The property market begins to decline / Transactions in Tirana decreased by 20% in 2023

2024-07-07 12:29:00, Ekonomi CNA

The property market begins to decline / Transactions in Tirana decreased by 20%

Illustrative photo

The number of real estate sales transactions decreased last year, according to data from the State Cadastre Agency (ASHK).

Based on the figures of ASHK, a total of 35,690 real estate sales transactions were recorded last year, down 5.8% compared to the previous year. Such a figure proves that the property market suffered a slowdown last year.

ASHK figures prove that the property market reached maximum growth in 2021, with an annual expansion of transactions of 44%. The very high growth may also have been influenced by the comparative base effect, because the first year of the pandemic and the imposed closures brought some restrictions to this market as well.

But the year 2021 brought rapid market growth. Growth continued at double-digit rates in 2022, with 14%. This year also marked the peak in the number of transactions, with 37,900 of them.

The year 2023 brought a kind of restraint, but nevertheless the number of transactions remains high and significantly above the levels of the period 2020-2021.

However, it should be borne in mind that a significant part of transactions in the real estate market are also carried out through commission contracts.

This happens in cases where the properties are bought before completion or before their registration in the Cadastre, while the sales contract is concluded at a second moment, after the registration of the property.

Considering the significant volume of new constructions in recent years, it can be concluded that contract sales also occupy an important part. However, the performance of sales and purchases definitely gives an overview of market trends.

These trends show that, while the real estate market remains dynamic and healthy, the slowdown began to show last year.

Source: ASHK, Narea

In Tirana, sales fell for the second year in a row

Meanwhile, the figures in the capital's largest real estate market show a different trend. The number of real estate sales transactions in Tirana decreased for the second year in a row in 2023.

In ASHK, 20,959 sales were registered, down 20%, compared to 2022. Even in Tirana, market growth reached its highest point in 2021, with 29,355, with an increase of 43.5% compared to 2020.

But, after 2021, the number of transactions appears in a noticeable decrease and for 2022, the number of transactions has dropped close to the level of 2020.

But, while in the period 2020-2021, sales in Tirana accounted for 88-89% of the total number of transactions in 2023, sales in Tirana account for less than 59% of the market.

However, market experts believe that the performance of sales contracts does not give a complete picture of the real estate market.

The Albanian Real Estate Association (NAREA) estimates that a large part of transactions in Tirana are carried out through commission contracts.

This has a logic, considering the large flow of new constructions in the capital during the last years and the fact that the registration of these properties in the cadastre takes time.

According to NAREA, one of the reasons for the increase in demand for newly built properties is the high level of taxation.

To avoid the 15% tax, many real estate owners are reluctant to sell their properties or seek to declare fictitious prices. But, this can be a problem for buyers, especially for non-residents or for those who finance the purchase with a bank loan.

For this reason, NAREA estimates that the overall performance of the market differs significantly from what the change of ownership transactions indicate.

However, from the above data it can be concluded that in the last two years, the property market is increasingly oriented towards coastal areas. The tourism boom of the post-pandemic period has increased the demand to invest in coastal properties.

Source: ASHK, Narea

INSTAT: The real estate sector grew by more than 11%

Based on preliminary data published by INSTAT, real estate activities continued to grow last year as well. According to INSTAT, the GDP at current prices of this sector reached almost ALL 137 billion, with real growth of about 11.3%.

The related construction sector also showed positive performance and recorded real growth with an average of 9.4% last year. Construction is broader in scope than residential and commercial real estate, but still its performance is indicative and the growth trend of the production of these two groups is similar.

The INSTAT figures actually show a significantly better performance compared to the performance of sales transactions. This may be a confirmation of the fact that the number of sales does not give a complete picture of developments in the market.

This may be related to the significant share of contract sales. Another explanation could be the further increase in prices, which has led to an increase in the volume of the sector, despite the fact that fewer sales contracts have been reported.

Source: INSTAT

NAREA: We need a tax reduction for the income from the sale of properties

Although the construction sector and real estate activity increased again in 2023, Personal Income Tax revenues on real estate transactions declined in 2023.

Figures reported by the General Directorate of Taxes show that in 2023, real estate tax revenues fell to ALL 5.45 billion, down almost 23% compared to the previous year.

However, according to the explanations from the tax authorities, the income from this tax refers only to individuals and commercial natural persons.

Meanwhile, investors in the construction business, who are registered with the tax authorities as legal entities (commercial companies) with the object of building and selling real estate, are not subject to personal income tax from the transfer of property ownership rights immovable property, but of the local tax on the transfer of ownership rights for immovable property.

Only investors in the construction business, who are registered with the tax authorities as entities with commercial natural person status, are subject to personal income tax from the transfer of ownership rights over real estate.

They are also subject to payment of the local tax on the transfer of ownership rights for real estate.

When the ownership of real estate is transferred for the second time and thereafter, for the purpose of calculating the realized capital gain, only the difference between the last sale value and the purchase value determined in the previous contract of this property is calculated.

At the time of the sale and purchase of a real estate, taxes on the transfer of the right to real estate and personal income tax from the transfer of the right to real estate are applied.

Despite this, NAREA estimates that the significant drop in sales tax revenue is evidence of informality and the declaration of fictitious prices in sales contracts. According to NAREA, this is due to the high level of tax on income from the sale of real estate.

According to NAREA, it is imperative that the tax rate for this category of income be finally reduced, to the level of 3%, provided for in the last revaluation process.

A tax reduction, according to NAREA, would help the real estate market and reduce informality and the declaration of fictitious prices in this market.

Source: INSTAT

BSH: The increase in prices has stopped

Housing prices in the second half of last year fell by 7.6% compared to the first half of the year.

According to the Fischer index calculated with a 6-month frequency by the Bank of Albania, on an annual basis, prices were still rising, but the annual growth rate slowed to 3.2%, from 16.6% that had been their annual growth at the end of the year 2022.

The price index for properties sold in Tirana registered a decrease of 10.1% compared to the first 6 months of the year, while it was only slightly higher compared to the value of a year ago.

In the second 6 months of 2023, about 26% of the apartments sold were reported to have been purchased by non-resident citizens. Of these, about 2/3 are citizens of European Union countries.

Overall, according to the Bank of Albania, the share of non-resident buyers has returned to growth after a downward trend since 2020.

Financing through bank credit has continued to figure in a good part of property sales. According to the agents, as in the previous period, about 60% of the residential and commercial properties sold by them were purchased with bank loans. Of these, in 60% of cases, the loan covered up to 60% of the value.

The average time to sell homes nationally increased very slightly to 10.9 months from 10.6 months in the previous survey.

In the case of Tirana, the average sale time has been reported to be significantly reduced, to 8.3 from 10.5 months. The average time for sales in coastal areas increased slightly to 10.9 months, while for other areas, the length of time to sell was significantly higher than in the previous half-year, from 10.9 to 13.6 months.

The number of new apartments registered by agents represents a slight decrease compared to the previous period. The net balance of those who report an increase in the number of registered dwellings and those who report a decrease in their number was about -4.5%, or close to the neutral level.

The number of unsold properties, both for residential and commercial buildings, has continued to decline for several six months in a row.

Expectations for the future appear positive, despite various uncertainties. Agents have positive expectations for the performance of the market in the territory where they operate for the short-term future and for the longer term (up to two years).

Information on price trends and assessment of the situation by agents in the real estate market is obtained through a field survey of a sample consisting of 230 subjects whose main activity is real estate trading.

The subjects selected are agents of real estate trading offices and building societies, whose sales represent about 75-80% of the turnover of the entire population.

The Bank of Albania carries out the drafting of the questionnaire, as well as the sending and processing of the results, while the Institute of Statistics covers the interviewing in the field, the main sampling processes and the physical control of the completed questionnaires.

Illustrative photo

Building permits, at the highest level in 12 years, but the construction area decreases

The number of building permits rose again last year and reached the highest level since 2011.

According to INSTAT data, 1,604 construction permits were granted last year in Albania, an increase of 12.8% compared to the previous year. Building permits increased for the third year in a row, driven especially by the residential construction segment.

However, the number of permits for buildings (buildings with three or more floors) fell to 218, 4% less compared to 2022.

Meanwhile, the number of permits for non-residential buildings rose to 311, up from 307 a year earlier. The number of permits for hotels, commercial buildings and offices increased, while the number of permits for industrial buildings and other purposes decreased.

Source: INSTAT

The total area of ??building permits that were approved during the past year also fell, to approximately 2.12 million m², 21% less compared to 2022.

The decline was particularly pronounced in the segment of residential constructions, where the area of ??permits granted decreased to 1.54 million m², down 26% compared to a year ago.

Even in the group of non-residential constructions, the area of ??permits fell to 581 thousand m², 2.5% less compared to a year ago./ Monitor.al