Apartment prices resume rising trend

TIRANA, Aug. 6 – Apartment prices ended their downward trend in the second quarter of 2012 after lower number of construction permits curbed supply of apartments. After dropping for two consecutive quarters apartment prices in Tirana rose by 4.4 percent year-on-year in the second quarter of 2012. “Indirect indicators continue supporting poor demand for apartment purchase while lower construction permits in the final quarter of 2011 suggest a curb in supply of new apartments,” says the Bank of Albania in its monetary policy report for the second quarter of 2012.
Meanwhile, rents also rose by 1.5 percent year-on-year in the second quarter of 2012 continuing their upward trend.
The construction industry was one of the worst performing in the first quarter of 2012 when it shrank by 17.6 percent reconfirming its fragility and ongoing crisis since 2008.
The construction sector continues suffering from low demand by the private sector. Confidence in the crisis-hit construction sector continues deteriorating in the second quarter of 2012 although to a lower degree. Currently the confidence index stands at 22.3 percent below its historical average. The construction industry, one of the key drivers of the Albanian economy until 2008 has been continuously shrinking in the past three years due to lower migrant remittances, and tighter lending standards. INSTAT data show construction accounted for 11 percent of the GDP in 2010, down from 15 percent in 2008.
Bank of Albania data show banks have considerably cut lending for home loans in all of Albania’s biggest regions as bad loans have hit a record 21 percent. Home loans in Tirana fell by 4.1 percent y-o-y to around 51.3 billion lek in the second quarter of this year.
Developments in the real estate market continue being conditioned by incomplete legal and institutional framework such as property rights issues, registration of property, legalizations etc. “The solution of these problems would give a new impulse to developments in the housing market and would create more space for the banking sector to further develop and increase mortgage loans,” says the Bank of Albania.
Reports show citizens are becoming more reluctant to buy new apartments because of falling revenues and especially a sharp decrease in immigrant remittances.
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.
Facing a sharp drop in sales, the construction industry which has been facing crisis impacts since 2008, has reiterated its appeal to banks to ease lending standards for apartments.
Hajredin Fratari, the President of Albanian Konfindustria, and a developer, says the construction sector remains in stagnation despite prices having dropped by up to 20 percent in certain areas of Tirana.
“Under crisis conditions it is necessary that banks ease their lending conditions, otherwise this situation will last having a severe impact on the country’s economy,” says Fratari.
However, the sharp rise in non-performing loans and lower demand from individuals has also influenced on the situation.
Latest Bank of Albania data show the construction sector leads the NPL portfolio with 29.6 percent.