“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,” says the central bank in a survey.
TIRANA, March 13 – Once the key driver of the Albanian economy, the construction sector was the first to suffer the international crisis impacts in 2008 and has since failed to recover. Prospects seem grim as thousands of unsold apartments are only reported in Tirana while demand has significantly dropped due to falling purchasing power and tight lending standards as bad loans stand at a record 19 percent.
According to the latest Bank of Albania survey, the construction confidence index dropped to a historical record low in the final quarter of 2011 while companies’ expectations for early 2012 became more pessimistic.
“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.
The construction industry’s capacity utilization rate at the final quarter of 2011 was at 62.5 percent, standing 4.6 percent below its long-term historical average. Insufficient demand and financial restriction are the key reasons behind the low level of the capacity utilization rate.
While the Albanian economy has plunged into moderate economic growth of an average of 3 percent since 2009, the construction sector has also been affected by lack of construction permits, corruption and informal economy. Issues related to the legal framework, infrastructure, law and order and the domestic political situation are also reported as factors affecting the performance of the construction sector, according to the BoA.
An estimated 4,500 new apartments are reported only in Tirana freezing dozens of millions of euros.
Ilir Hebovija, the deputy head of the Construction Association explains the situation with the tightening lending standards by banks and the sharp drop in migrant remittances. “The best sales periods before the crisis were July and January, times when migrants’ flocked and contracts were signed. Today the sales trend has completely changed, extending throughout the year and does not rely on migrants,” Hebovija told reporters.
While apartment prices in Tirana registered a turning downward point for 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. According to the latest Bank of Albania monetary policy report, apartment prices dropped by 3.8 percent in real terms during the fourth quarter of 2011, compared to an annual 10.3 percent in the third quarter of 2011.
For the fourth quarter of 2012, confidence in the construction sector dropped by 7.2 percent, plunging into its lowest historical level of -26.2 percent. While demand and production in construction worsens, employment also fell by 3.5 percent in the final quarter of 2011.
The construction and industry sectors in Albania account for 15 percent and 10 percent of the GDP respectively, employing around 19.9 percent of the population, according to Eurostat data.
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.
Construction costs
Construction costs registered a slight increase in the final quarter of 2011 when they rose by 0.3 percent compared to the previous quarter and 0.7 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, electric and hydro materials which rose by 1 to 2.6 percent year-on-year. Payroll expenditure also rose by 1.5 percent. 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.
