Home prices continue dropping, rental prices up

TIRANA, Feb. 15 – Home prices continued dropping in the fourth quarter of 2010 ending their double digit rise in 2009 and the slight increases during the first half of last year. A recently released central bank report says the home price index fell by 1.6 percent year-on-year in the final quarter of 2010, confirming the crisis this important sector of the Albanian economy has been facing since 2009 mainly because of sharp drop in demand.
Meanwhile, rental prices continued rising with the rental price index up 13.9 percent in the last quarter of 2010 and 10.3 percent during the whole of 2010 compared to 2009.
The construction sector contributed a negative 3.2 percentage points in the GDP growth for the third quarter of 2010. The deterioration of the construction sector, which contracted by 22 percent in the third quarter is expected to slow down in the fourth quarter following the increase in home loans despite falling public funded projects.
The central banks says that the prospects of this sector seem favourable considering that construction permits grew by 57.8 percent in the fourth quarter of 2010, meaning new investments will soon follow. The home loan market has also displayed signs of improvements following the ease of standards for this kind of credit by commercial banks operating in Albania.
The construction sector, once the main driver of the Albanian economy, continued remaining in crisis during 2010, shrinking by 22 percent year-on-year and 2.5 percent compared to the previous second quarter. The construction sector was the hardest-hit even during the first half of this year shrinking by 20 percent in the first quarter and 29 percent in the second quarter.
Construction has been one of the most dynamic sectors in the country contributing to more than 10 percent of the GDP in the past years and employing 18 percent of people working in the private sector.
The central bank said in its recent monetary policy report, the situation in the construction sector whose performance has been worsening since the second quarter of 2009, was mainly further deteriorated by contraction of private constructions.
The situation was a result of low domestic demand, ongoing tight standards applied to home loans and low level of scheduled public investments, accounting for a negative contribution of 4.6 percentage points in the economic growth of the second quarter.
The decrease in demand and rising construction costs further deteriorated the financial situation of the construction sector which has been suffering liquidity problems and problems to repay loans. Construction companies expect the situation in the fourth quarter to remain pessimistic and producer prices to undergo another slight increase.
Reports show citizens are becoming more reluctant to buy new apartments because of falling revenues and especially a sharp decrease in immigrant remittances. This is confirmed even by data of the Albanian Association of Constructors which says some 4,000 apartments remain unsold because of falling purchasing power.
Apartments prices in Tirana vary from 700 to 2500 euros/m2 in downtown Tirana compared to 400-650 euros/m2 in uptown areas of new ring road and Fresku.
The highest prices are reported in the downtown area know as Bllok, where prices go up to 2,500 euros/m2.
The construction sector, which has been hit by a severe crisis during the first half of this year, saw another drop in its confidence index during the third quarter of this year when it fell by 10.2 percentage points to minus 23.2 percent, its lowest ever historical level. The situation is a result of the construction companies’ lack of confidence in the production, demand and employment situation in this vital sector to the Albanian GDP growth.
The presence of informal economy and lack of construction permits were two the main obstacles to the performance of this sector in the third quarter of 2010. Its capacity utilization rate also dropped to 63.1 percent, 4.8 percentage points below its historical average.