Albania's beaches are drawing buyers
November 23, 2015
Albania is the property market's latest darling. It has miles and miles of beautiful and pristine coasts along the Adriatic Sea. Two of the biggest destinations in the country are the holiday town of Durrës and the nearby resort of Golem. Of the two, Durrës is more built up, with hotels, bars, and restaurants. Interest from foreign property investors and second home buyers is steadily increasing.Albania is a quieter alternative to other more crowded tourist destinations. "Savvy travelers can soak up plenty of sunshine and avoid the crowds that plague the more popular beach spots," said Shermans Travel.com.
The number of visitors is already high: in 2014, foreign arrivals rose by 12.8% y-o-y to more than 3.67 million people, according to INSTAT. More than 85% of the total foreign arrivals were by land, 9% were by sea and the remaining 5% were by air.
"The future is looking bright for Albania. With an increasing number of tourists visiting each year combined with the new BA flights, the country looks set to explode as a tourist destination," said Walshe. "One of Albania's biggest attractions - aside from its cultural and historical charms, balmy Mediterranean climate and stunning beaches - is definitely its rock-bottom cost of living."
The improvement in the housing market can be partly attributed to the offering of new flights and the low costs of living in Albania. "We are certainly seeing a growing number of enquiries from people interested in buying property in the beautiful coastal region of Lalzit Bay, for both their own use and having recognized its investment potential," said Peter Walshe of Lalzit Bay Resort and Spa. "Albania is proving a popular choice for buyers in a wide range of nations."
In the Lalzit Bay Resort and Spa, the country's first high-end resort, prices of one- to two-bedroom apartments start from €35,000 while three- to four-bedroom villas sell for about €360,000. Lalzit Bay Resort is just 30 minutes from Durrës and features restaurants and bars, a beach club, tennis courts, and boutique shops.
The local market is weak
Albania is very much a two-speed market. And domestic demand, i.e., the non-tourist market, remains depressed, with the mortgage market continuing to shrink. In August 2015, the total amount of housing loans outstanding fell slightly by 0.2% to ALL 102.71 billion (€741.7 million) from the same period last year, according to the central bank.
Property prices surged by more than 300% from 1996 to 2006, according to Inf-93 a Tirana-based real estate agency. However since 2010, house prices have fallen.
Yet Albania's property market is now showing some signs of improvement. During the year to end-Q2 2015, the house price index rose by 2.3% in real terms, in contrast with the annual decline of 3.7% in the previous quarter, thanks to improved consumer confidence and eased mortgage loan standards, according to the Bank of Albania, the country's central bank.
Despite this, house prices remain about 20% below the peak levels seen in 2010.
Likewise, the dwelling construction cost index also rose slightly by 0.43% y-o-y in Q2 2015, according to the country's Institute of Statistics (INSTAT). On the quarterly basis, the index increased 0.28% in Q2 2015.
There are no restrictions on the purchase of private residential property by foreigners in Albania, except for agricultural land.
Analysis
of Albania Residential Property Market »
Cheapest in Europe, but yields are low
Property prices in Albania are among the lowest in Europe, although real estate agent’s estimates vary. Vacant land can be bought for as low as €40 - €150. Prices of newly built apartments in Tirana are around €500 to €800 per sq. m.. Luxurious units in the city centre are priced at around €1,000 per sq. m.
Rental yields estimates are quite low, at around 5% to 7% per annum. Property buyers are counting more on capital appreciation than on rental income for a return on their investment.
Income tax is moderate in Albania
Rental Income: Rental income is taxed at a flat rate of 15%, withheld by the tenant.
Capital Gains: Capital gains realized from the sale of Albanian properties are taxed at 15%.
Inheritance: Inheritances and gifts are subject to income tax by assessment at a special flat rate of 15%.
Residents: Residents are on their worldwide income.
Buying costs are low, but risks are high
Roundtrip transaction costs are low, at around 5.83% to 6.85% of the property value. The bulk of the cost is transfer tax levied at 2%, which is payable by the seller. Real estate agent’s fee is payable by the buyer at 1% and the seller at 2%.
The government is still in the process of returning properties to their pre-Communist period owners. Buyers should be wary of fake title deeds and properties with multiple owners. Several buildings and new constructions lack appropriate building permits.
Undeveloped rental market
The rental market caters mainly to expatriates, exchange students, diplomats and aid workers. Due to the privatization of public housing after the fall of Communism, Albania is a country of homeowners.
Poor and corrupt
The Republic of Albania is still struggling to emerge from the shadows left by its communist past. The Democratic Party led by President Sali Berisha took over after the defeat of the Communist Party in 1992. Reforms were gradually adopted but corruption and pyramid schemes brought the economy and the government down in 1997.With anarchy on the streets, the Socialists and its allies won the elections in 1997 and held power until 2005. The socialist government was followed by the Democratic Coalition government under Sali Berisha. However Berisha's endemic corruption, selling of national infrastructure to foreign firms at bargain prices and political intimidation of his rivals was very unpopular and he was unseated as Prime Minister by the leader of the Socialist Party and former mayor of Tirana 2000-2011, Edi Rama.
In 2013 Rama secured a landslide election win for the Socialists. Rama is a painter and a writer and a leader of popular protests against corruption.
Albania is one of the poorest countries in Europe with a GDP per capita of US$4,787 in 2014. The government has already had some success with market reforms, but corruption problems persist. There is lack of transparency, substandard transportation and infrastructure, an inadequate electricity supply and a thriving (and very successful) informal market.
Rama has vowed to revive the country's struggling economy, combat widespread corruption and crime, and speed up Albania's integration into the European Union. In June 2014, Albania was recommended by the European Commission as a candidate for European Union membership.
In the second quarter of 2015, Albania’s economy grew by 2.53% from the same period last year, thanks to the recovery of the construction and energy sectors, according to INSTAT.
The economy is projected to grow between 2.5% and 3% this year, after GDP growth of 1.9% in 2014, 1.4% in 2013, 1.6% in 2012, and 2.5% in 2011, according to the International Monetary Fund (IMF) - in sharp contrast growth rates of 7.3% annually between 1998 and 2005.
Albania's economy is supported largely by remittances from Albanians working in Greece and Italy.
Unemployment remains stubbornly high at 17.3% n Q2 2015, down from 17.7% in a year earlier. 2014's jobless rate was the highest level in 15 years, according to the IMF.
Inflation is expected to be 2.15% this year, from 1.6% in 2014, according to the IMF.
The country has reserves of oil, gas, coal, iron as well as hydroelectric potential, all still largely unexploited.