Lending for the construction sector this year is marking the highest levels in at least the last six years. According to data from the Bank of Albania, the new construction loan amounted to Lek 22.7 billion or Euro 194 million for the first seven months of 2022.

New credit for the construction sector has increased by 38% compared to the same period a year ago. The total value of the construction loan portfolio at the end of July reached Lek 70.4 billion, with an annual increase of almost 30%.

Construction credit is experiencing a new phase of growth, driven by developments in the real estate sector, especially in the capital and the coast.

Based on INSTAT data, the value of permits for buildings, including reconstructions in the first half of the year amounted to around Lek 60 billion, increasing by 54% compared to the same period a year ago. While according to the Bank of Albania, the average annual increase in real estate prices for the past year was 9%.

The increase in prices has encouraged not only entrepreneurs, but is encouraging even more banks to support these projects. Although the majority of construction investments are being financed with other sources, commercial banks are also taking advantage of the favorable performance in the real estate market to expand their business both in financing these investments and in purchasing them from Albanian families.

High inflation and rapidly rising interest rates are making a slowdown in the rapid growth of the construction sector increasingly likely.

Experts believe that price growth will slow down, but, this year, prices are facing an upward pressure from the supply side, due to the significant increase in the price of building materials and the cost of construction in general.

On the other hand, inflation and interest growth are expected to hit purchasing power and demand in the property market as well, which may make it difficult to pass on this increase in costs to buyers.

According to INSTAT, in the second quarter of this year the construction cost index recorded a record increase of 6.2%, driven especially by material and energy costs. But, so far, such a scenario has not greatly affected the performance of construction lending.

This year, construction is the second most credited sector of the economy, after trade. So far this year, loans for construction accounted for 21.6% of new loans granted to businesses, while in the same period a year ago it was 19.2%.