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ANALYSIS/ Whether there is demand or not, the increase in construction will continue. What about the price?

2024-09-29 11:18:21Biznes SHKRUAR NGA REDAKSIA VOX
ANALYSIS/ Whether there is demand or not, the increase in construction will
Illustrative photo (monitor)

In the decades of transition, construction has known two cycles. The first started after 1997, as population movements spurred massive construction in the cities of the center of the country, mainly in the capital. Growth was rapid until 2003-2005, with the sector reaching 15% of Gross Domestic Product (GDP).

In the following years, the rapid increase in prices restrained the sector, which went into a maturation phase that lasted until 2008-2009. After this period, aggravated by the impact of the global financial crisis on the country's banking sector, construction entered a phase of decline, dropping below 9% of GDP in 2014.

But with the return of the upward trend of the sector after 2015 and the increase of taxation pressure on the cost of construction, the prices had doubled, from around 400-500 euro/m² in the crisis period of 2010 to 1000-1200 euro/m² in the year 2016.

After 2016, the sector began to expand again, driven by the granting of building permits in the capital. Although in relation to GDP the change was not very strong, due to the faster growth of other activities, in value it is much higher due to expensive prices.

In 2023, the sector has reached the highest level since 2014, exceeding 10% of GDP, with a value of 235 billion ALL in the construction sector and 136 billion ALL for real estate activity, for a total of about 372 billion ALL (3.7 billion euros).

Is this the peak of the second construction cycle?! The year 2023 gave him some signals. Prices have risen rapidly, curbing demand. In the center, apartments have reached a high point of 4-6 thousand euros/m² and inside the ring at 2000-2500 euros/m².

The tightening of the center shifted demand to the periphery, attracting a new wave of price increases. Now the cheapest apartment in Tirana costs on average 1000-1200 euros/m².

Informal currency has been an important factor driving the construction and real estate market, but SPAK's investigations have "daunted" these inflows, according to statements from real estate agents.

Data from the State Cadastre Agency (ASHK) showed that the number of real estate sales transactions decreased last year.

ASHK data show that a total of 35,690 real estate sales transactions were recorded, down 5.8% compared to the previous year. Such a figure proves that the property market suffered a slowdown last year.

Even in the capital, the number of real estate sales transactions in Tirana, decreased for the second year in a row in 2023. 20,959 sales and purchases were recorded in ASHK, down 20%, compared to 2022, giving a clear signal for a change in the trend in the sector.

Tirana's weight in the real estate market is considerable. In the capital in 2023, over 80% of all property transactions were carried out.

The signals from the market are that the demand of foreigners for properties is also falling, as a result of their rapid increase in price. In recent years, apartments on the coast, especially in the South, saw double-digit price increases due to high demand.

The maximum sale prices of apartments on the coast have reached up to 4,000 euros/m², while in terms of villa prices, values ​​of 2 million euros are also mentioned, according to real estate agents.

In Saranda, the rapid increase in prices is bringing a 50% drop in sales, but the curbing of demand is also being felt in other areas, including Durrës, which is cheaper.

In 2023, purchases by foreigners "supplied" about a fifth of transactions, according to data from the Bank of Albania on purchases by foreigners (325 million euros) and total real estate transactions, according to INSTAT (1.36 billion euros ).

With real estate loans reaching 26% of all loans granted in the country, the Bank of Albania has shown the first signs of concern. Earlier this year, the central institution increased the capital requirements for banks.

In July, the Bank of Albania decided that the rate of countercyclical capital addition (KUNC) for Albania will be 0.25 percentage points, from zero that was foreseen in the previous decision.

All commercial banks in Albania must complete this supplement after one year, starting on June 30, 2025.

One of the elements that influenced this decision is related to the early warning indicator (TPHP) that signals developments in credit and non-financial assets, specifically in the real estate market. This decision was also welcomed by the International Monetary Fund.

Demographic developments for years are not in favor of the real estate market. The latest Census data found that the population of Albania in the last decade has decreased by 420 thousand inhabitants, or about 14% less.

Other findings are also not optimistic: About 40% of the apartments turn out to be empty; the 15-19 age group has halved in a decade; the number of women of reproductive age fell 28.4% from 2011-2023, which portends a further decline in births.

The municipality of Tirana, the largest in the country, which is a center of gravity compared to others for internal emigration, has only increased by 40.7 thousand inhabitants from 2011 to 2023.

This actual increase in the population of the capital is not good news for the builders in the capital, who have built for wrong projections so far with data that Tirana grows by 20-25 thousand inhabitants per year.

Maturation actually seems to have begun. The growth of real estate activity has slowed significantly in the first quarter of this year, according to the latest data from INSTAT on Gross Domestic Product.

INSTAT data show that real estate activity increased by 5.9% on an annual basis in the first quarter of this year. Growth rates have halved compared to 2023, when they peaked at 11.3%, the highest level in at least a decade.

Unlike real estate activity, the construction sector has continued strong growth, signaling, for the first time in the last two years, a mismatch between demand and supply. Construction grew by 14% in January-March 2024, up from 9.8% expansion last year.

With or without demand, growth will continue

Against the shrinking trend of the population and the curbing of demand as a result of high prices and the decline of purchasing power, the market is not expected to stop. In 2022, the area of ​​building permits reached a record level in the last decade and these constructions are still in progress.

Although demand does not seem promising, construction companies are not backing down, especially in the capital.

According to INSTAT data, in 2022, the area granted for building permits for housing was about 1.8 million m2, the highest level on record. In 2023, permits were on the decline, but in the meantime, major new projects have been announced.

There are at least 8 development projects, which foresee the construction of towers that will have up to 65 floors and another 100-floor project, recently presented, which has not yet received the development permit.

In addition to the projects that are being built on private land, the government itself plans to give for development some spaces it owns, which have already passed to the Investment Corporation, which is expected to make public its plans for these properties.

In June, the National Spatial Planning Agency opened the tender with the object "Energizing cities: Innovative development of public property".

This procedure seeks to bring closer to itself projects that aim to develop public property, in cooperation with the private sector, where in the end, the benefit that the institutions will receive are offices. /monitor


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