Albania\u2019s construction sector has entered a phase in which the scale of economic activity and the structure of its financing are becoming equally important as the volume of construction itself.<\/p>\n\n\n\n
Data from the Bank of Albania show a clear increase in the financial exposure of companies operating in this sector. Around 43 percent of them report outstanding loans, while for 27 percent, the value of their loans is equal to or exceeds their equity. This indicator increased from 18 percent in the first half of 2025 to 27 percent in the subsequent period.<\/p>\n\n\n\n
Construction remains an activity characterized by a long production cycle, high capital requirements, and an extended period between the commitment of resources and the realization of revenues. Capital is committed early to land, design, permits, construction works, materials, labor, and financing, long before the final product is converted into cash receipts. Financial debt therefore becomes a natural component of this economic model.<\/p>\n\n\n\n
Under Albania\u2019s economic conditions, the financing model relies on a combination of equity, bank borrowing, customer prepayments, supplier liabilities, and other forms of working capital.<\/p>\n\n\n\n
An analysis of 163 large construction companies, based on data for the 2017\u20132024 period, highlights the essential role of working capital. Expected customer collections and liabilities to suppliers create a parallel financing mechanism alongside bank credit. This broader picture shifts the focus from the simple concept of debt toward the full financing structure of the construction cycle.<\/p>\n\n\n\n
The intensification of external financing acts as an instrument for multiplying investment capacity. A company with \u20ac10 million in equity can undertake a project with a value equal to its own capital, or use that capital as a basis for mobilizing external financing and reach a substantially higher project value.<\/p>\n\n\n\n
In construction, project value is created gradually, while financing is required from the earliest stages. The debt-to-equity ratio can therefore reach higher levels than in other activities characterized by shorter production cycles.<\/p>\n\n\n\n
The 27 percent indicator reflects the reported financial burden. The Bank of Albania uses the enterprise survey as a complementary instrument for identifying risks that business exposure may pose to the financial system. Its importance lies in the trend: within one year, the share of enterprises whose loans are equal to or greater than their equity increased by approximately nine percentage points. This change indicates a more intensive use of external financing and makes balance-sheet structures more sensitive to the pace of sales, the cost of financing, and the timing of collections.<\/p>\n\n\n\n
Construction generates substantial assets, while financing requires continuous liquidity. A building under construction carries considerable economic value while simultaneously requiring cash flows to complete the works. Financial statements may show an increase in assets while cash flow remains under pressure. At the same time, asset value and liquidity represent two distinct categories.<\/p>\n\n\n\n
An unsold apartment represents an asset; cash collected from its sale represents liquidity; a bank loan represents a liability. The difference between these three elements determines the financial sustainability of the company.<\/p>\n\n\n\n
The longer the period between investment and collection, the greater the need for working capital. Slower sales delay collections, extend the holding period of inventory, increase working-capital requirements, and lengthen the period during which the loan remains outstanding. The financial problem in construction often originates in time and ultimately materializes in the balance sheet.<\/p>\n\n\n\n
The real estate market determines the pace of turnover. The developer produces the physical inventory, while the market absorbs it through purchases. The Bank of Albania has identified sustained demand in the residential market and an important role for non-resident buyers. In the first half of 2024, approximately 27 percent of purchases reported by real estate agents were linked to non-residents. Mortgage lending continued to support demand, while business lending related to real estate reached approximately ALL 170 billion.<\/p>\n\n\n\n
This mechanism creates a financial cycle: financing \u2192 construction \u2192 property inventory \u2192 sale \u2192 collection \u2192 debt repayment \u2192 new project<\/strong>. As long as this cycle maintains its pace, debt functions as an expansion instrument. As the sales cycle lengthens, the same financial leverage\u2014debt\u2014turns into a source of liquidity pressure.<\/p>\n\n\n\n On the supply side, INSTAT data indicate significant activity. In the first quarter of 2026, 322 building permits for new buildings were approved, 24.8 percent more than the 258 permits issued during the same period of 2025. Building permits serve as a short-term indicator of future sector development. Their increase signals additional supply capacity. New supply requires financing before it generates revenues. When a significant number of projects advance simultaneously and sales are spread over a longer period, working-capital requirements increase. On the balance sheet, this appears through loans, supplier liabilities, and expected collections.<\/p>\n\n\n\n The bank represents only one component of the financing structure.<\/p>\n\n\n\n According to the analysis of large companies, bank debt accounts for around 5 percent of assets, while suppliers and customers play a much larger role. A project is financed simultaneously through shareholders\u2019 equity, bank credit, buyer prepayments, trade credit from suppliers, liabilities to contractors, expected collections, and revenues from the sale of completed units. Financial risk is distributed throughout the entire economic chain. A slowdown in sales affects the developer; the developer delays payments; the supplier faces delayed collections; the bank monitors loan servicing; and the buyer faces changes in financing conditions.<\/p>\n\n\n\n Construction costs add further pressure.<\/p>\n\n\n\n INSTAT\u2019s Construction Cost Index measures materials, labor, machinery, transport, energy, and other factors. The Bank of Albania reported that the cost index accelerated to 1.3 percent during the second half of 2025, mainly under the influence of wage costs. In multi-year projects, the sales price is determined long before completion, while labor, material, energy, and financing costs evolve throughout the cycle. Economic margins therefore depend on the sales price, the time required for completion, and the cost structure over time.<\/p>\n\n\n\n The real risk lies in the combination of debt and time. A debt-to-equity ratio above one has a different meaning for a company that sells quickly, collects regularly, and generates stable cash flows than for a company holding a large inventory with a prolonged sales cycle. An in-depth analysis of the sector considers together the ratios of Debt\/Equity, Interest Coverage, Debt Service\/Cash Flow, Inventory\/Assets, Accounts Receivable\/Revenue, Sales Duration, Pre-sales\/Project Value, Supplier Financing, Bank Exposure, and Collateral Value<\/em>.<\/p>\n\n\n\n These indicators create a more accurate map of financial conditions. A comprehensive analysis is therefore more meaningful than reliance on a single indicator. Such an analysis is also necessary because companies can face very different financial situations. One company may have high debt and strong cash flow, while another may have lower debt but large inventories, delayed collections, and weak debt-service coverage.<\/p>\n\n\n\n The market is currently facing an increasingly interconnected construction sector.<\/p>\n\n\n\n The Bank of Albania has intensified its attention to the financial system\u2019s exposure to real estate. It has identified the growth of real estate lending as a potential source of risk to financial stability and has expanded the collection and analysis of data on mortgage loans, commercial real estate, construction, and real estate projects.<\/p>\n\n\n\n In May 2025, the Bank introduced limits on loan-to-value ratios and debt-service-to-income ratios for loans to individuals. These measures aim to preserve credit quality and limit the transmission of real estate market risks into the financial system. Developments in construction now represent an issue extending well beyond the sector itself.<\/p>\n\n\n\n A significant part of Albania\u2019s economic growth in recent years has been supported by the expansion of real estate.<\/p>\n\n\n\n Studies by the Faculty of Economics of the University of Tirana have for years examined the relationship between the real estate market, credit, income, and investment decision-making. More recent academic research has shifted attention toward the sustainability of the sector, addressing rapid expansion through sustainability assessment models and integrated indicators. A dissertation published by the University of Tirana in 2026 develops an integrated model for assessing the sustainability of real estate investments in Albania. This direction indicates that sector analysis is moving from the size of investment toward its quality and sustainability.<\/p>\n\n\n\n Albania\u2019s construction sector is experiencing a phase in which capital, debt, property, and time have become components of the same economic equation.<\/p>\n\n\n\n The increase in the number of enterprises with high debt relative to equity coincides with a sector that requires substantial capital, develops long-cycle projects, and operates through a complex combination of bank financing, working capital, prepayments, and trade liabilities. The number of new permits indicates the continued creation of supply, while construction costs and financing conditions determine profitability and the time required to recover capital.<\/p>\n\n\n\n The indicator showing loan values equal to or above equity levels indicates that, in 2026, financial debt is playing a greater role in the accumulation process. At this stage, the decisive indicator should become capital turnover<\/strong>\u2014the speed at which land is transformed into buildings, buildings into sales, sales into collections, and collections into debt repayment and capital for the next project.<\/p>\n\n\n\n It is precisely within this chain that the financial sustainability of the construction model is determined.<\/p>\n\n\n\n Construction is gradually moving from an economy of built volume<\/strong> toward an economy in which the speed of capital turnover, financing structure, and ability to convert property inventory into cash flow determine the quality of growth<\/strong>.<\/p>\n\n\n\n Main sources:<\/em><\/p>\n\n\n\n Bank of Albania \u2013 Survey on the Financial Situation and Borrowing of Enterprises<\/em> Albania\u2019s construction sector has entered a phase in which the scale of economic activity and the structure of its financing are becoming equally important as the volume of construction itself. […]<\/p>\n","protected":false},"author":2,"featured_media":27107,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9756],"tags":[20998,20995,16178,20999,20996,16329,16187,20997],"class_list":["post-27106","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-bank-financing","tag-capital-turnover","tag-construction-sector","tag-debt-to-equity","tag-financial-leverage","tag-financial-stability","tag-real-estate-market","tag-working-capital"],"featured_image_src":{"landsacpe":["https:\/\/altax.al\/wp-content\/uploads\/2026\/10\/ndertimi-borxhi-1140x445.jpg",1140,445,true],"list":["https:\/\/altax.al\/wp-content\/uploads\/2026\/10\/ndertimi-borxhi-463x348.jpg",463,348,true],"medium":["https:\/\/altax.al\/wp-content\/uploads\/2026\/10\/ndertimi-borxhi-300x201.jpg",300,201,true],"full":["https:\/\/altax.al\/wp-content\/uploads\/2026\/10\/ndertimi-borxhi.jpg",1168,784,false]},"yoast_head":"\n
INSTAT \u2013 Construction Statistics and Building Permits<\/em>
University of Tirana \u2013 Academic studies on the sustainability of the real estate sector<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"