Apartment prices drop as demand worsens

TIRANA, May 14 – Facing lower demand for home purchases, construction companies operating in Tirana lowered apartment prices even in the first quarter of this year. Bank of Albania data show apartment prices dropped by 3.8 percent year-on-year in the first quarter of 2012 also driven by poor performance in individuals’ demand for new home loans on a downward trend since the first quarter of 2011. However, surveys show construction entrepreneurs are less willing to further lower home prices.
The central bank says, rental prices continued their upward trend even in the first quarter of 2012 but does not provide figures on it. In the final quarter of 2011, rental prices rose by 6.1 percent y-o-y and 16 percent compared to the third quarter of 2011.
A study carried out by the Bank of Albania analyzing the role the increase in mortgage loans plays in the home price performance has shown that “an increase in mortgage loans by 1 percent, increases house prices by 2.3 percent. Meanwhile, an increase in house prices by 1 percent shows mortgage loans have increased by 3 percent.
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 20 percent. Home loans in Tirana fell by 7 percent y-o-y to around 49.5 billion lek in the first 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.
The construction sector, in crisis since 2008, plunged into a historical record low confidence of -27.9 percent, standing 22 percentage points below its historical average during the first quarter of 2012. Reports show citizens are becoming more reluctant to buy new apartments because of falling revenues and especially a sharp decrease in immigrant remittances.
“Expectations for production, demand and employment in the first quarter of 2012 remain pessimistic. Around 85.4 percent of construction businesses do not expect carrying out new investments for the first half of 2012,” said the central bank in its survey.
Around 82 percent of businesses said they had not undertaken new investments in the second half of 2011 and the majority of those investing said they had done so only in technological equipment.
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.