Is Albania Worth a Look?

    You’re looking for a place to invest where you think there will be excellent potential for capital appreciation and you don’t mind taking a bit of risk. Ah to heck with it, risk is your middle name. Paddy Risk Murphy, the Irish property tycoon. Well I think I may have the place just for you.

    Just a few short years ago I wrote a piece for Ireland’s Sunday Business Post following a visit to the then little known Balkan enclave of Montenegro. It was just starting to be recognized as a country (actually at the time it wasn’t really a separate country as it was still ‘aligned’ with Serbia) with a bit of potential for some capital gains. In other words, by Irish standards property prices were dirt cheap. Properties for EUR30k to EUR40k were not uncommon and there were loads of old ruins with ‘plenty of charm’ lying around the place just waiting to be renovated. Then Montenegro absolutely exploded. Price inflation since that time has been phenomenal with property prices more than doubling each year since.

    I’m not trying to take credit for the boom by the way, I’m just outlining the very short timeline involved once the Irish got their hooks into the place. For a few years before this time the Irish, and others, had become quite infatuated with property in neighboring Croatia. Prices there, unfortunately, particularly around Dubrovnik, escalated dramatically and the purchase process is nearly as difficult as it is for an Irish national to get married in Croatia. In contrast the purchase procedure in Montenegro is quite streamlined and prices were, of course, extremely low. So you may well ask, where is all this leading? Well, with price inflation now really starting to bite in Montenegro, the Irish, being the property pioneers that they are, are looking for the ‘next big thing’. Now, far be it from me to tell you what this next big thing may be, my powers do not extend to such predictions, but a quick look at a map of this region will quickly lead to the discovery that the next country along this stretch of the Adriatic coastline is … Albania.

    I felt my level of knowledge of this famously closed country wasn’t really up to scratch so a visit was in order. You can fly from London into Mother Teresa airport in Tirana, otherwise known as Rinus International, but my visiting partner was from Croatia so I flew into Dubrovnik and we drove through Montenegro to get there. It’s a bit of a hike but very informative in terms of comparing the countries as you pass through them. It’s not the length of the drive that’s the problem, it’s the poverty of road infrastructure. It is still poor in Montengro, but it is atrocious in Albania. In this day and age there are still only two roads which lead out of Albania to the north, one either side of Lake Shkoder (also called Skader or Scutari) which is shared with Montenegro. Neither would lead you to believe you were passing from one European country to another, it is rather more like traveling from one farm to another in the Munster countryside.

    Albania, locally called Shqipëria, is a mountainous coastal Balkan entity bordered by Montenegro to the north, Kosovo to the north-east, the Republic of Macedonia to the east and Greece to the south. One of the country’s prime attractions is its 362 km coastline, much of it largely unspoilt, on the Adriatic Sea to the west, and the Ionian Sea to the southwest.

    Much of what we feel we know about Albania is probably either completely untrue or at least somewhat misguided. Even the country’s most famous export, Mother Teresa, was born in Skopje, Macedonia, of Albanian parents, although this hasn’t prevented Rinus Airport being named in her honour. This highlights how Albanian ex-pats and their descendants still consider themselves primarily Albanian, no matter where they live. Many of us are stuck in the pre-1992 image of the most closed society on earth but the country has come a long way since this dark time in its history, albeit with some major hiccups along the way.

    One of the few correct assumptions we have about the country is that there is an availability ridiculously cheap property. I can safely say that I am unlikely to ever again stand in a beach front studio apartment selling for EUR15,000. Admittedly it was a shoe box in which construction quality and design were questionable, with tenement views out the back, but it is still very little outlay for an apartment that will always be front line unless they start building in the sea – not unfathomable in Albania, but nonetheless unlikely. Prices in the capital, Tirana, are however, considerably higher that other areas and rising quickly.

    It is an ancient civilization with its inhabitants, and its language, thought to have descended from Illyrians. The Illyrians were a multi-tribal conglomerate inhabiting the western Balkans, comprising the territories of Dalmatia, Croatia, Bosnia and Herzegovina, Montenegro and much of Serbia with the Northern Albanian town of Shkodër as its capital.

    In more recent history Albania was the final Communist entity in the Balkans to put an end to its suffocating regime in 1992. From 1945 to 1985 the country’s isolation was compounded by the xenophobic dictatorship of Enver Hoxha, eliminating almost all forms of private property ownership and cutting the country off from external influences and information. As his tenure wore on Hoxha’s paranoia increased dramatically and he ordered the construction of vast quantities of squat, shoulder high, concrete, mushroom shaped, bunkers throughout the country. At one stage they outnumbered houses – and were certainly of better construction. Many still exist and it is not uncommon to see them upended at the side of the road or jettisoned in the sea.

    Some of the ridicule aimed at Albania comes from historic perspectives which are unusual to say the least. King Zog (Ahmet Zogolli) who became the self proclaimed king of the country in 1928, was so beloved of his citizens he is said to have survived more than fifty assassination attempts. He is the only head of state ever to have returned fire on a potential assassin. Not content with proclaiming himself king he awarded the title Queen Mother to his mother as well as allocating titles of prince and princess to his brother and sister. He was deposed in 1939 which came as no great surprise. As for a national hero, why not try Norman Wisdom who hit cult status as he was the only Western actor whose films were allowed during Hoxha’s regime.

    Following 46 years as the most inaccessible country in the world the transition to democratic multi-party politics has not been straightforward. Successive governments have struggled with rampant unemployment, deep rooted corruption, incredibly poor infrastructure and an extremely powerful Mafia style crime network. This has all meant that it has not been an easy ride.

    One of the most all-encompassing problems in the country was the ‘Pyramid Scheme’ scandal which ravaged the country through ’96 and ’97. These schemes were hugely important in that the amount invested in them came to almost half of the country’s GDP at the time. It is estimated that a staggering two-thirds of the population was involved to some extent. In a country of just 3.5 million, two companies attracted almost 2 million depositors within a few months. When the schemes collapsed, so did the government which was heavily implicated. There was widespread rioting, and the country came close to civil war with around 2,000 people losing their lives. The schemes arose because Albania, on exiting from Communism, was the poorest and most isolated country in Europe. Its inhabitants had never previously been exposed to capitalism and, in the absence of a formal financing system, were led to believe that these pyramid schemes were exactly how market economies worked. Because official banks were restricted from offering loans an informal market sprang up, attracting investors by offering them high returns. In a typical Ponzi scheme scenario, the promised returns were paid to initial investors from funds received by those investing later. Such schemes, smaller versions of which have been running in Ireland in recent years, are insolvent from day one as liabilities exceed assets immediately. They flourish initially, as news of high returns spreads and more investors are drawn in. The scheme typically grows until the interest and principal due to early investors exceeds the money paid in by new investors. The schemes collapse very quickly when investors try to get their money out but discover that they can’t do so. Many Albanians, in what was already the poorest country in Europe, sold livestock, houses and farms to facilitate investment.

    The schemes led to an inflation rate of more than 40 percent in ’97 as the lek depreciated drastically and fiscal deficit rose on the back of civil disorder. Remarkably, elections since the collapse have been judged to be largely free and fair since the restoration of political stability and, in 2005, the Democratic Party, which was in power at the time, returned to government. The election, and particularly the orderly transition of power, has been considered an important step forward.

    In order to see how far Albania has come it is necessary to take this history into account as all things are relative. In 1992 it is estimated that there were just 50 cars in the capital, Tirana, as it had been illegal for ‘ordinary citizens’ to own a motor vehicle. Today the city is a squabbling mess of unorganized and chaotic traffic, filled mostly with Mercedes, both old and new. One local proclaimed that Albania has the highest ownership of Mercedes cars per capita of any country in the world. Driving through the country from Tirana to the coastal town of Durres you could hardly argue with the statistic, although several other sources question the origins of many of these vehicles. “It is not uncommon,” said one source, “to see the Bayern Munich flags still flying on the aerials of these cars when they arrive in Durres port.” There is no doubt that a thriving black market still remains virtually untouched in this part of the western Balkans and one indeed suspects that Germany could well be short quite a few marques as a result.

    Although the Albanian economy continues to grow, it is still one of the poorest countries in Europe. It contains a large ‘informal’ economy as well as extremely poor energy and transport infrastructure. The government has committed to Corridor 8, a Pan-European Transport Corridor connecting the Adriatic and Black seas from the Italian ports of Bari and Brindisi past Durres and Tirana in Albania, Skopje in Macedonia and Sofia, Burgas and Varna in Bulgaria. The project has been mooted since 1990 and began construction in 2001. Delays have put the completion of the corridor in doubt although some of the governments involved pledged last year to speed up the work involved. The ability of the Albanians to finance their portion must be called into question as the government seems incapable of funding what basic road infrastructure there is currently within the country and the rail system is archaic at best. The country continues to work toward joining NATO and the EU, having recently signed a Stabilization and Association Agreement which is the first step to EU accession, but don’t expect this to happen any time soon.

    Albania is predominantly Muslim but it is a country that is very tolerant of religious differences and this is a topic that seldom generates any debate. Rather than categorization by religion, they consider themselves Albanian above anything else, this also holds for ethnic Albanians remaining in Kosovo, FYR Macedonia and Greece. Over the centuries Albania has engaged in defensive wars, losing territory to Greece, Serbia, and Montenegro along the way. Relations with Serbia are particularly raw as the ethnic cleansing of Albanians carried out in Kosovo by Slobodan Milosevic in his quest for a Great Serbia was the predominant cause of the Balkan conflict of the early nineties.

    The absence of mortgaging for foreigners is likely to remove all but the more adventurous investor in Albania. Real estate transactions are also constrained by the large concentration of unregistered properties and an arcane administrative framework. Having said that it is an improving situation as Albania is one of the fastest growing of all the countries in this region, but it is starting from a very low base. The government feels that a vibrant real estate sector is crucial for economic development and is making improvements to ensure that the transaction process is more transparent. The construction sector was estimated to be responsible for 47% of the Albanian economy in 2005 and this has probably risen since. There is a reported EUR200 million in EU backed projects underway and plans are mooted for the construction of 10,000 new apartments in Tirana which is home to a vast amount of substandard Communist building.

    It has been widely noted that income levels in Albania appear to be far higher than official statistics suggest and property sales figures would appear to back up this observation. Deals involving residential property often involve substantial cash amounts, reportedly sent back to the country by Albanians abroad, but often from other activities, perhaps including the sale of Mercedes cars.

    First-time buyers now demand quality apartments of approximately 100 sq. m. at up to EUR600 per sq. m. in good quality areas. It is very likely that the first flush of investors will be involved in purchasing product off plans to service local demand. There is a burgeoning middle class in Albania looking to move up the property ladder and fueling a growing property boom. Banks have been reducing local interest rates to entice customers but there is no indication that this market may be opened to foreigners in the short term. The government has approved a partial Coast Development Bill to counter excessive construction in certain areas, particularly along the coastline at Durres.

    Plots near the coast are generally priced at EUR50-150 sq. m. with some parcels along the southern coastline already reaching more than EUR200 sq. m. There is no VAT and 3% stamp duty when investing in land. The demand for coastal plots, particularly in the south, has grown dramatically over the past couple of years.

    Like much of Eastern Europe prices in Albania are predominantly quoted in Euro. New high-end residential developments in Tirana have asking prices of up to EUR1,500 per sq. m. which is quite expensive by Albanian standards. Mid-market properties range from EUR500-700 per sq. m. Second hand properties in good areas typically command EUR1,200-1,500 per sq. m. but they don’t move quickly as much of the older stock is of a questionable standard. Mass market communist apartments can be purchased at under EUR450 per sq. m. but don’t expect a quick turnaround. Title can often be missing completely and local buyers are very wary of such product. A small number of foreigners are currently actively investing in Albanian real estate, mostly from the Middle East and Asia, but there are signs that some UK and Irish buyers are beginning to drift into the market.

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