problem and so is the time it takes to buy - from six months to a year. Nor can you raise a mortgage in Croatia - although this may change, since most banks are foreign-owned - so you would need to raise your money in the UK.

There is also the very real possibility of your property standing empty 10 months of the year.

It is a risk: health warnings are attached. But for the brave - and perhaps especially for investors who would like to use a property in Croatia for their own occupation at least part of the time - it could also be a worthwhile opportunity.

And remember - you read it here first.