Following a construction surge over the past two years, the construction sector is now showing signs of a slowdown. In the most recent business confidence survey conducted by the Bank of Albania, the construction industry is displaying pessimism for the second consecutive month.
According to the Bank’s report, the Construction Confidence Index (CCI) dropped by 1.9 percentage points in October, although it remains approximately 15 percentage points above the long-term average.
The decline in confidence this month can be attributed to less optimistic views on current construction activity and order levels. While expectations for employment are increasing, those for future prices are declining.
The construction confidence index turned negative in September (-9.26) after being positive for most of the year, and in October, it deteriorated further to -11.2, indicating that the majority of builders are pessimistic about future orders. This is the most negative level since October 2022.
Businesses are anticipating a decrease in orders. The balance of responses to the question about contracting orders was negative at -28.5, indicating that more builders expect a decrease in orders. This is the lowest level since October 2022.
Businesses were asked, “How do you assess current orders (contracting orders)? 1. More than sufficient (above normal); 2. Sufficient (normal for the season); 3. Not sufficient (below normal)”.
Expectations for future prices are also declining, although the balance remains positive at 8. This is the lowest level since June 2021. Companies were asked, “How do you expect the prices you set to change in the next 3 months? 1. Will increase; 2. Will not change; 3. Will decrease”.
Previously, representatives from the construction sector had pointed out that the rising prices of apartments were beginning to affect the downward trend in demand for properties with selling prices exceeding 1,500 euros per square meter. Real estate agents mentioned that the increase in interest rates on loans and the absence of amnesty for undeclared incomes have been reducing the number of property buyers.
Real estate agencies mention that there has been a decrease in demand for properties located near the city center with selling prices exceeding 1,500 euros per square meter.
This trend has also been observed for other residential units located in areas near the city center. However, the demand for residential units in buildings constructed in the last 2-3 years and in newly completed buildings outside the city center in Tirana remains similar to the previous year.
The increase in interest rates is also contributing to the slowdown in mortgage loans. The average interest rate on new loans in Albanian lek for house purchases reached 4.04% in July 2023, up from 3.57% in February 2022, according to data from the Bank of Albania.
For loans in euros, the average interest rate reached 5.32% in July 2023, up from 3.54% in February 2022. According to statistical data from the Bank of Albania, the value of new home loans in the period of January-August 2023 was 30.9 billion Albanian lek. Compared to the same period in 2022, new home loans fell by around 3%.
Another reason for the decline in demand appears to be related to increased scrutiny of informal buyers. Real estate agents have reported that a series of investigations by the Special Anti-Corruption Prosecution (SPAK) targeting political and business figures are impacting the real estate market.
Purchases of real estate with undeclared funds (illicit activities, corruption, etc.) are believed to have been one of the main sources supplying the market for undeclared properties in recent years.
