TIRANA, Nov. 22 – Construction costs continue increasing despite the severe crisis this important sector to the Albanian economy has been suffering since the last quarter of 2009. Latest Institute of Statistics data published on Monday show the construction cost index rose 0.5 percent year-on-year during the third quarter of 2010 and 0.2 percent compared to the previous quarter. One year ago, the change was only -0.4 percent.
Compared to the second quarter of 2010, direct expenditure rose by 0.2 percent while material expenditure by 0.3 percent, almost the same as in the second quarter.
Construction and electrical material prices rose by 0.3 and 1.4 percent, respectively compared to the previous quarter. Transport expenditure also rose by 0.2 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 1.6 percent and construction materials which rose 0.8 percent.
The Construction Cost Index calculates the difference of expenses in construction considering the change of basic input prices such as construction materials, construction vehicles and equipment, expenses for employees.
Construction
The construction sector, which has been hit by a severe crisis during the first half of this year, saw another drop in its confidence index during the third quarter of this year when it fell by 10.2 percentage points to minus 23.2 percent, its lowest ever historical level. The situation is a result of the construction companies’ lack of confidence in the production, demand and employment situation in this vital sector to the Albanian GDP growth.
The presence of informal economy and lack of construction permits were two the main obstacles to the performance of this sector in the third quarter of 2010. Its capacity utilization rate also dropped to 63.1 percent, 4.8 percentage points below its historical average.
The decrease in demand and rising construction costs further deteriorated the financial situation of the construction sector which has been suffering liquidity problems and problems to repay loans. Construction companies expect the situation in the fourth quarter to remain pessimistic and producer prices to undergo another slight increase.
During the April-June period, the construction industry dropped by 3.3 percent compared to the first quarter of 2010.
This sector continued its poor performance even in the first three months of this year, dropping by 21.1 percent year-on-year and 4.3 compared to the last quarter of 2009.
Construction was also the hardest hit in the last quarter of 2009, recording a 14.4 per cent drop compared with same period of 2008 and an 11.8 per cent decrease from the third quarter of 2009.
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.
The central bank said in its recent monetary policy report, the construction sector whose performance has been worsening since the second quarter of 2009, was mainly further affected by contraction of private constructions. The deteriorated situation in the second quarter was a result of low domestic demand, ongoing tight standards applied to home loans and low level of scheduled public investments, accounting for a negative contribution of 4.6 percentage points in the economic growth.
Apartments prices continue dropping
Apartment price increases slowed down again in the third quarter of this year continuing their declining trend since the same period in 2009, the central bank said in a monetary policy report. The house price index in the July-September period dropped by 0.8 percent quarterly and 4.1 percent year-on-year.
The slowdown was a result of a much higher degree of falling demand compared to supply, also affected by lower immigrant remittances and falling home loans, the main two financial resources used to buy new apartments.
Apartment supply was conditioned by declining number of construction permits and tighter standards applied by commercial banks.
Meanwhile, apartment rental rates increases also slowed down in the third quarter, increasing by 3.2 percent year-on-year.
Apartment prices during the past few months have remained unchanged, despite a moderate increase in demand which has not been reflected on sales, according to the Albanian Constructors’ Association. Senior members of this Association do not expect prices to increase in the next few months but warn of sharp rises starting from 2011 because of higher costs. The real price increases are expected to be felt by spring 2011 when the construction is said to recover.
Reports show citizens are becoming more reluctant to buy new apartments because of falling revenues and especially a sharp decrease in immigrant remittances. This is confirmed even by data of the Albanian Association of Constructors which says some 4,000 apartments remain unsold because of falling purchasing power.
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.
The highest prices are reported in the downtown area know as Bllok, where prices go up to 2,500 euros/m2.
