BoA: Ordering contracts under construction, in sharp decline of at least five years; Who is buying ?!

If we refer to the Bank of Albania’s survey on business and consumer confidence, in December last year the indicator of construction contract orders decreased by 37.1%, deepening even more from the level of 22.1% in November.

For the whole of 2021, the performance index of ordering contracts has decreased by an average of 41.8%. In fact, the decline in ordering contracts is softer compared to 2020, when it averaged -53.9 percentage points. However, this indicator has been in negative territory for at least the last five years and if we refer to the business survey, ordering contracts are still steadily declining.

If we do not question the accuracy of the survey, the indicator that presents the performance of ordering contracts in this case raises a kind of paradox: where is the increase in prices on this scale and who is buying, while builders have been reporting deep decline in contracts for years. sales?

According to the Bank of Albania, in the first six months of 2021, the Fischer House Price Index increased by 0.7% compared to the previous six months and by 6.7% compared to a year ago. Compared to the base survey period, 2013, house prices in Albania have increased by 49.4%.

While according to the index of “Keydata Albania”, published by Çelësi Media Group, the average price of apartments in Tirana at the end of September 2021 reached 1 121 euro / m2. Compared to the base period of the index, 2005, the average price of apartments in Tirana has increased by 73%. Builders’ expectations for future price performance are also on the rise. For November 2021, the construction price expectation index increased by 23 percentage points, a value significantly higher than the 11-month average of 2021, 13.6% and that of 2020, 4.2%.

In recent years, construction activity is expanding rapidly, driven by high price increases, especially in Tirana and some coastal areas. The perception is that prices are reaching levels significantly beyond the reach of the country’s middle class.

According to INSTAT, in the III quarter 2021 the average gross salary in Albania was 56 thousand ALL or about 460 euros per month. One factor is that demand in the property market is also supported by bank lending. Property lending last year reached historic highs and at the end of November 2021, the loan portfolio for the purchase of real estate by individuals reached ALL 144 billion or almost 1.2 billion euros. In one year, this portfolio has grown by 14%.

Also, the Bank of Albania survey with construction firms and sales agents shows that approximately one third of properties in the real estate market are purchased by non-residents in Albania. This shows that the inflation of prices is largely based on money coming from abroad.

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