Albania Residential Market

Albania Residential Market Balkimo Research 1

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. 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. Macroeconomic 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. Page 2

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

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. 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 Explore the heritage of a country influenced by the Greeks, Romans, Italians and Turks. (The Bradt Travel Guide). 1,00 0,50-2003 2004 2005 2006 2007 2008 2009 Page 4

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 Tirana. On average, four ferries dock every day, carrying more than 700 000 passengers every year. A new terminal worth 15 million and funded by the EBRD has been constructed by the Slovenian company SCT. The new terminal include 5 000 sqm of service and duty free space, with a parking lot for 2 000 cars. Albania's other seaports are Vlora, Saranda, and Shengjin. Regular ferry, freight, and passenger services from Durres and Vlora are going to Trieste, Ancona, and Bari in Italy and Dubrovnik in Croatia. Ferry services are also between Saranda and the Greek island of Corfu. A massive improvement scheme is underway in Albania s transportation network -- improvements that will shrink travel times, make the country more accessible and maximize Albania's strategic ports. Currently the major cities of the country are linked with first class national roads. There is a brand new four lane highway connecting the city of Durres with the cities of Tirana and Fier. 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. The second priority is the construction of European corridor 8, linking Albania with the Republic of Macedonia and Greece. It is mostly finished and an extension to Thessaloniki via Pogradec is also complete. The third priority for the government is the construction of the north-south axis of the country; it is sometimes referred to as the Adriatic Ionian motorway. It is part of a larger regional highway connecting Croatia with Greece along the Adriatic and Ionian coasts. This highway is critical for Albania to make the most of its incredible potential for tourism on its lengthy coast. It is anticipated that by 2015 the majority of the sections of these two corridors will have been completed. Albania will then have an estimated 759 km s of highway connecting it to its neighbours. End 2010 will also see the completion of the missing last 20 km section of four-lane highway between the cities of Durres and Vlora. Page 5

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 offplan 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. 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 3000 2500 2000 1500 1000 500 0 2750 Price level EUR/sqm 1100 1500 1300 370 330 490 450 Tirana Durres Vlora Saranda Page 6

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