Crisis in construction sector escalates as sales drop to record low

The standstill in this sector is also unveiled by a recent survey conducted by the central bank, revealing that a record high of two-thirds of real estate agents reported they had failed to sell any property, the highest rate since the launch of the survey in the first quarter of 2013.
TIRANA, Oct. 15 – Having been one of the key drivers of Albania’s growth in the pre-crisis decade, the construction sector has been one of the hardest hit in the past five global crisis years.
The severe situation this long-ailing sector is facing is also unveiled by its 22 percent shrink in the second quarter of this year and its negative contribution by 2.8 percent to the quarterly GDP when the country’s economy suffered a slight decline.
Declining remittances, tighter lending standards on home loans and lower number of construction permits have considerably affected this sector which used to be one of the key drivers of Albania’s average growth of 6 percent annually in the pre-crisis decade.
INSTAT data shows the construction sector accounted for 12.2 percent of the GDP at the end of 2012 down from a record 18 percent in 2008 just before the onset of the global financial crisis.
The standstill in this sector is also unveiled by a recent survey conducted by the central bank, revealing that a record high of two-thirds of real estate agents reported they had failed to sell any property, the highest rate since the launch of the survey in the first quarter of 2013.
“As far as commercial property is concerned, the situation appears more pessimistic with an overwhelming majority of 92 percent of interviewees declaring lack of sales for the first half of 2014,” says the survey, adding that real estate agents remain pessimistic in the short-run.
The Bank of Albania survey shows house prices in the second quarter of 2014 was down by 1 percent year-on-year while rents were up by 11 percent while non-performing home loans slightly rose to 14 percent.
In its 2013-2017 programme, the Socialist Party-led government recognizes the limitations of the development model based on a remittances-fuelled construction boom and raw material exports, and aims to shift the focus to new sources of growth by identifying manufacturing, energy, tourism and agribusiness as priority areas. The programme also pledges fiscal discipline and the payment of accumulated public arrears, estimated at around 5 percent of the GDP.
Unpaid government bills for finished public works and difficulty in obtaining new construction permits has also influenced in the decline of the construction sector.
A recent World Bank report ranked Tirana the worst city in the region for dealing with construction permits as no permit has been issued since 2009.
“As of January 2011, no construction permit had been issued here since 2009, mainly because rivaling political parties represented in the council make consensus decision making unattainable,” said the report which covered 22 cities from Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Moldova, Montenegro, and Serbia.
INSTAT data shows some 43 construction permits were issued in the region of Tirana in the first half of 2014 out of a total of 97 nationwide.
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 known as Bllok, where prices go up to 2,500 euros/m2.
Albanians face the highest house prices in the region compared to rents they pay and the GDP per capita, according to a study carried out by the central bank surveying 12 regional countries.
Data show it takes Albanians 27 years of paid rent to purchase a house which under the price-to-rent ratio suggests it is much better to rent than buy. At 27, Albania’s price-to-rent ratio is lower only compared to Greece’s 31 and Czech Republic’s 29.
The survey also shows Albania has among the highest house prices in the region compared to GDP per capita, measuring the standard of living. The house price to income ratio in Albania stands at 38.5 times higher than the country’s GDP per capita lower only compared to Serbia and Turkey.