Author: Denis Tahiri
Endless real estate agencies tempt you with prices that are by no means a bargain. A house on "Mine Peza" street is offered online for 1400 euros per square meter. Near "QSUT", apartment for sale 900 euros per square meter. A simple search on Google is enough to confirm that dozens of apartments with unrealistic prices remain in stock due to the salty prices that continue to rise not only in Tirana, but in every city.
"This comes from many requests" - reasons Leda - sales agent who earns her percentage for each successfully completed contract. Especially at a time when buying a home continues to be one of the main goals of Albanians, which stems not only from tradition, but also considerations for more security.
"I have been working for over 8 years and have paid rent to live in Tirana during these years. I thought that at least the lek I pay for rent I would pay as loan installments and in the end the house would be mine". confesses Igli, a 30-year-old with a degree in IT, who does not hesitate to show his disappointment after he started looking for an apartment in the capital.
"In the peripheral areas, the price per square meter varied from 750 euros when it was under construction to 1000 euros, when it was finished, and this in the best case. So a 1+1 apartment, as we usually call it, was somewhere around 40-50 thousand euros. And when you add the interest of the bank and all the expenses for the procedures of obtaining the loan, it is something that you realize is almost impossible, when you receive a salary that varies from 700 to 1 million old lek", the young man says, adding humorously that if you want to buy an apartment closer to the center, you will have to work all your life to pay off the loan that holds your life hostage according to him.
But Igli is one of dozens of young people who want to capture Tirana through a house, but who is financially unable. For this reason, unlike the phenomenon of immigrants who, despite living far away, buy a house in Albania, others depend on credit. Out of 100 Albanians, 88 of them stated that they find it impossible to buy a house in a questionnaire conducted by the Bank of Albania in the index that it compiles for business and consumer confidence indicators.
On the other hand, in times of crisis, the spending of money by citizens decreases, but even though during the crisis caused by COVID-19 many sectors of the economy recorded a decline, the real estate sector recorded another record. According to INSTAT, for the 9th month of 2020, property transactions reached the value of 612 million euros.
We are not yet in the EU, but more expensive prices than in Milan
Juliana Nela, masterbroker in one of the largest real estate buying and selling companies in Albania, shows that Tirana offers a great diversity of prices. "They start from 700 and go up to 3500 euros per square meter, with new projects from international studios in super-preferential areas, where construction has been prohibited until now". she says.
And from the research of the Albanian Center for Quality Journalism, it turns out that the price per square meter in the capital is different. But it almost never goes below 700 euros, even when the purchase is made at a time when the building has not yet begun to lay the foundations.
The areas with the cheapest prices in the capital are that of Kashar, Yzberishti and a part of Astir, New Boulevard and Fresk. In these areas, the price ranges from 700 euros to 1100 euros per square meter. But the value of 1100 euros seems like something low compared to the prices in the areas around the center of the capital. On "Elbasan" road, the price when the project has just started to be implemented and the foundations have not yet been laid is 1200 euros, as well as in the area of "Muslim Shyr" road or even near the 9-storey area. But this price also reaches 2000 euros, when the project is finished, then climbing towards the figure of 3000 euros. On the other hand, in some other areas of the capital, the price per square meter goes up to 3500-4000 euros.
While such prices are unaffordable by Albanian citizens, at least in terms of the formal income they have, in this sector, the lack of information is high and calculations cannot be made with the data of the formal economy.
"Let's not forget that we have an informal economy. So we can't do the calculations with the INSTAT data, when we have an underground informal economy that flourishes more and more every day", says Juliana Nela, who adds that the price of real estate in the capital will continue to rise in the central areas.
Such prices, for economic experts, are not influenced by the supply-demand rule, and are not compatible with any element of the formal economy.
"The dynamics of real estate prices in Albania, especially in Tirana, simultaneously reflects supply-demand developments, developments in the economy, which includes formal and informal and criminal money pumping, as well as urban chaos", says Zef Preci.
Also for expert Ornela Liperi, such prices of apartments in the capital are not related to real purchasing power.
"If you look at it, Albania is the third most expensive in Europe, while Tirana is more expensive than Milan, Vienna and other cities in other countries. So it is not related to the real purchasing power, but to the informal money that is introduced and channeled into construction". says the expert.
When economic indicators cannot provide answers
Construction in Albania is one of the main sectors of the economy, accounting for about 5% of the Gross Domestic Product in the last 9 years. So after 2016 in Tirana, the number of construction permits that have been granted, have seen a large increase, where their total figure reaches 907. Meanwhile, the economic expert Zef Preci considers the "boom" of construction in the capital a fiscal amnesty in silence.
"Through the construction sector, there is a silent fiscal amnesty of informal and criminal resources that are in the economy, mainly from such activities as the corruption of officials, such as the trafficking of narcotics based on their cultivation in the country as well as drug trafficking strong from Latin America, etc." he says, adding that this situation has led to minimal sales and mainly in preferential areas to an increase in prices, as the price as a rule is conditioned by supply and demand, it can also be limited by taxes, but this is not the case in Albania.
Money laundering was also highlighted by the DASH report published in March 2021, where it is underlined that Albania remains vulnerable to money laundering due to corruption, organized crime networks and weak legal and government institutions. "The country has a large cash economy and extensive informal sectors, with significant flows of money from abroad in the form of contributions from immigrants and various investments, mainly in the field of real estate or business projects" – is quoted in the report.
But even in the report of the Money Laundering Prevention Directorate for 2020, it is noted that from the reports of suspicious activities, typologies related to the purchase of real estate prevail.
"I keep it in stock and I don't sell it"!
The earthquake that hit Albania, where thousands of citizens were left homeless, brought out another clue. Thousands of apartments which have been unsold in the capital for years, but their price does not fall.
"The reason is because the majority of businesses, we are not saying all of them, have nowhere to take their money and there is a term called "parking money", says Ornela Liperi, who adds that: "There was a GFI report, which said that almost 60% of firms do not justify the source of money. When you look at all the indicators of the formal economy, none of these justify this construction boom. These expensive apartments, many actors in the market admit that they are bought in cash. Although the sale and purchase of apartments is more regulated by construction, there are still ways to make the purchase".
Liperi points out that in Albania there are companies with low income, but that build apartment complexes.
"If you go to Tirana, see the names of the companies and check their balance sheets, you realize that they do not have the resources to make such constructions. During the last years, I have seen many balance sheets of companies that are building buildings, and if you check, they are either dormant companies, without activity, that are not related to other large groups. There are companies that had an income of 30 dollars and suddenly start building a complex of buildings, where do they find this money?", Liperi asks..
Millions of suspicious euros in brick and mortar
After a period of 4 years where the number of construction permits was significantly limited, in 2016 in Albania a rapid growth of the construction sector would be observed. According to a report by the Global Organized Crime Initiative, this increase came as a result of increased investments of dirty money from the proceeds of crime. "In Tirana, 65 percent of all building permits for residential premises were issued, with a total amount of 400 million euros. Of the 141 companies that obtained construction permits for buildings taller than six stories during the period 2017–2019, 59 percent of them did not have the financial resources to complete the buildings. According to the balance sheets of these companies, their income was minimal, and they had no property or credit that could allow them to make such investments. According to our estimates, approximately 60 percent of this value came from dirty money, nearly 240 million euros", the alarm is given in the report, in which an estimate is also made of the amount of dirty money laundered in Albania in the real estate sector during the years 2017-2019.
"A money laundering expert in Albania estimated that approximately 500 million euros were laundered through the real estate sector in 2019. Using the same formula for the years 2017 and 2018, the respective figures are 320 million euros and 570 million euros. According to these calculations, it appears that a total amount of 1.6 billion euros in dirty money has been laundered through the real estate sector in Albania.", says the report. Through the numbers, the report shows that the use of illegal funds in the construction sector has affected real estate prices, where in 2019 the average price for apartments reached just over 1000 euros per square meter, representing an inflation rate of 16% from year 2016.
Even the expert Preci connects the high number of construction permits in Tirana with the injection of dirty money in this sector.
"For more than two years now, permits have been issued wherever there is a square meter of public or private land and concreting at the highest rates in the last 30 years. But this type of concreting expresses, at the same time, the pumping of informal and criminal money as well as the lack of vision". he says, adding that this has begun to affect other sectors of the economy as well.
"It must be admitted that this phenomenon, even though it is no longer an Albanian phenomenon, I think that in the conditions of Albania it is gaining a lot of weight and the implications that come because of this are not only in the construction sector, but there are signs that it is moving to other sectors . The circulation of money outside the banks during the last 3 years is the highest on average compared to the last 30 years, which means that fiscal performance becomes more difficult. he says, adding that the certification of building permit applicants does not pass through the proper filters.
"The banks are in financial difficulties and under pressure to be involved in money laundering, the government is in the conditions of the impossibility of expanding public investments, as the public debt has grown rapidly and almost uncontrollably. So they can no longer borrow. Private investment when there is public policy uncertainty tends to shrink. Foreign direct investments are at minimum levels", he concludes by reiterating that under these conditions the very process of granting building permits is a silent fiscal amnesty.
For experts in the field, this high level of informality in this sector of the economy is only due to the lack of political will, as it could be regulated to a large extent if a mechanism for controlling financial resources for firms that get permission to understand in advance whether or not these firms have the appropriate financial means for the implementation of the project.
