Albania | Residential Market

Balkimo Research | 3Q2010

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Balkimo Research | Residential
Albania overview
Albania is bordered by Montenegro and Kosovo to
the north, the Republic of Macedonia to the east,
Greece to the southeast and Italy lies across the
Mediterranean to the west. At its narrowest point,
close to where the Adriatic and Ionian Seas meet,
Italy and Albania are only 75km (47 miles) apart.
Albania's highest point is the summit of Mt Jezerca
(2693m/8835ft), in the Dinaric Alps in the far north.
The largest lake in the Balkans, Lake of Shkodra,
straddles the border between Albania and
Montenegro. In the southeast, Lake Ohrid is shared
with Macedonia and the Prespa Lakes between
Albania, Macedonia and Greece. The country covers a
total of 28’000 square kilometers and its population is
3.7 million. English, Italian and Greek languages are
widely spoken all over the country.
Area: 28'748 sq. km.
Major cities: Capital--Tirana (900'000, 2005 est.).
Others-- Durres (200'000, 2005 est.), Shkodra (81'000,
2005 est.), Vlora (120'000, 2005 est.).
Terrain: Situated in the southwestern region of the
Balkan Peninsula, Albania is mountainous but flat
along its coastline with the Adriatic Sea.
Climate: Mild, temperate; cool, wet winters; dry, hot
summers.
Type: Parliamentary democracy.
Constitution: Adopted by popular referendum
November 28, 1998.
Independence: November 28, 1912 (from the
Ottoman Empire).
Branches: Executive—President (head of state), Prime
Minister (head of government), Council of Ministers
(cabinet). Legislative--140-seat unicameral People's
Assembly
Main political parties: Democratic Party of Albania
(DP); Albanian Socialist Party (SP); Socialist Movement
for Integration (LSI).
History: The History of Albania began over three
millennia ago with certain tribes residing in the area.
After being conquered by the Roman Empire and
later the Ottoman Empire, Albania became an
independent state. 20 years ago Albania started the
conversion from communism. Since 2009, Albania is a
NATO member and a candidate for EU membership.
3Q2010
Economical situation
World Bank head in Tirana, in the framework of the
introduction to the report “Doing Business 2010” declared
that Albania is ranked second among reformatory
economies in the world that are making business easier.
Mrs. Nuamah mentioned a reduction of taxation on profit
from 20 % to 10 %, the creation of the National Licensing
Center and the new possibility to pay taxes online to be
the main contributors of this evaluation.
The Transition report, issued by the European Bank for
Reconstruction & Development (EBRD) appraised Albania
as a country in progress, with strong economic growth in
several major sectors leading the development. Macro-
economic performance of Albania is strong: The
International Monetary Fund (IMF) foresees a growth of
2.2% for 2010 while for 2011 according to the IMF growth
will be back at 6%.
International Finance Corporation (IFC) showed Albania as
an attractive place on aspects of business opportunities.
Areas such as employment, registering property,
enforcing contracts, paying taxes and trading across
borders were better performed in Albania compared to
other countries. Moody's have recently classified Albania
as a country of "stable outlook" despite the deterioration
of the conditions in global financial markets; Albania
keeps a stable rating of B1. Albania is performing well,
record economic growth, low inflation rate, stable foreign
exchange reserves and foreign direct investments (FDIs);
credit is also stable showing the country is becoming
increasingly attractive for FDIs.
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 Balkimo Research | Residential 3Q2010

Albania is one of Europe's fastest growing economies.

Since 2001, Albania has maintained an impressive growth
rate, averaging between 5% to 6% each year and poverty
levels continue to decline. Albania has made significant
progress since its transition from a communist regime
towards a market-based economy. Most recently London-
based Citigroup expressed their interest in operating in
Albania. Citigroup considers Albania an attractive place for
foreign investments in three fields: International capital
market, privatizations and other funding in energy.

Economic growth
In almost every traveler's guide, Albania is described as
the least developed country in Europe. This may be true
but this is only a part of the story. The expansion of gross
Foreign investors in Albania
domestic product (GDP) was accompanied by a controlled
inflation rate. Consumer demand is expected to increase Albania, even in the current condition has a new kind
and will result in renewed interest from foreign investors. of visitor - the Real Estate Investment Tourist or REIT as
Low wages are also anticipated and act as an incentive to we like to call the foreign private investors, family
foreign investors. The improving GDP and inflation offices, Real Estate fund managers, Hedge funds and
situation have significantly reduced unemployment in past others looking to buy into the Albanian property
years. Albania's GDP has constantly passed the 5% mark market. Main investors arguments are: market price;
for many years. These are positive factors for the climate; emergence of Tourism; large freehold seaside
development of the Real Estate market. Furthermore the lands; non-resident mortgage; endless unspoiled
country is still better off than others in the region. Albania beaches; strong capital gain potential; favourable taxes
is the fastest growing of all the South Eastern Countries treatment; economic growth >5% = new middle class;
and became an EU candidate as well as a NATO member urbanization; Diaspora returning; low cost of living; low
in May 2009. Furthermore, Albania will have one of the wages; low inflation; efficient banking system; Strategic
few positive GDP’s in Europe this year. geographic location; NATO membership; EU 2014, …
IMF announced that Albania was one of only two EU Many representatives of foreign companies expressed
countries that recorded positive economic growth of their assessments on the recent achievements in the
2.2% in 2009! Albanian economy, as well as the considerable
improvement of the business climate. These changes
10%
GDP - real growth rate convinced many companies to select Albania, among
9% other neighboring countries, to implement their
8% project.
7%
Foreign investments in Albania are fully protected by
6% law. They cannot be nationalized, expropriated or
5% subject to any other measures. Several tax incentives in
the tourism sector are available for investors. One
4%
International hotel chain is established in Tirana and
3% others are looking to come. A first small marina is now
2% operational in Vlora and a growing number of
1% developers are working on different seaside resorts.
We believe that this is just the start as there is 350 km
0% of virgin coast line.
2003 2004 2005 2006 2007 2008

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Balkimo Research | Residential
Tourism and Leisure
Despite the global economic downturn, Albania’s National
Tourism Agency announced that the country has seen a
40% increase in visitor numbers in 2009!
Albania is a country of great natural beauty which includes
sandy white Mediterranean beaches, rocky mountains,
fertile plains, big and small lakes, natural monuments, and
remote virgin areas.
In spite of its picturesque nature, Albania hasn't been able
to attract significant numbers of foreign tourists and the
massive exodus of young and qualified people has
reduced the market demand, making all the goods and
services very cheap for foreigners.
Thanks to the recently announced EU candidature paving
the way for EU membership as well as the NATO
membership, Albania will receive further funding which
will contribute to the development of infrastructure; a key
point for tourism development.
USAID helped hotels around Albania establish ways to
better market their accommodation. For the first time,
hotel rooms across Albania can be reserved and
confirmed instantly through more than 3’000 Web sites
around the world. The tourist industry hopes that this
step alone will provide a major boost, since Albanian
hotels will now be able to reach the global marketplace
and draw upon a much larger base of potential visitors.
The government has already approved a partial Coastal
Development Bill in an attempt to counter excessive
construction along the coast that could jeopardize
tourism. A gloomy example of this can be seen in Durres/
Golem.
Albania has spectacular mountain scenery, an unspoiled
coastline and an ancient history and culture. Albania is
making progress and we are positive on the development
of specific seaside resorts dedicated to European budget
family and pensioners.
Explore the heritage of a
country influenced by the
Greeks, Romans, Italians
and Turks. (The Bradt Travel
Guide).
3Q2010
Albania as a tourism destination
If you come to visit Albania you will see how beautiful
the country is and that contrary to popular belief it is a
secure country with one of the lowest crime rates per
habitant in the world. Look at what Lonely Planet
Guide to Albania says “The new Albania packs a wild
punch of traditional Mediterranean charm, delightfully
hospitable people and a madly colorful art-driven
renaissance in the capital, Tirana. The country offers a
wealth of attractions, including sandy white
Mediterranean beaches, rocky mountains, fertile plains,
lakes, natural monuments and remote, pristine areas.
Ruins and archaeological treasures reflect a rich history
dating back to the Illyrians”.
In the heart of the Mediterranean, on the Adriatic and
Ionian Seas, Albania is fast becoming one of the world's
most interesting getaways. Still relatively unspoiled by
globalization, tourists will notice an inspiring mixture of
civilizations and cultures. Inexpensive goods and
services are attracting tourists and visitors of all ages.
As an example, good restaurants with Mediterranean
cuisine are priced between 7€ - 15$ per person.
2,50
2,00
1,50
1,00
0,50
-
2003 2004 2005 2006 2007 2008 2009
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Balkimo Research | Residential 3Q2010

Travel to and in the country

In the past years huge infrastructure investments have
been finalized which will support future property demand.
in March 2007 the state of the art Tirana International
airport located just 15 minutes away from the city opened.
14 airlines fly from Tirana International airport to 31
destinations. More than 1.3 million passengers used the
airport in 2009. Main airlines included Adria, Alitalia,
Austrian, British Airway, Lufthansa, Olympic, Malev,
Albanian Airlines, Turkish Airlines offering direct regular
flights to London, Vienna, Frankfurt, Munich, Rome, Milan,
Athens, Istanbul, Zurich, Budapest, Zagreb, Sofia, Prishtina,
and most recently New-York.
The port of Durres is located 33 km west of the capital The second priority is the construction of European
Tirana. On average, four ferries dock every day, carrying corridor 8, linking Albania with the Republic of
more than 700’000 passengers every year. A new terminal Macedonia and Greece. It is mostly finished and an
worth €15 million and funded by the EBRD has been extension to Thessaloniki via Pogradec is also
constructed by the Slovenian company SCT. The new complete.
terminal include 5’000 sqm of service and duty free space, The third priority for the government is the
with a parking lot for 2’000 cars. construction of the north-south axis of the country;
it is sometimes referred to as the Adriatic–Ionian
Albania's other seaports are Vlora, Saranda, and Shengjin.
motorway. It is part of a larger regional highway
Regular ferry, freight, and passenger services from Durres
connecting Croatia with Greece along the Adriatic
and Vlora are going to Trieste, Ancona, and Bari in Italy and
and Ionian coasts. This highway is critical for Albania
Dubrovnik in Croatia. Ferry services are also between
to make the most of its incredible potential for
Saranda and the Greek island of Corfu.
tourism on its lengthy coast.
A massive improvement scheme is underway in Albania’s
It is anticipated that by 2015 the majority of the
transportation network -- improvements that will shrink
sections of these two corridors will have been
travel times, make the country more accessible and
completed. Albania will then have an estimated 759
maximize Albania's strategic ports. Currently the major
km’s of highway connecting it to its neighbours. End
cities of the country are linked with first class national
2010 will also see the completion of the missing last
roads. There is a brand new four lane highway connecting
20 km section of four-lane highway between the
the city of Durres with the cities of Tirana and Fier.
cities of Durres and Vlora.
Albania is partaking in the construction of what it sees as
three major corridors of transportation. The major priority
is the construction of the Durres-Prishtina highway. The
OPEC Fund, the World Bank and a pool of Greek banks
financed the construction of the pivotal 170 km four-lane
highway traversing the country from Durres up to the
border with Kosovo. The total cost of the highway was ±
EUR 1 Billion led by a US-Turkish consortium and headed by
Bechtel. The Highway was inaugurated in June 2009 by
Prime Minister Sali Berisha and the Turkish Prime Minister
Recep Erdogan. The new roadway is cutting travel time
along the route from six to two hours, boosting coastal
trade and northeast tourism.

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Balkimo Research | Residential
Residential Markets
With steady but continuous economic growth in Albania,
the past decade has witnessed a surge in urban
regeneration with the construction of many new
residential developments in the main cities. The ‘New
Urban Market’ has been fuelled by people’s demands for
higher quality and newer properties and the clients for
this market have predominantly been investors and the
local market with new wealth as opportunities and new
businesses have flourished.
As Albania’s economy and growth as a tourist destination
has recently flourished, a different property market which
is relatively new to the country has emerged. The ‘Tourist’
and in some cases ‘Second Home’ market has begun.
Predominantly these new markets have been initiated and
dominated by early coastal developments and with them
have come not only the new Albanians with money but
also foreign purchasers.
Residential Supply
New large urban residential developments outside Tirana
have dominated the market in the past 12 months as it is
difficult to obtain building permits inside the capital.
On the coast local builders not really concerned or aware
of market demand are still constructing the typical eight
storey mid quality building with apartments averaging 75
sqm. Nevertheless, in 2008/2009 a small number of
international developers have been expanding their
businesses in Albania. They have introduced new practices
and constructed buildings of a higher quality with better
insulation and sound proofing. Large vacation resorts are
planned by foreign investors and will come to fruition in
the next years.
Residential Demand
In general urban demand remains weak even if first home
ownership is the incentive for most local buyers with off-
plan apartments forming the bulk of sales.
Foreign real estate buyers are focused on coastal
properties looking for quality apartments from
trustworthy developers. Demand for coastal property of
this type soared in the past 18 months from foreigners
looking for vacation homes and a new middle class looking
to access the property market with mortgage loan. The
banks currently facing falling local interest rates are also
keen to increase their mortgage loan customers in this
segment.
3Q2010
Price levels
Like in many other Eastern European countries, the
prices in Albania are denominated in Euros and all
transaction are completed in Euros. New high-end
residential developments in Tirana centre maintain
the highest asking prices with the gold medal at
€2’750/sqm. In the mid-market prices for new
apartments range from €500-800/sqm. Most
projects have similar pricing irrespective of the size,
quality or location, which is a sign that the market is
still developing.
The mid-market forms the majority of property
transactions. More expensive apartment’s average
from €1’200-1’600 per square meter, many of them
have remained on the market for long periods,
representing a downward trend when compared to
past years.
Looking ahead we estimate that urban residential
prices are set to continue a downturn pattern taking
values back to the level they were some years ago.
Urban supply is another key factor affecting
property values. When there are too many
properties on the market, there is downward
pressure on prices, and this is the case in Albania.
Sales volumes are also due to hit their low this year
as consumer confidence is declining in the face of
rising economical issues.
On the other hand, well priced and well located
coastal properties are facing continuous demand. In
general, we foresee a positive pattern in coastal
property as demand is driven by foreign investors
chasing yield in buy-to-let investments as well as
locals looking for affordable second homes.
As of mid 2010, the property price range in Euro per
sqm for new apartments looked like this:
3500
Price level EUR/sqm
3000
2500
2000
2750
1500
1500
1000 1300
1100
500
370 330 490 450
0
Tirana Durres Vlora Saranda
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 Balkimo Research | Residential 3Q2010

Why Balkimo?
With a team of 15 multilingual real estate
professionals and offices in Tirana and Vlora, Balkimo
is without discussion the largest Real Estate agency in
Albania. In 2009 Balkimo became the Agent of Savills,
one of the largest international property consultants
with 19’500 employees and 200 offices worldwide.

Balkimo was founded in 2004 by a Swiss

entrepreneur living in Albania for many years.
Balkimo offers “foreign” versus “local” practice in the
property market, providing purchase, lease/rent, off-
plan sale, management and appraisal in both
residential and commercial sectors to local and
international investors.

Balkimo directors have been interviewed by the

FINANCIAL TIMES, BELLEVUE MAGAZIN, SUNDAY
TIMES, IL GIORNAL ECONOMICA,… Balkimo has also
been invited as the first Albanian company to attend
MIPIM 2008 the world largest property show in
Cannes. Balkimo was also selected by the state
investment agency Albinvest and the Municipality of
Tirana as the sole representative to the real estate
European exhibition EXPO Real 2007 in Munich.

Furthermore, we are also investors and the first

foreigners which invested, co-developed and Rogner Hotel
registered 2 residential seaside developments. This Tirana, Albania
T: +355 69 209 91 19
gives us a very concrete experience and as such we
marin@balkimo.com
understand all aspects of property investment you www.balkimo.com
are interested in.

• Albania's tourism industry has been growing at a rate > 20% per year!
• The tourism sector generated revenues of 2.5 billion Euros in 2009, 15% of GDP!
• Albania is the only country in the world generating 99% of its energy from green Hydropower!
• The Albanian Riviera stretches some 350km forming one of the last unspoilt coastline in Europe!
• Albania’s central location in the Mediterranean makes it highly accessible to Europe’s 732 million strong
population. Less than three hours direct BA flight from London to Tirana!

DISCLAMER. Finally, in accordance with our normal practice, we would state that this report is for general informative purposes only and does not
constitute a formal valuation, appraisal or recommendation. It is only for the use of the persons to whom it is addressed and no responsibility can
be accepted to any third party for the whole or any part of its contents. It may not be published, reproduced or quoted in part or in whole, nor may
it be used as a basis for any contract, prospectus, agreement or other document without prior consent, which will not be unreasonably withheld.
Whilst every effort has been made to ensure that the data contained in it is correct, no responsibility can be taken for omissions or erroneous data
provided by a third party of due to information being unavailable or inaccessible during the research period. The estimates and conclusions
contained in this report have been conscientiously prepared in the light of our experience in the property market and information that we were able
to collect, but their accuracy cannot be guaranteed.