Construction returns to the most profitable sector in the economy

2024-11-23 09:03:00, Ekonomi CNA

There is a reason why everyone is "rushing" to invest in construction. The return is fast, financing sources are often provided through prepayments (in the residential sector), while engineering works enterprises provide large investment projects.

Even the growth of tourism is attracting more and more enterprises in this field, mainly in the construction of tourist villages, where the value of the investment is extracted within a short period of time.

INSTAT revised upward the share of construction in Gross Domestic Product (GDP), bringing it to 12% of GDP in 2023, from less than 10% that was the previous estimate, indicating an increase in dominance of this sector in the economy.

Construction returns to the most profitable sector in the economy

Construction is gaining dominance, resulting among the most profitable sectors in Albania. Nearly 25% of enterprises on the Monitor 200 list, by revenue, are from or related to construction, more than any other sector.

Profit rates fluctuate widely from year to year and from company to company, depending on the investment cycle, but for the most part, they are in the double digits.

Even in 2023, the sector continued to grow for the tenth year in a row. The revised INSTAT data for measuring the Gross Domestic Product revealed that the Gross Value Added at current prices for Construction was 286 billion ALL. As of 2021, construction has expanded between 8.5-13% on average, becoming one of the main drivers of economic growth.

Construction returns to the most profitable sector in the economy

Both residential and engineering companies (roads and others through tenders) report a satisfactory financial outlook and double-digit profit rates, although for apartments, profits fluctuate based on the sales cycle.

In recent years, enterprises that are investing in the sector of hotels, tourism and seaside villas are becoming an important factor in this segment and are growing rapidly, taking advantage of Albania's return to a favorite tourist destination and the fiscal facilities that it has given by the government for 5-star brands (exemption from profit tax for 10 years and abolition of infrastructure tax).

Villas, combined with hotels, are prevailing in tourist constructions, which are local investments and use the names of well-known international brands. Developers claim that they prefer villas, because of the quick return they have, while hotels require more work and have higher management costs and a longer return on investment.

Purchases by foreigners are another factor that is boosting the construction sector, especially on the coast.

According to data from the Bank of Albania, in 2023, foreign investments in real estate in Albania reached the value of 325 million euros, increasing by 12% on an annual basis, after expanding by 52% the previous year.

Real estate accounted for more than 22% of the total value of Foreign Direct Investment last year, up from 3-5% a decade ago. Foreigners are particularly attracted to real estate on the coast, where prices are still cheaper than in other countries of the region (Montenegro, or Croatia).

Construction returns to the most profitable sector in the economy

"Green Coast", part of the BALFIN group, which is building the tourist complex of villas with the same name in the South of the country, was ranked as the company with the highest profits in the construction segment in 2023.

The company reported revenues of 7.1 billion alleks in 2023 and profits of 3.65 billion alleks, a rate of 51%. Profits more than tripled compared to the previous year.

The company develops elite projects in the South area, with the construction of tourist villages and hotels. The company is an investor and carries out construction through subcontractors.

According to the activity report, the main projects are "Green Coast Resort Village", which will be spread over nearly 500,000 m² of land with more than 290,000 m² of construction, with residential villas, business units, supermarkets, centers, with over 16,000 m² of construction, in a plot of over 8,000 m².

"For its first project 'Green Coast Resort', in total, until December 31, 2023, the company has recognized the sale of about 97.5% of all total units.

This year represents a more than positive result for the company, a result which is mainly influenced by the recognition of income, from co-investment relations with other co-developers of the 'Green Coast Village' project. The company, being in the role of the investor, subcontracts the construction and design", it is stated in the annual report.

"Antea Cement" ranked second, doubling its profits to ALL 3.4 billion. The profit margin increased to 28%, from 14% the previous year. According to the activity report, "Antea Cement" has a production capacity of 1.4 million tons of cement per year and 3,300 tons of clinker per day. The company sells its product in the domestic market, as well as exports it to the international market.

The main markets where the Company exports are neighboring countries and the Mediterranean Region. A year earlier, the company had posted a strong expansion of 34%, driven by higher prices to offset increases in energy and fuels.

"Gjoka Konstruksion", which also acts as a subcontractor of "Gjoka 87" in the concession for the construction of Rruga e Arbri, had the third highest profits in value in the construction sector at 3.3 billion ALL, with an increase of 54% compared to the previous year. The profit margin was 31%, up from 27% the previous year.

According to the activity report, for the year 2023 and beyond, the company "Gjoka Konstruksion" has worked on the implementation of the contract for the improvement, construction, operation and maintenance of Arbri Street, as well as with other projects:

Construction of the Llogora tunnel in the Orikum-Himarë road section; construction and rehabilitation of the water supply network in Bulqiza; design of the project and implementation of works for the construction of the Building (section B) in the development area in Kombinat; construction of the Outer Ring Road in Tirana, Lot 6; systemization and asphalting Ura e Cerenec, Peshkopi, Lot 3; etc.

"BALFIN Development Sh.pk" is a new company of the BALFIN group, founded on September 14, 2022. In the first full year of activity, the company reported revenues of 2.7 billion ALL and profits of 1.4 billion ALL, with a rate of 52%.

According to the activity report, the company's focus is investing in the purchase or acquisition of real estate development rights. Its flagship project is Univers City, the complex being built near the Univers Shopping Center.

"Shoqeri e Sintë INTEKAR - ASL" is for the second year in a row in the list of the largest construction companies, both for income and profits, after winning the tender for the construction of the Llogora tunnel. In the second year of activity, the company declared 1.26 billion ALL in profits, with a rate of 20%.

" Alb Building" declared profits of 973 million ALL, with an increase of 26%. The profit margin was almost unchanged at 27%. The company is involved in several projects such as the road segment Qukës - Qafë-Plloçë, as well as other projects for bridge construction, road rehabilitation, landslide protection, etc.

The residential sector sees a decline in profits

Unlike enterprises that are focused on engineering works and tourism projects, companies operating in the residential sector have seen a decline in profits, in line with the decline in revenues, although many of them continue to be on the list of the most profitable.

However, the residential sector seems to have entered a maturation phase. The year 2023 gave him some signals. Prices have risen rapidly, curbing demand. In the center, apartments have reached a high point of 4-6 thousand euros/m² and inside the Ring, at 2000-2500 euros/m².

The tightening of the center shifted demand further to the periphery, attracting a new wave of price increases. Now the cheapest apartment in Tirana costs on average 1000 - 1200 euros/m².

Informal currency has been an important factor driving the construction and real estate market, but SPAK investigations have "daunted" these inflows, according to statements from real estate agents.

Data from the State Cadastre Agency (ASHK) showed that the number of real estate sales transactions decreased last year. ASHK data show that a total of 35,690 real estate sales transactions were recorded, down 5.8% compared to the previous year. Such a figure proves that the property market suffered a slowdown last year.

Even in the capital, the number of real estate sales transactions fell for the second year in a row in 2023. 20,959 sales were recorded in the ASHK, down 20% compared to 2022, giving a clear signal of a change of the trend in the sector.

Tirana's weight in the real estate market is considerable. In the capital, in 2023, more than 80% of the total property transactions were carried out.

"Arlis Construction", after seeing a halving of turnover in 2023, going down to 2.2 billion ALL, recorded a 32% decrease in profits, to 515 million ALL. However, the company is developing numerous projects in the Municipality of Tirana, according to its website.

"Concord Investment" also halved its income to 711 million ALL, while profits fell by 52%, to 298 million ALL.

"BALFIN Construction " (formerly Mane TCI), also this part of the BALFIN group, focused on construction, reported revenues of about 5 billion ALL, with an increase of 3.7% on an annual basis, while profits resulted in 241 million ALL, with an increase easy of 5%. The company is developing several projects in parallel, such as the construction of "Urban City", the "Green Coast" resort, etc.

"Agi Kons" , which last year reported profits of 1.1 billion ALL, saw a drop of 80% in 2023, to 217 million ALL. Most of the company's income comes from construction works for the third, according to the balance sheet, which have marked the strongest contraction of income.

"Alba Konstruksion" resulted in an income of 1.2 billion ALL and profits of almost 200 million ALL.

"S&D Invest" is a new entry to the residential giants. The company reported revenues of 2.5 billion lek in 2023, a sevenfold increase compared to the previous year, as it moved from property management and administration to apartment sales.

The profits were 175 million ALL. From the sale of the apartments, the company generated an income of 1.6 billion lek, according to the data in the activity report, and another 700 million lek are work-in-progress sales.

Against the shrinking trend of the population and the curbing of demand, as a result of high prices and the decline of purchasing power, the market is not expected to stop. In 2022, the area of ??building permits reached a record level in the last decade and these constructions are still in progress.

Although the demand does not seem promising, construction companies are not backing down, especially in the capital. According to INSTAT data, in 2022, the area granted for building permits for housing was about 1.8 million m², the highest level on record.

In 2023, permits were on the decline, but in the meantime, major new projects have been announced.

Construction returns to the most profitable sector in the economy

There are at least 8 development projects, which foresee the construction of towers that will have up to 65 floors and another 100-floor project, recently presented, which has not yet received the development permit.

In addition to the projects that are being built on private land, the government itself plans to give for development some spaces it owns, which have already passed to the Investment Corporation, which is expected to make public its plans for these properties.

In June, the National Spatial Planning Agency opened the tender with the object "Energizing cities: Innovative development of public property". This procedure seeks to bring closer to itself projects that aim to develop public property, in cooperation with the private sector, where in the end, the benefit that the institutions will receive are offices.

After a decline in 2023, the area of ??building permits in Tirana has returned to growth, reflecting the development of new projects.

INSTAT announced that in the first six months of 2024, almost 900,000 square meters of construction permits were granted, with an increase of 36% compared to the same period a year ago./ Monitor.al

Construction returns to the most profitable sector in the economy