Construction costs continue rising, apartment prices drop

TIRANA, March 7 – Construction costs continue increasing despite the severe crisis this important sector to the Albanian economy has been suffering since the second half of 2009. However, suffering from low demand, apartment prices are falling. Latest Institute of Statistics data published this week show the construction cost index rose 0.5 percent year-on-year during the final quarter of 2010 but was up only 0.1 percent compared to the previous quarter. One year ago, the change was -0.5 percent.
Compared to the third quarter of 2010, direct expenditure rose by 0.1 percent while material expenditure by 0.1 percent. Construction and electrical material prices rose by 0.1 and 0.3 percent, respectively compared to the previous quarter. Transport expenditure also rose by 0.1 percent, said INSTAT. Year-on-year data show the biggest increase was registered in the electrical materials group with 4.6 percent, followed by transport expenditure with 1.8 percent and construction materials which rose 0.8 percent.
The Construction Cost Index calculates the difference of expenditure in construction considering the change of basic input prices such as construction materials, construction vehicles and equipment, expenses for employees.
The construction sector, once the main driver of the Albanian economy, continued remaining in crisis even in the third quarter of 2010, shrinking by 22 percent year-on-year and 2.5 percent compared to the previous second quarter, according to INSTAT data. Construction 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.
Central bank reports show apartment 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 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 improvement following the ease of standards for this kind of credit by commercial banks operating in Albania.
Despite registering the highest increase, the construction sector confidence index remains 9.7 percentage points below its historical average. Construction companies expect the positive trend in demand, production and employment to continue even in the first quarter of this year. The construction capacity utilization rate in the fourth quarter grew by only 0.4 percentage points registering 63.5 percent, standing 4.3 percent below its historical average.