House prices have peaked

Data released by the Bank of Albania reveals that, for the first time since 1998, housing prices have not increased. According to the Bank of Albania, housing prices rose by a mere 0.5 percent during the first quarter of 2008. During the same period of 2007, housing prices increased by 17.5 percent. The analysts explain that, although local authorities have issued a limited number of new building permits, the demand for new houses and apartments is at an all-time low. Analysts blame the low demand for new apartments on the saturation of the housing market and the stagnation of remittances from Albanian migrants.
Further, officials believe stabilization of prices is going to reduce profits in the construction business. According to the Bank of Albania, the cost of building increased during the first quarter of 2008 by some two percent. The cost of building is expected to go up even further following increased costs in oil, steel, and other raw materials. Simultaneously, homebuilders may be unable to raise the price of new houses and apartments as the demand falls even further.
Higher costs and lower demand have curbed growth in the construction business. During the last year, the growth in the volume of sales in the construction business was two times lower that the average growth for the period 2004-2006. During the first quarter of 2008, the sales volume increased by only 4.6 percent, or 11 times less than during the same period in 2006.
Limited growth in sales volume and the increased number of unsold houses and apartments is forcing construction companies to think twice before starting new construction. During the last quarter of 2007, the construction of new houses and apartment blocks fell by 23.3 percent. The drop in the activity of the construction business is confirmed by the building materials industry. According to data from the industry, the construction industry used, during 2007, only half of the cement it had used in 2006.
The Bank of Albania warned, in its latest report, that the slowdown in the construction industry may upset the entire economic development of the country.