TIRANA, Feb. 28 – Albania’s construction industry received a major boost in 2018 and the emerging tourism industry where major investment is being carried out played a key part although credit to the sector as a whole registered sluggish growth, giving rise to allegations of money laundering that some economy experts and the opposition link to the euro’s free fall in the country.
Construction permits in the country hit a 7-year high of around 1,200 in 2018, up 45 percent compared 2017 and five times more compared to the annual average from 2012 to 2015 when the sector was almost paralyzed before slightly recovering in 2016 as the country launched e-permits, according to INSTAT, the state-run statistical institute.
While around three-quarters of permits are awarded for residential one or two-storey buildings, there has been rising interest to invest in tourism facilities in the past couple of years as more tourists visit the country and tax incentives support the industry.
Tourist resorts are being developed both along the Adriatic and the Ionian, but a long-standing property issue remains a key barrier to attract major foreign investors.
Data shows the number of permits issued for hotels and other tourism facilities increased to 75 in 2018 at a total surface of 1.4 million m2 and investment value of 59 billion lek (€468 million), in a number almost equal to construction permits and investment during the whole 2014-2017 period.
The hike in 2018 investment comes as the government has offered a series of tax incentives and more local investors diversify their investment in a key promising sector.
However, the recovery of the long-ailing construction industry comes amid allegations that drug and crime proceeds are being laundered into the sector that uses the euro as its main currency considering that credit growth has been quite small.
Europe’s single currency currently trades at a 10-year low of 125 lek, having lost around 7 percent against the Albanian lek during the past year, in a free fall which the main opposition Democratic Party links with a hike in euro inflows from drug and other crime proceeds, but which the government and the central bank say is a result of recovering economy and higher inflows from tourism and foreign investment.
New luxury accommodation units built by internationally renowned chained-brand hotels or under management or franchise contracts with them, have been benefiting tax incentives for a ten-year period for building and operating four-star hotels and resorts with an investment value of at least €8 million or five-star units worth at least €15 million, according to a package of tax incentives Albania approved in late 2017.
The increase in construction permits also comes amid tighter measures against illegal constructions and at a time when Albania has made available an e-permit system, making dealing with construction permits a much easier process, although it still remains one of Albania’s worst doing business indicators.
The number of construction permits saw a sharp decline from 2012 to 2016 dropping to a few hundred down from more than 1,000 annually before 2011.
The construction sector accounts for about 11 percent of Albania’s GDP and employs about 6.5 percent of the population, down from a record high of 18 percent of the GDP and 10 percent of private sector workers just before the onset of the global financial crisis in 2008.
While demand for new apartments in Tirana remains satisfactory, tight lending standards and poor demand remain a key barrier in other Albanian regions where thousands of apartments remain unsold especially in Durres and Vlora.
Developers have recently shifted to building tourist resorts and villages in coastal areas as tourism rapidly grows and the government is offering tax incentives for luxury four-and-five star accommodation units.
Hilton Garden Inn, a mid-priced brand owned by Hilton Worldwide, has already launched its first hotel in Tirana, while US-based giants Marriott International and Hyatt are expected to start operating in the Albanian capital city following franchise deals with Albanian developers.
