Study UNDP on construction in Albania: Sources are unclear, while high offer dictates market

The study estimates that, in Albania, there is no market requirement for this increase in new construction, but it is the offer, detecting the market, while in the last eight years real estate prices have increased by 102%.

Study The UNDP on construction, housing and real estate notes that the construction industry was revived from 2017 onward, while the main location takes place. They cover 76% of the new construction area approved in 2021. More than two-thirds of the new construction is being built in Tirana (62%) and Durres (7%).

But the study stresses that numerous sources of demand for new construction permits remain unclear, as housing ownership in Albania is among the highest in Europe. A significant portion of the dwellings are empty, the population is decreasing, but new permits envision over 11 million square metres of new residences in the last decade.

The idea is to discuss and reflect: Do all these paradoxes that we're talking about have an economic sense or not? If so far increasing the prices of this market in view of other markets has been expected, now in the context of population contracting and growing construction should be thought of, because risks for risks increase”, says Enno Ngjela, programme specialist at the UNDP.

The study notes that housing demands cannot increase even internal migration because when the population of Tirana and Durres has grown together only 4 percent, on the other hand, the housing stock has grown more than 27 percent in the last decade.

Even more paradoxically, the market is found to have no requirement for such a large increase in new construction, but real estate prices have increased by 102 percent in the last decade - an increase, considered fast and unprecedented in the study.

Home prices in Tirana, Durres and other coastal cities have tripled compared to only a few years ago.

The average price of housing sales in September 2022 for the entire country is 1,146 $/m2, and this has come due to inflated prices in Tirana and in coastal areas.

In the capital, the average price is 1,365 $/m2, ranging from 770 euros to $2,290/m2 depending on the area. In coastal areas the average retail price is $1,600/m2, ranging from $950/m2 in Strygin to 2,500/m2 in Theme. While without Tirana and the coast, the average price is $380/m2.

The study notes high price fluctuations, indicating that the real estate market in Albania is still unstable and vulnerable to expectations, emotions and speculation.

The real estate market in Albania is run by the offer, because vendors don't have any need to sell and that the number of buyers is quite low. This market has even been shaped by the offer, the study points out, because housing offers have increased more than demand.

From this report it turns out that construction, housing and real estate constitutes a balanced market, which moves against expectations for the development of a normal market economy. In market economies, there is demand that dictates the market, while in this sector in Albania the opposite is happening; the market is driven by offer, not demand.

We don't think we're giving something prewritten, or we're giving a recipe for solutions. We're just doing this topic, as the IMF's latest report has released, is something to be kept in monitoring and monitoring. And where there's better than a discussion to do this”, Ngila says.

The study says that in 2021, houses sold amounted to 2.89% of the total housing stock and 66% of construction permits given that year. An increase in foreign capital flows in the Albanian real estate market is seen, a part in coastal areas, which in 2021 made up about 12.5% of transactions.

“Even savings have increased, so it is unclear how the remaining 50% of transactions are financed. They can be attributed to money savings, remittances or exchange”, highlighted in the study's conclusions.

It notes that over the past two years about 35 percent of property has been purchased by nonAlbanian residents and that this type of investment is growing rapidly. In 2021, 191m euros have been invested by foreigners in the real estate market, marking an increase of 139%, compared to a year ago.

In the first quarter of 2022 foreign property purchase investments are worth 142m euros, with an increase of 78% compared to the same period a year ago. Real estate transactions in Albania during 2021 are estimated to be approximately 1.53 billion euros.

On the other hand, residences are not affordable for an important part of Albanian households, the study stresses. If an average - income family today buys a house with current prices, it may quickly drop below the poverty limit, but the future impact will fall on young couples or domestic migrants.

“So far, Albanian families have sought better opportunities in Tirana and Durres, and the significant growth of the tourism industry could represent significant employment opportunities for families

From the slums. This may also benefit the tourism industry, which is struggling with the shortage of workers and is currently employing people from outside”, the study adds.

But drastic price hikes in coastal areas make it impossible for immigrant families to afford housing. Unaffordable residences are one of the main causes of halting the natural flow of labor force, and the lack of workers can influence the tourism industry by slowing its growth, the study notes.

“U n The NDP has the main mission of developing society and the individual. At the end of the day, it is important that economic development and all sectors overtake all of Albania's citizens, enabling them to eliminate inequality as well as address social concerns. So we undertake such initiatives to see where these issues are, which need to address”, says Mr. Ngjela.

The vast majority of data processed by various sources belong to a 10-year arch, yet researchers have measured the impact of the crisis in Ukraine last year on Albanian construction.

The Ukraine crisis of 2022 has caused a price increase by negatively affecting all production chains and almost every sector of the economy, including building”, the study says.

It lists expensive energy, oil and building materials, such as bricks, cement, and steel, which raised construction costs by at least 11 percent, which will be reflected in even higher prices of selling rich real estates, damaging the weaker ones. / VOA