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REAL ESTATE MARKET, IT’S ASSESSMENT AND THE

FACTORS THAT AFFECTS ITSTUDENT : OLA KATROCI

SCIENTIFIC LEADER: ALDA NIKAJ25/09/2015

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OBJECTIVES

• To identify and examine the current state of real estate market in Albania.

• To identify the issues related to this market.

• To explore the possible strategies which can lead to the improvement of the situation in the future.

• To study the factors that effect in real estate market focusing in the apartments market, developing this study also with an econometric model.

The objectives of this project are several:

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INTRODUCTION I. Real Estate market in Albania is a relatively new market dating back to the

early '90s. The last decade, the real estate market in Albania has started taking development, although experts still assessed it as unorganized according to international parameters. The construction sector remains the main partner in the development of this sector, since it contributes 18% of GDP. On the other hand, this sector is one of the main directions of lending by the banking system in Albania, as 40% of total loans, worth about 1 billion euros, in construction sector in Albania.

II. This project will examine some of the social, demographic, economic and political factors that influence directly in real estate prices of apartments in Tirana. It will examine whether there are differences between the reference price set by the National Housing Authority and the prices that resulted from the study of “Ҫelsi” newspaper for June, again referring to the city of Tirana. Another stated goal is to create a model which explain to us the extent affect factors such as: GDP, the cost of construction, employment and inflation in the price of an apartment in Albania.

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CHAPTER 1: THE HISTORICAL OVERVIEW ON INFORMALITY DIMENSIONS AND THE REFORMS TO IMPROVE THE SITUATION

The collapse of the communist system in Albania, and the transition of the country was accompanied by the development of a wide range of phenomena with a very complex social and economic life, which was linked in particular to the system of ownership, demographic concentration where 80% of the population lived in rural areas, control over the territory etc.

This situation created, was becoming very complicated, bringing the deformation of the urban development of cities, in the early 90s.

It is estimated that about $ 6-8 billion are invested in informal constructions in Albania, 40,000 hectares of land are occupied illegally or informally and about two-thirds of the buildings in urban areas in Albania are informal developments.

Recently Albania has started to do considerable progress in environmental projects across the country that gives us hope that the country is changing even though gaps in the legislation of territorial planning and administrative failures in giving building permits have made it difficult to obtain the relevant permit construction preventing the country's competitiveness.

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The process of legalization and ALUIZNI

Legalization was a pragmatic response to the difficult implications of occupation and settlement of land in massive and illegal way. The law on legalization of illegal constructions provides the performance of legalization reform in three main components:

1. Legalization2. Urbanization 3. Integration

The legalization process aims to give the undisputed ownership, eventually eliminating any legal or technical inaccuracies and making these properties part of the market share.

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ALUIZNI - legal instrument in order to achieve the legalization

To manage the process of legalization it was established a professional and centralized agency, (ALUIZNI). Also ALUIZNI makes ownership researches, identifies informal properties, approves the boundaries, and prepares technical and legal documentation which passes then for approval by the government. About a third of illegal buildings are built on land belonging to a third party. To resolve this issue, ALUIZNI propose expropriation of land in private ownership to the government and once it becomes state land, then the land is transferred to the applicant.

ALUIZNI has produced digitized maps of most of the properties for which it has received applications for legalization.

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Table 1Districts Self-declaration 2004-2006 Percentage of total

Tirana 96.526 36

Durres 38.944 14

Vlora 25.348 9

Lezha 12.518 5

Shkodra 22.224 8

Elbasan 21.556 8

Berat 8.833 3

Fier 27.124 10

Gjirokastra 3.278 1

Korca 9.322 1

Dibra 2.365 1

Kukes 2.554 1

Totali 270.592 100

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However, only a small part of the legalization completed the property titles registered by ZRPP. Problems of coordination between ZRPP, ALUIZNI and AKKP have hampered the process of legalization. First, there were issues in the standardization of data. Geographical indications, are based on more accurate information than the ZRPP.

Table 2 Applications

Accepted

Prepared Digitalized Maps

Privileged applications processed

submissions for

approval

in government

Real estate registered by ZRPP

270,592 113,490 90,464 54,104 4,504

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Achievements of ALUIZNIALUIZNI was established as

an executive structure responsible to manage the complex reform that will take place in three main

directions: the legalization, urbanization and

integration of areas / buildings across the

country. For the first time in Albania it was

conducted a deeper and realistic analysis in terms of data quality. One of the recipients of information

out of the files will be ZRPP. Results System

Computerized of ALUIZNI those which legalized

ownership will be sent in the form of looking at the

database of ZRPP.

In The future, the agency plans to

provide public access to the data that can be

accessed without restrictions. This will be

an area for further development of the system in the future.

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ALUIZNI Problems

One of the main problems that has

emerged this process is offsetting the real land owners on which were built

the majority of buildings that are

under the process of legalization.

Time is another factor that this

process has disadvantages.

During the last years they are given an average of 3,000

building permits per year. If you do a

simple mathematical calculation: 270,000 to self-declaration, dividing it by the

number of permits issued each year reach a terrific

conclusion of 90 years that this whole

process to be completed.

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Advantages of registration system

• Mirror principle• The second principle• The principle of security • The “open” principle

The basic principles on which

the registration system is built are:

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Apart from this, process guarantees that there are many advantages that it offers, some of which will be listed below:

Encourage the development of complex programs and projects of national, regional and community.

Open the way and create facilities to carry out the expropriation for new urban developments.

It creates opportunities to Albanian citizens who are owners of a real estate to apply and receive loans in the banking sector as a guarantee that they legally possess assets.

Provides a reliable infrastructure for foreign investors who are interested to open a new business in Albania or develop an existing business. The issue of property is one of the main inhibitors for attracting IHD in our country

Stops and limits the possibility for abuses occupying the property so other individuals or the state having no rights over them.

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Strategies for the future in the process of legalizationWe need to think of possible solutions to the status of a large number of properties that remain illegal: such solutions should not include the expropriation of previous owners (claimants return) and must be accompanied by credible measures to avoid the continuation of building illegally.Evaluation of opportunities for relocation of people from informal areas that cannot be legalized because environmental protection, cultural heritage, or security.

Providing reliable enforcement of existing laws to prevent illegal reoccupation of land and construction.

Exploration of space left for the physical return.

Payment of compensation to expropriated owners.

Consideration of a mechanism through which a large part of the cost of compensation will come from beneficiaries of expropriation

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To ensure progress in the implementation of these policies, however the government will have to provide clear guidance and supervision of all processes related to the political level. This can be achieved in several ways, including the following options:

Improve coordination to ensure that all agencies (IPRO,

ALUIZNI and PRCA) to apply

the same technical

standards and requirements.

To improve the accuracy of

IPRO register.

Consider establishing a

cabinet member, who

will be responsible for

all agencies involved in the case related to the property

Close monitoring of

the implementation of the Law on

Urban Planning and

performance of municipalities

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CHAPTER II: ASSESSMENT OF REAL PROPERTY AND BANKING SYSTEM

Mortgage as a bridge between the real estate and banking system.

Civil Code of the Republic of Albania has this definition for mortgages: "Mortgage is a real right to be on the property of the debtor or a third party, in favor of the creditor, to ensure the fulfillment of an obligation." When seeking mortgage loans for house purchase, the apartment, office, store, customer can pledge land, houses, apartment buildings, which generally call real estate. In terms of the law the owner is the person whose name is listed as the owner of property. Ownership of a property estate confirmed by a document issued by the Office of Registration of Immovable Property (IPRO), called "certificate of ownership" or better known as "Title of Ownership".

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Strategies where banks rely on determining the value of a real estate

The construction industry world is characterized by competition and high risk compared with other industries. As a result pricing is one of the most important aspects of marketing in a construction company. An alternative strategy is based on market price .There are many different models of the most prominent researchers consider this as a serious strategy.

1. Strategy "price under budget“2. The "price according to environmental constraints" strategy3. Strategy of "working fast price“4. “Guiding price“ strategy

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Methods that determine prices in the real estate market

Market Value

method

Method of direct

comparison

Investment Method

Profit Method

Development Method

Cost Method

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CHAPTER III: FACTORS AFFECTING THE VALUE OF REAL ESTATE. THE COMPARISON OF MARKET VALUE OF APARTMENTS WITH THE AMOUNT DEFINED BY THE NATIONAL HOUSING AGENCY(CASE: TIRANA).

Classification of real estate:

Residential

properties

Non-residenti

al properti

es

Industrial

properties

Hotels and

motels

For relaxation

and entertainment assets

Institutional

properties

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Factors that cause the change in value of the property

Demand and supply

Total population

Civil status of populatio

nThe

average age of

population

Technological

changes

Offer cash

Geographical

location of the

property

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Factors affecting the real estate market

The economic situation and the country's finances.

Expected economic trends also influence the real estate market. Government policies

The local economy.

Geographical factor.

Other factors such as: fashion, individual characteristics, the condition of repairs, services offered etc.

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Prices of apartments and land - the case of TiranaDemand for purchase of apartments last two years was reduced by 60%. This is due to the effect of the crisis and at the same time the effect that prices have remained almost unchanged. However recent data to the Statistics institution indicate an improvement of the situation in the last quarter of 2013. This sector grew by 3.7% gross.

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Prices of sale of the land and apartments according to TiranaOnce we determine the areas in which will examine the real estate market in Tirana, we need to know the prices. Below there are listed the prices per square meter of apartments and plots by zones defined on the map above.

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Prices per square meter for June 2015

Qen

dwr

Kine

ma

"Agi

mi"

Selv

ia

Ish B

lloku

Mys

lym

Shy

ri

Kom

una

e Pa

risit

Tira

na e

Re

Zona

e Li

qeni

t

Park

u I a

utob

uzav

e

Rrug

a "A

li De

mi"

Don

Bosk

o

Selit

w

Kom

bina

t

Fush

a e

avia

cioni

t

Kino

stud

io

0

50000

100000

150000

200000

250000

300000

Prices/m2

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REAL PRICES DETERMINED BY THE HOUSING AUTHORITY

Qen

dwr

Kine

ma

"Agi

mi"

Selv

ia

Ish

Bllo

ku

Mys

lym

Shy

ri

Kom

una

e Pa

risit

Tira

na e

Re

Zona

e L

iqen

it

Park

u I a

utob

uzav

e

Rrug

a "A

li De

mi"

Don

Bosk

o

Selit

w

Kom

bina

t

Fush

a e

avia

cion

it

Kino

stud

io

0

50000

100000

150000

200000

250000

300000

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CHAPTER IV: THE IMPACT OF FACTORS SUCH AS GDP, EMPLOYMENT, INFLATION AND CONSTRUCTION IN COSTS OF REAL ESTATE IN ALBANIA?

As a result of the privatization process that began in 1991, the real estate market in Albania suffered within a short time changes. Within two years of the privatization process mainly apartments, was completed and in 1994 the construction of new apartments was launched significantly. From 1996 to 2006 the price of houses increased by 190%. This at first glance seem unreasonable, however, we can say that is simply a reflection of the high demand. As long as the demand increases this percentage continue also expected to grow even more.

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The increase of price of real estate as a percentage.

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Employment and real estateEmployment is the main factor when it comes to long-term investments such as real estate. Psychologically a high unemployment rate negatively affects the individual's expectations for the future, as a result of investments that require significant amounts of money can be postponed or canceled.When unemployment rises, demand will be reduced for those products or industries where these unemployed people spend more. Unemployment rate from 2000 to 2013

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GDP and Real Estate.

Forecasts in the trend of prices of PPL can be used as a significant indicator of development itself that GDP will be in the future. Earlier we saw that has been an increase in the price of real estate in the years 1996- 2011. To make a parallel between these two elements we need the data of GDP over the years.

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Inflation and real estateThere is a positive correlation between the rate of inflation and real estate prices. While the inflation rate increases, the same fate suffered the cost of new construction. We can also say that in the moments when the pace of new construction decreases, the offer decreases too and consequently we will have an increase in prices. Inflation from 2003 to 2012

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Econometric ModelTo test the results that we learned from the above analysis graphical we will build an econometric model where the dependent variable will take the prices of apartments within Tirana and as independent variables to consider, inflation, cost of construction, GDP and employment. P= C + a1I + a2CND + a3GDP + a4PU, where Formula P- real estate price C- free term CND- Construction cost GDP- gross domestic product per capita PU- employment (calculated as 100% - the rate of unemployment)

The data taken into consideration include the years 2002-2011 and are on an annual basis. Using the program Eviews 7 result to the following equation: P= -58.17 + 9.09I + 14.69CND + 2.29GDP + 3.36PU Formula

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To say that this model is important and valuable for our research in advance should pass several tests:

1. Test of autocorrelation

2. Test heteroskedasticity

3. Have at least two important independent variables.

4. A percentage of the explanation at least 60%

5. The relationship between the variables under consideration to be important.

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CONCLUSIONI. Real estate constitutes one of the most valuable assets for each country and for each

individual. Albanian real estate market is quite young and has its origins in the early 90's. In the last decade the real estate market in Albania has started taking development, although experts still unorganized assessed according to international parameters.

II. To manage the process of legalization was created ALUIZNI a professional agency, which supported the final allocation of informality Construction Albania.

III. This process had its achievements and failures. For the first time in Albania, it realized a deeper analysis and realistic in terms of data quality.

IV. During this work it is well researched strategy that can be pursued in the future so that this reform to not remain simply an attempt. That would be good for the contenders for legalization cannot clear up the ownership right, if the owners of expropriated are not offset.

V. To have progress in implementing these policies, the government will need however to provide clear guidance and supervision of all processes related to the political level.

VI. In a study conducted for the city of Tirana, where they are first examined 15 areas are significant differences between the prices published by the National Housing Authority and those resulting from data collected from newspapers.

VII. In this paper they are also discussed economic, social and demographic impact on the price of real estate. It concluded that factors such as employment, GDP, the construction cost and inflation have an impact on the real estate Albanian market.

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Thank you!