Latest INSTAT data show only 19 new construction permits were issued in the first quarter of this year in the whole of Albania with the majority 15 of them in the southern coastal city of Vlora
TIRANA, Dec. 6 – Apartment prices continue their rising trend despite the crisis in the construction sector escalating and demand for new apartments remaining sluggish also due to tighter lending standards banks are applying as bad loans have hit a record 22 percent. Data published in the latest Bank of Albania stability report show apartment prices in Tirana grew by an average of 3.3 percent in the first half of 2012 year-on-year. Meanwhile, rents also rose by 2.3 percent year-on-year in the first half of 2012 continuing their upward trend.
One of the key drivers of the Albanian economy until 2008, the construction sector 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. The construction industry has been the worst performing sector in the first half of this year. Once the key driver of the Albanian economy, the construction sector shrank by 18.4 percent year-on-year in the second quarter of 2012 and was also down 12.1 percent compared to the first quarter of the year, according to INSTAT data. 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 22 percent. Home loans in Tirana and the country’s main cities have registered consecutive shrinks during this year. In the third quarter of 2012, the construction sector, which has been suffering crisis impacts since 2008, registered another 6 percent drop in the confidence index, which plunged to 30 percent below its long-term historical average. The situation is a result of worsening demand, production and employment indicators.
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.
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, developers have warned.
Latest Bank of Albania data show the construction sector leads the NPL portfolio with 29.6 percent.
Latest INSTAT data show only 19 new construction permits were issued in the first quarter of this year in the whole of Albania with the majority 15 of them in the southern coastal city of Vlora. Dealing with construction permits ranks Albania with the worst global performance, 185th along with Eritrea. Albania and Eritrea are both “no practice” economies with barriers preventing private builders from legally obtaining a building permit, according to Doing Business 2013. Last year’s Doing Business 2012 report ranked Albania 82nd noting the ongoing difficulty in dealing with construction permits. “In Albania dealing with construction permits became more difficult because the main authority in charge of issuing building permits has not met since April 2009.”
Construction costs
Construction costs registered a slight increase even in the third quarter of 2012 when they rose by 0.4 percent compared to the previous quarter and 0.9 percent year-on-year. Data from the country’s Institute of Statistics (INSTAT) show the slight increase in the construction cost index was a result of higher expenditure on construction materials which rose by 1.2 percent year-on-year. Payroll expenditure shrank by 1.4 percent. Expenditure on machinery and transport rose by 4 percent and 3 percent respectively. The Construction Cost Index calculates the difference of expenditure in construction, taking into consideration the change of basic input prices such as construction materials, construction vehicles and equipment, as well as expenses for employees.
