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Many recent studies have highlighted the importance of quality of governance and institutions for economic performance. According to New Institutional Economics, the quality of governance and institutions is a fundamental precondition for sustained increases in prosperity, well-being, and territorial cohesion. The quality of governance influences people’s health, their access to basic services, social trust, and political legitimacy. Governance encompasses the traditions and institutions by which authority in a country is exercised, and its performance can be measured. In this chapter we use the World Bank’s measure Worldwide Governance Indicators (WGI). The aim of the chapter is to highlight the variation of the quality of government between regions of Scandinavia and South East Europe and to analyse recent changes in South East Europe. Not surprisingly, Scandinavian regions outperform all other EU regions in quality of government, and the situation has been stable over time. In South East Europe, the situation has improved, although at a slow pace. Whereas the rule of law and government efficiency seem to be steadily increasing, the fight against corruption has been less successful.

Transaction costs on the housing market are, arguably, inevitable. They are also diverse. While fees and taxes are easily identified and observed, transaction costs can arise from the functioning of the market and its regulatory framework. For instance, there are costs related to obtaining information. Lack of information creates uncertainty, which increases risk, which increases transaction costs. Thus, market transparency affects the level of transaction costs. For the regulatory framework to be effective, rules must be effectively enforceable; accordingly, the judicial and administrative institutions must function properly. Thus, there is a clear, albeit complex, relation between transaction costs on the one hand and market transparency, government efficiency, regulatory quality, and property rights protection on the other.

The aim of this chapter is to discuss transaction processes and transaction costs in real estate conveyances for both the seller and the buyer with respect to taxes, fees, and obtaining information. To that end, we compare the transaction processes and costs involved in Croatia and Sweden, respectively.

Neither Croatia nor Sweden displays prohibitive costs, yet Croatian transaction costs are significantly higher than those in Sweden. This is hardly surprising given that the Croatian transaction process features at least one additional party to be remunerated compared to the Swedish process. Thus, it would seem that the Swedish regulatory regime – where the estate is charged with handling the legal aspects of the transaction – render lower transaction costs.

There is also the issue of how and to whom fees are paid. For instance, there are more bank fees in Croatia, whereas in Sweden more of the fees are paid to the state. On the other hand, Croatia is one of the few countries where no capital gains tax is levied on real estate conveyances, whereas Sweden has a capital gains tax of 22 per cent – a tax that may hamper movement from one region to another with differences in property prices. Overall, however, with the exception of the capital gains tax for the seller, it is clear that the Swedish transaction process carries lower and more predicable costs than its Croatian counterpart.