House prices continue registering sharp drops

TIRANA, Feb. 12 – Fuelled by a sharp drop in demand for new apartments, the house price index registered another sharp shrink in the final quarter of 2012. A report published by the central bank shows apartment prices in Tirana dropped by 11.9 percent in real terms in the final quarter of 2012. Rents also dropped by 14.5 percent (inflation adjusted) in the final quarter of 2012. The ratio of house price to rent stabilized to 2.21 percent in the final quarter fuelled by a sharper fall in rent prices.
“Indirect data show developments in the house price index were mainly affected by demand factors. Consumer confidence continues remaining low and consumers’ current and expected financial condition is negatively perceived. On the other hand, the stagnation in employment and the curb of growth in disposable income negatively affected demand for houses. Lending standards on home purchases were tight in 2012, which is also proved by the negative performance of home loans,” says the Bank of Albania in its monetary policy report for the final quarter of 2012.
After increasing by 3.3 percent in the first half of 2012, apartment prices registered a double-digit shrink in the third quarter of the year, reflecting sluggish demand as consumer struggle with crisis impacts and lending standards remain tight.
One of the key drivers of the Albanian economy until 2008, the construction sector has been continuously shrinking in the past three years due to lower migrant remittances, and tighter lending standards. INSTAT data show construction accounted for 11 percent of the GDP in 2010, down from 15 percent in 2008. The construction industry has been the worst performing sector in the first half of this year.
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 2,500 euros/m2 in downtown Tirana compared to 400-650 euros/m2 in uptown areas of new ring road and Fresku.
Facing a sharp drop in sales, the construction industry which has been facing crisis impacts since 2008, has reiterated its appeal to banks to ease lending standards for apartments.
Under crisis conditions it is necessary that banks ease their lending conditions, otherwise this situation will last having a severe impact on the country’s economy, developers have warned.
Latest Bank of Albania data show the construction sector leads the non-performing loan portfolio with 29.6 percent.