INTERVIEW/ Arben Malaj on the real estate market: Why Albania will become more expensive and Albanians poorer

Professor Arben Malaj, in an exhaustive interview for VoxNews, makes a detailed analysis of what is happening with credit in our country. It considers the measures taken by the Bank of Albania as normal and necessary to exclude any further financial risk. In the same way, Malaj does not see concern in lending by second-tier banks, he even sees it as a breather for the economy, but he sees the risk in the fluctuating interest rates that can pose a problem in the right information for borrowers, therefore the regulation of the Bank of Albania sees it as a need and a normal process.

But what he sees as a problem in the future is the real estate market and investment in this market by non-residents. "Purchasing by non-residents is an important factor in increasing real estate prices. This effect may be increasing.

Albania will become more expensive, starting with immovable assets, and Albanians will become poorer, including the middle class. For non-residents, the purchase of real estate is also influenced by demand financed by informal sources and a non-legal part. Regarding your question about the risk of these developments in the real estate market, significant fluctuations are also not excluded, but not up to a bubble ", says Malaj.

For more full interview:

For a long time, the Bank of Albania has warned second-tier banks to be careful in lending to individuals or businesses. Is it a warning or a risk of creating an economic collapse?

It is a professional warning also because the Bank of Albania has reduced interest rates several times. Credit becomes cheaper, of course it depends on the type of interests, but generally they are fluctuating. The increase in credit, especially for housing and investments in real estate, can increase the demand for credit while simultaneously increasing prices. But incomes do not follow the same growth as real estate prices, creating negative premises for increasing the risks of repaying loans on time.

This risk is great when borrowers do not know the risks of loans with fluctuating interests and at the same time when it also includes euphoric investments from low loan interests.

In the same way, this same institution in recent days has come out with a regulation that defines some rules for granting loans from banks of their level, for example, a borrower cannot get more than one loan, or pay options must be carefully considered of installments in relation to the income he has. Why do you think this happened?

Central banks such as the Bank of Albania have the legal obligation to closely follow developments in the banking system and ensure its stability. There are many tests for commercial banks, for the quality of management and credit quality, for loans with a risk of non-payment on time, the amount of non-performing loans and the amount of lost loans. All these are important indicators to test the stability of the banking system. BSH also, while closely monitoring the development in the banking market, also focuses on loans according to the sectors where they are granted and if these sectors have a greater risk than other sectors.

From the latest data, it is confirmed that Albanian families had difficulties in repaying the loan during the first half of the year. The weight of families that have a loan to pay has not changed, while the paying ability of families has weakened compared to the previous six months. Didn't this also bring the Bank's warning?

The indicators you mentioned are within manageable limits and do not create any risk for the banking system of our country. But from the experience of managing previous crises, emphasis has been placed on increasing the quality of supervision and undertaking concrete steps with emphasis on the prevention of any potential deterioration. After the 2008-2013 crisis, valuable lessons were learned for crisis prevention. In cases where concerns are observed in the timely repayment of obligations, BSH has supervisory instruments that reduce these proportions. Even restructuring for borrowers with a good CV with banks remains a beneficial option for both parties.

Similarly, an increase in lending has come especially for the purchase of real estate and from non-resident persons. What does this mean for you? Is the risk in the construction sector included here?

Buying by non-residents is an important factor in increasing real estate prices. This effect may be increasing.

Albania will become more expensive, starting with immovable assets, and Albanians will become poorer, including the middle class. For non-residents, the purchase of real estate is also influenced by demand financed by informal sources and a non-legal part. Regarding your question about the risk of these developments in the real estate market, significant fluctuations are not excluded, but not up to a bubble. Even the experiences of other countries that have gone through real estate bubble crises show that big cities are little affected and the return to high prices occurs after a few years. On the other hand we have the case of China when a real estate investment company caused a severe crisis in the real estate market, the financial system and the declining rates of economic growth. It was in danger of turning from a Chinese crisis into a global crisis.

What is really happening with borrowing in the country and what should the second level banks approach. Is the economy at risk or is it just a preventative measure?

The second-level banks continue to lend to the Albanian economy through loans to individuals, private individuals and finally by lending to large infrastructure projects. Currently, according to the figures of the Bank of Albania and the estimates of the International Monetary Fund, the Albanian banking system is liquid, stable and with improved indicators of potential risks. Supervision is a daily process. A few days ago, the Bank of Albania announced that commercial banks during the first 6 months of 2024 lost about ALL 1.4 billion loans without hope of recovery, deleting them from their balance sheets. This amount is very small compared to the total loan that the banks have given.

Do tier two banks have enough deposits to avoid a possible collapse?

Definitely yes, because of the total deposits in Lek and foreign currencies, a significant part of them are used for crediting the economy. Commercial banks pay interest on the deposits of Albanians, therefore in their business model they must receive income by giving loans from all types of instruments, for all sectors of the economy and in all areas of the country. As financial intermediaries, commercial banks must connect the savings of the population with successful investments in the economy.

One last question, is this strengthening of lending conditions related to the weakening of the European currency?

The weakening of the euro has come from overvaluation or revaluation towards a new exchange rate between the lek and the euro. The effects of the weakening of the euro are complex and with two-way effects between losers and winners. The losers, from the significant devaluation of the euro to about 17 percent, are exporters and mainly the fashion industry, but also farmers. The weak euro can also have an effect on tourism. A weak euro makes imports easier, facilitates the objective of the Bank of Albania to keep inflation under control up to 3%, facilitates the payment of loans but also expenses for children's school, medical expenses, etc., which are carried out in euros, when they have income in national currency.

Anyone who has obligations to pay in these currencies and whose income is in Lek benefits from the weakening of the euro, dollar and other currencies. This includes the state, because our country has a significant share in foreign currencies. Only the weakening of foreign currencies according to the Ministry of Finance has reduced the public debt to about 15 percent.

***

©Copyright Vox News
This article is exclusive to Vox News, it is copyrighted according to Law No. 35/2016, "On copyright and related rights". The article can be republished by other media only by citing Vox News and placing the source link at the end, otherwise any violator will be held responsible according to Article 178 of Law No. 35/2016.