Property tax according to average market price reference: Implications and effects
In a precise definition of the term, the reference price is known as the price that users compare with the price of the completed civil or industrial construction site of a competitor/s or the previously announced price and their average serves as the base value to calculate the property tax. According to the government’s decision on the methodology for determining the taxable value for the buildings on which the tax is imposed, there are several reference methods. First are the self-declarations made by the owners themselves. In case the value self-declared by the owners is different from the value with the reference market price, then the higher value will be taken as the tax base value. Meanwhile, the municipalities themselves must carry out corrections in the real estate market register, to update the prices as close as possible to the reality of the market by also making field measurements for the exact area of the object being taxed.
In the case of using the average prices of construction for the property (building) tax according to municipalities and administrative units, according to what is read in the government decision[1] the reference price already from the beginning of August 2023 onwards is more expensive for the majority of construction areas in Tirana (it has not changed for other municipalities), replacing in most cases the real value real estate market, which is based on the construction cost per m².
According to the local tax law[2] “The building tax base is the construction area in square meters of the building or its part, above and below the ground level and for each floor. The area owned by the taxpayer is determined according to the documents proving this ownership. In case of lack of ownership documentation, the user of the building makes a self-declaration of the surface of the building, near the municipality where the building is located.”
Notice! In advance, it is necessary to clarify the moment related to a slip in the replacement of reference annexes 1 and 2 of the last government decision. In the last decision of July 2023 of the government, it is determined that “Annexes 1 and 2, which are attached to decision no. 132, dated 7.3.2018, of the Council of Ministers, as amended, are replaced, respectively, with annexes 1 and 2, which are attached to this decision.” However, between these two government decisions is also Decision No. 168, dated 27.03.2019, which has precisely changed Annexes 1 and 2 of the 2018 decision mentioned above after updating the prices of the period, as well as Decision No. 144, dated 13.02.2020, which changed the reference to open spaces for business and industrial purposes.
In order not to create disorientation and misunderstanding in the case of the correct definition of the tables that are replaced it is necessary to clarify the non-inclusion of the VKM of the penultimate year 2019.
Following the explanation regarding the positive and negative effects from the increase in the average value of housing price there are many implications for builders in administrative units in Tirana and for individual house owners.
In a comparison of the reference prices for the years 2018-2023, it can be seen that there are no changes for the municipalities of the country, except in Tirana, where according to the references in lek per square meter, there seem to be changes in 37 sub-areas, mainly in the city, out of the total of 45 sub-areas in the district of Tirana, as seen in the table below.
| Tirana Municipality | No. of administrative zones |
No. | Zones | 2023* | 2019** | 2018*** | Change between years | |
| Lek/m2 surface in use | 2023/ 2019 | 2023/ 2018 | ||||||
| The city of Tirana according to zonal divisions for each administrative unit |
1 | 1 | 1/1 | 102,800 | 97,700 | 97,700 | 105% | 105% |
| 2 | 1/2 | 97,200 | 78,000 | 78,000 | 125% | 125% | ||
| 2 | 3 | 2/1 | 202,400 | 187,000 | 187,000 | 108% | 108% | |
| 4 | 2/2 | 148,400 | 134,500 | 134,500 | 110% | 110% | ||
| 5 | 2/3 | 110,600 | 95,000 | 95,000 | 116% | 116% | ||
| 6 | 2/4 | 120,300 | 110,000 | 110,000 | 109% | 109% | ||
| 7 | 2/5 | 85,700 | 80,000 | 80,000 | 107% | 107% | ||
| 3 | 8 | 3/1 | 98,500 | 77,000 | 77,000 | 128% | 128% | |
| 9 | 3/2 | 86,300 | 60,000 | 60,000 | 144% | 144% | ||
| 4 | 10 | 4/1 | 95,900 | 70,000 | 70,000 | 137% | 137% | |
| 11 | 4/2 | 95,300 | 60,000 | 60,000 | 159% | 159% | ||
| 5 | 12 | 5/1 | 228,400 | 190,000 | 190,000 | 120% | 120% | |
| 13 | 5/2 | 175,800 | 132,000 | 132,000 | 133% | 133% | ||
| 14 | 5/3 | 164,800 | 107,000 | 107,000 | 154% | 154% | ||
| 15 | 5/4 | 117,800 | 82,000 | 82,000 | 144% | 144% | ||
| 6 | 16 | 6 | 81,700 | 65,000 | 65,000 | 126% | 126% | |
| 7 | 17 | 7/1 | 159,100 | 120,000 | 120,000 | 133% | 133% | |
| 18 | 7/2 | 123,400 | 100,000 | 100,000 | 123% | 123% | ||
| 19 | 7/3 | 124,500 | 85,000 | 85,000 | 146% | 146% | ||
| 20 | 7/4 | 114,300 | 65,000 | 65,000 | 176% | 176% | ||
| 8 | 21 | 8/1 | 145,650 | 110,000 | 110,000 | 132% | 132% | |
| 22 | 8/2 | 156,700 | 100,000 | 100,000 | 157% | 157% | ||
| 23 | 8/3 | 89,900 | 72,000 | 72,000 | 125% | 125% | ||
| 9 | 24 | 9/1 | 163,600 | 130,000 | 130,000 | 126% | 126% | |
| 25 | 9/2 | 135,800 | 100,000 | 100,000 | 136% | 136% | ||
| 26 | 9/3 | 113,850 | 77,000 | 77,000 | 148% | 148% | ||
| 10 | 27 | 10/1 | 192,800 | 145,000 | 145,000 | 133% | 133% | |
| 28 | 10/2 | 178,300 | 139,500 | 139,500 | 128% | 128% | ||
| 29 | 10/3 | 121,200 | 102,000 | 102,000 | 119% | 119% | ||
| 11 | 30 | 11/1 | 113,000 | 87,000 | 87,000 | 130% | 130% | |
| 31 | 11/2 | 103,500 | 75,000 | 75,000 | 138% | 138% | ||
| 32 | 11/3 | 93,600 | 70,000 | 70,000 | 134% | 134% | ||
| Administrative units, Municipality Tirana |
12 | 33 | Baldushk | 32,000 | 32,000 | 32,000 | 100% | 100% |
| 13 | 34 | Bërzhitë | 34,000 | 34,000 | 34,000 | 100% | 100% | |
| 14 | 35 | Dajt | 75,500 | 53,500 | 53,500 | 141% | 141% | |
| 15 | 36 | Farkë | 115,200 | 66,500 | 66,500 | 173% | 173% | |
| 16 | 37 | Kashar | 69,000 | 53,500 | 53,500 | 129% | 129% | |
| 17 | 38 | Kërrabë | 28,200 | 28,200 | 28,200 | 100% | 100% | |
| 18 | 39 | Ndroq | 34,000 | 34,000 | 34,000 | 100% | 100% | |
| 19 | 40 | Petrelë | 85,800 | 53,500 | 53,500 | 160% | 160% | |
| 20 | 41 | Pezë | 85,800 | 53,500 | 53,500 | 160% | 160% | |
| 21 | 42 | Shëngjergj | 23,000 | 23,000 | 23,000 | 100% | 100% | |
| 22 | 43 | Vaqar | 34,000 | 34,000 | 34,000 | 100% | 100% | |
| 23 | 44 | Zall-Bastar | 25,000 | 25,000 | 25,000 | 100% | 100% | |
| 24 | 45 | Zall-Herr | 28,200 | 28,200 | 28,200 | 100% | 100% | |
| * https://qbz.gov.al/share/mxE5w_EGQVm6X3L4y67kzw | ||||||||
| ** https://www.tatime.gov.al/shkarko.php?id=5204 | ||||||||
| *** https://www.tatime.gov.al/shkarko.php?id=2309 | ||||||||
The increase in the average reference price for Tirana according to the government’s decision in 2023 compared to the decision in 2018 is 28.3%. The biggest increase in the reference price is felt more in the area of the New Ring and Yzberisht with a 76% increase, in the area of Farka with 73%, in the area of Industrial Market – Bregu i Lumit with a 57% increase, in the area of Dajt with 53% increase, in the Artificial Lake area with a 54% increase, in the former NSHRAK area with a 46% increase, in the Porcelan – Kinostudio area with a 44% increase, as well as border areas with them. Lower or moderate increases are found in the former Block and Pyramid area with only an 8% increase, as well as in the Studenti and Sauk area. Meanwhile, the villages of Tirana and other cities of the country do not have an increase in the average reference price.
Through this increase, only the budget of the Municipality of Tirana is significantly helped, and all the municipalities of the country bear the same fiscal burden for property tax, for which there is no increase in the average price reference and, consequently, in the property tax for the budgets of their local
In terms of the impact of this government decision, it is seen that a significant effect is added to the state budget, but with a limited impact only for the city of Tirana. However, this action can also show the possible weaknesses of the housing market, since if the prices increase, they will increase very quickly compared to other areas of the country, this will also affect the breakdown of tax justice by charging a higher burden the citizens of Tirana, but also by strengthening only the finances of one municipality in obvious differentiation with others.
A detailed study of impacts and effects should have accompanied all this government initiative, as while property taxes do not necessarily increase at the same rate as home values, then the assessed market value is a key factor in calculating tax bill unfairly relative to other properties.
If the value of the property increases faster than the average of all other properties in the country, then the part of the total tax bill that the owner of the house/premises in Tirana is forced to pay will be much higher than in other areas.
Tirana’s building tax increases resulting from an increase in the reference average price may be particularly burdensome for long-term owners and households on modest or fixed incomes and may also contribute to affordability and displacement pressures as landlords’ homeowners will face rising housing costs and landlords pass the tax burden on to tenants through higher rents.
Recent reports from the real estate market, where the supply of lower-cost rental units has dried up significantly in the past decade, highlighted stories of homeowners struggling with recent increases in tax bills, which in some cases have been thousands of Leks.
The regressive effect can be intensified in informal areas. These areas typically include many modest income owners and long-term owners who may have purchased/inherited their homes decades before the most recent influx of higher income residents moving to Tirana. This type of change can be seen in the change in the composition of family income, and in this case, it would be valuable for the wealth tax to be conceived within the principle of progressive taxation, where the one who earns more must pay more.
In the case of homeowners, property taxes are applied according to several factors that are determined by the property market and these affect the amount that is paid as property tax. The indicative levels of reference prices determined by government decision, without having a detailed study to better orient the references according to the specifics of the areas, are beyond the control of the owners and they are before the fact committed to pay the relevant tax according to the references.
But, for a growing category, there are elements that are controlled by them, and this is the financing of the mortgage of the apartment/premises through bank loans.
The fair question is does and how much does the building tax affect your annual property tax invoice?
In the end, this does not affect the whole country in the same way, and even more so, as we mentioned above, with the increase in reference prices, the impact is based precisely on this increase. For example, in the case of an increase of 76%, the tax on the building will also increase with the same tax values, maintaining a progressive ratio according to the level of the increase.
The cost to the beneficial owner, who has received a loan, is affected by the increase in the tax on the building, as it interferes with the estimated budget of monthly expenses and can create premises for bad consumer debts to the banks.
However, with the measures and the way banks operate, which base lending on a property guarantee (collateral), there is less risk of a flow in the increase of uncollectible debts, except that the impact of the tax will have an impact on many individuals. This moment needs to be managed according to the signs that the market will follow, and a treatment based on the restructuring of loan installments or even financial instruments and tax review by the Ministry of Finance and Economy will be necessary. The same approach applies to businesses, which have already created a dependency on the lack of liquidity, due to the shocks of inflation, the increase in the costs of doing business as well as the impact of the exchange rate.
[1] DCM No.457, date 26.07.2023
[2] Law No.9632, date 30.10.2006
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