What expectations can be for the real estate and rental market?

Rising rents are a national phenomenon, as they rise in parallel with rising house prices, and while more people can’t afford house buying prices, they have increased pressure on the rental market.

As a preliminary logic can be, that where the rent is high has to do with the high market price of apartments, but also with the tendency of unrealistic growth by the owners themselves claiming to regain the value of cost of the apartment in a short time.

But, from the market observations, it is seen that mainly the higher rents are not only related to the continuous increase of housing prices.

To analyze the impacts on prices, if we start from the market in 2021, the housing price index increased by 4-5% on average. Analysts say this is within the average growth rate of apartment prices in the last 20 years. However, in the time frame there are two culmination points: (a) the large increase in apartment prices in 2009-2010 and (b) the large increase in 2018-2019. In addition to these periods, the market has continued through the years with moderate growth. Thus, if in 2003-2006 the market in Tirana was presented with prices below the value of 550 Euro / m2 culminating in a 50% increase in 2008, in 2019 there was another increase up to 25% more than a few years ago. In 2022 the growth continues with a level up to 10% higher compared to 2019.

Although fuel prices receive the most attention in reporting inflation, there is another element that has pushed the figures upwards, rising house rents. Inflation for the rental market is at 2.6% increase in March 2022.

Given the fact that income from work, from which remains the savings to buy / rent living space are lower than a year ago, due to inflation, but also due to lack of income growth in relation to annual inflation and other abusive growth of the informal market, which is still a major problem of the real estate sector. And if the rent increase slows down, the housing crisis will continue especially for young families, due to the lack of supply of new apartments at acceptable costs for their standard of living, as the housing market itself is closely linked to Individual incomes, which mainly come from employment relations, as well as from inflows of remittances and informal channels.

In an initial analysis of the factors influencing the expensive housing and rental market, we can rank as the first factor the purchase of apartments with bank loans, which constitutes a very large part of the entire loan portfolio in 2021, but also in years ahead. Thus, of the total loans to households, close to 30% of the loan portfolio is consumer loans. The rest of the loan portfolio (65%) is home loans. The remaining part (5%) is loans for education, health, furniture, travel, etc.

This form of transaction is dictated by the fact that a good part of the apartments are part of the financial market of borrowing, but also due to the growth of the business by renting apartments for tourism. Many apartments are being renovated in Tirana and the main tourist centers and counties in Albania, to be rented through online, international and local platforms.

However, the rental price through online platforms has a lower increase than the rental price increase on a monthly basis. One reason for this lower increase is related to the setting of the initial prices of this business at levels relatively over 60% of the rental market prices through direct relations between the landlord and the tenant. Thus, the online rental service with online platforms, according to Airbnb and other domestic platforms reflect an increase in the average monthly rent value in 2021 on average by only 2 percent. Most of the 2021 growth took place last spring and summer.

The second influential factor is informal money, which artificially increases the total costs of real estate and increases the value of apartments above average market rates.

As a third factor, both property taxes (market value taxation) and rental taxes (at the rate of 15% of the gross value of the monthly rent) for the financial culture of real estate owners is an additional reason to increase the value of rents beyond fair value. This cost together with others make the normal circulation of this market unaffordable, as the level of seekers are the category of individuals and families with low and middle income and with a level of monthly expenditure above the average monthly expenditure for a family with 4 personas. This category of customers has a monthly spending ceiling and in case of large cost increases they are forced to turn to banks, or withdraw from the transaction they want to perform.

As a fourth influencing factor, apart from the market and its anomalies, everything is determined by the demographic movement, which is happening in an uncontrolled way.

What expectations can there be for the real estate and rental market?

Based on the rules of market operation to date, but also based on developments in similar markets in the region, the increase in rent can continue even more, if the percentage increase in the average selling price of apartments in 2022 and back may exceed the average rental price growth rate.

Meanwhile, forecasts for rising apartment prices seem to occur first due to rising costs of basic materials for construction, but also due to rising transport prices of materials. Secondly, an increase is predicted to occur due to the reaction of homeowners to cope with the increased cost of living, and their businesses being reflected in higher prices, but mainly in Tirana and the main cities of the regions. and in tourist areas. Third, it is important to note that while buying a home may be less affordable than renting it in some major cities, buyers may not be able to compete for a home due to rising construction costs. new regarding the fulfillment of mandatory conditions for energy efficiency, such as social sites (in Tirana), as well as other tariff costs, which are gradually covering a cost level of 5 to 10% of the total construction cost finalized.

While the pandemic boosted the work-from-home model, it may be that this new way of working could spur a rental market oriented toward larger spaces to function as both home and office. And as the pandemic goes away, the demand for larger rental units with more space will likely be why not even in a slight increase.

To help themselves recover lost rental income, mainly in 2020, real estate owners can aim to further increase rental prices, especially in the most sought-after areas and in the seasons with the highest demand.

Although tenants may be opposed to rising rental prices and in favor of a more competitive rental market, investors and current property owners are expected to see a return on existing investment in 2022.

Rising house prices, coupled with rising rents, put real estate investors in a promising position and will encourage some investors to add new properties to their portfolios, even though bank interest rates will rise.

After a few years now, new investors and informal money in the construction market with a majority entry much more than before will build to rent, not to sell.

Properties that would have been sold to ordinary home buyers will no longer be sold to them or any other category. Plenty of new real estate, mostly in residential areas and in city centers or preferred areas will resist the sales market to be permanent landlords. Ordinary buyers are unlikely to be able to afford a home of their own, after costs will probably rise at a fairly high rate.

If all of these predictions happen at once, then, renting real estate can become the more affordable option. In 2021, according to the data of mainly real estate trading agencies, but also of the Bank of Albania, it turns out that the purchase of apartments was more affordable. Meanwhile, the arguments we list here may make it less compelling this year and, in the years, to come.

So while it is true that the strategy to increase the stock of housing, such as the innovation of new buildings with technology and part of green policy are more costly and can help stabilize house prices and rents. Given the fact that part of the financing of these apartments is from informal money, then they are simply bought by individuals who are becoming part of the investment market and the underlying problem remains the same.

After all, what can be believed in a market within a system such as the one we live in coincides with the logic that unlike its predecessors, the next generation seems to be living more and more as propertyless farmers.