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Albanian households are stepping up borrowing to buy real estate, despite high inflation.
The data of the Bank of Albania show that for the quarter 2022, the new credit for the purchase of real estate marked a record value of ALL 10.6 billion or Euro 88 million, setting a new historical record.
Compared to the same period a year ago, lending to the sector has increased by 48%. In particular, March marked a new record for the amount of new home loans.
It has marked the value of 4.9 billion Lekë, surpassing the previous record, which was set in June last year. In the aftermath of the pandemic, home loans have received a strong boost, driven by a new growth cycle of the real estate market.
The rapid rise in prices has made individuals see buying a property as a more profitable investment. Historically low interest rates have also been a very important factor in supporting the property market.
The supply of credit in this segment also remains very high, because banks see the expansion in the retail segment as a good alternative to better distribute credit risk and ensure sustainable portfolio growth.
Historically, home loans have been among the products with the lowest non-performing loan ratio. Currently, this ratio stands close to the 3% level.
On the other hand, the significant rise in property prices in recent years has also led individuals to borrow at higher values to afford their purchase. According to the Bank of Albania, property prices increased by 9% last year.
In the perception of market players, bank credit remains an important factor in supporting demand. According to agents, at least a third of transactions in the property market are financed by bank loans.
In theory, high inflation and expectations of rising interest rates may discourage long-term borrowing in large amounts, as is the case with home loans.
Rising prices reduce the solvency of the same income and may increase individuals’ uncertainty about the future, while raising interest rates makes it more expensive to repay a home loan.
At this stage, this effect may be more psychological than direct, but, so far, there are no signs that inflation is influencing individuals’ decision-making to purchase real estate.
At the end of March, the loan portfolio for the purchase of real estate reached the value of ALL 152 billion or EUR 1.26 billion.
Home loans remain among the segments with the highest annual portfolio growth, at 17.3%. The annual growth is even higher than the level of 14.6% that was recorded at the end of 2021.
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