Developers warn of price hike as new law sanctions social housing donations

Tirana Times
By Tirana Times June 4, 2018 13:30

Developers warn of price hike as new law sanctions social housing donations

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  • "With the argument that it is developing social policies favoring people in need, the government is failing to understand that at the end of the day it will be common citizens, who as final consumers, will be forced like in other cases to carry the costs of those social policies because it is clear that this tax will increase real estate prices," says the Albanian Association of Developers

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TIRANA, June 4 – Albania developers have warned of legal action against a new law that forces them to donate a portion of their construction area to local government units for social housing purposes, describing it as an extra tax that will be reflected on sale prices and which hits their investment plans.

A new law on social housing that the ruling Socialist Party majority approved in Parliament last May says private companies building apartment blocks with a total of more than 2,000 m2 will have to donate 3 percent of their construction area to the local social housing units run by the country’s 61 municipalities.

Developers are also offered the alternative to provide the 3 percent donation in another residence block if they fail to meet the new obligation at a specific construction site.

The new rules are valid for every new construction permit of more than 2,000 m2 that will be issued after January 2019 when the new law becomes effective.

For a 2,000m2 residence block, a construction company will have to donate at least 60 m2 which municipalities can later use to accommodate people in need.

“With the argument that it is developing social policies favoring people in need, the government is failing to understand that at the end of the day it will be common citizens, who as final consumers, will be forced like in other cases to carry the costs of those social policies because it is clear that this tax will increase real estate prices,” the Albanian Association of Developers says in a statement.

“The Government cannot produce unilateral policies to help people in need by violating the Constitution,” developers say, arguing that the new law runs counter to the local government law which does not envisage such new tax.

Construction companies say a portion of the infrastructure tax they currently pay already goes for social housing, something which according to them, makes article 17 of the new social housing law unconstitutional.

Developers also claim they were not consulted before the law’s approval but the government argues it has referred to international practices. “The 3 percent quota has been set referring to normal social practices in many other countries,” Finance Minister Arben Ahmetaj has said.

The developers’ legal battle with the government will be tough as the country’s Constitutional Court has been temporarily suspended and cannot make any decision due to having remained with only four out of nine members.

Three Constitutional Court members have already been dismissed or voluntarily resigned for failing to justify their assets and another one is awaiting the first instance decision by a vetting body as part of a judiciary reform Albania is implementing.

Back in 2017, the country’s largest municipality of Tirana raised the key infrastructure impact tax to 8 percent of sales prices from a previous 4 percent of the construction costs. Developers say the 4-fold hike was reflected in Tirana apartment prices increasing by €50 to €120/m2.

Apartments prices in Tirana vary from 700 to 2,500 euros/m2 in downtown Tirana compared to 500-650 euros/m2 in uptown areas of new ring road and Fresku.

Earlier this year, the municipality of Tirana, cut the infrastructure impact tax to 4 percent of the sale price for new constructions destined for business and office facilities as new high-rises are projected to be built.

Home to about 800,000 residents and the country’s construction boom site, the municipality of Tirana collected a record 3.5 billion lek (€28 mln) from the infrastructure impact tax in 2017, which accounted for about a third of its total annual tax income and more than two-thirds of the total income collected from this tax by the country’s remaining 60 municipalities applying lower rates, according to a local government finances portal.

Albania’s construction sector seems to have overcome its crisis-triggered impasse and is now back in almost full gear, although credit to the sector has been at almost the same levels for the past couple of years, giving rise to opposition allegations that drug proceeds are being laundered into the sector and that the national currency’s recent strengthening is mainly a result of high illegal euro inflows.

The number of construction permits issued by local government units hit a six-year high of 819 in 2017, almost double compared to 2016, hinting a recovery in the long-ailing sector following a standstill from 2012 to 2015 when a combined total of only about 950 permits were issued following a construction boom ending in 2011 in the aftermath of the global financial crisis.

Tirana Times
By Tirana Times June 4, 2018 13:30