The Impact of Real Estate Market in the Albanian Economy

• Author: Dorina Kripa, Dritjon Muçaj
• Pages: 409-423

Performance and Risks in the European Economy

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The Impact of Real Estate Market in the Albanian Economy

Dorina Kripa1, Dritjon Muçaj2

Abstract: The real estate market has an important impact on social and economic development of a country,

and it involves many aspects which increase the complexity of the impact analysis and often have o pposite

directions. This can be supported by the fact that real estate is one of the most important items in public

spending3, but also in investment expenses in general (this is especially typical for Albania). These expenses

are mainly related to infrastructure and accommodation of homeless people by the National Housing Entity.

Researchers have studied the relation between the price of real estates with the GDP of a country, concluding

that real estate prices and the government policies related to them, do impact the GDP growth, and

movements in residential prices can be used to forecast GDP growth. On the other hand, when purchasing a

home, individuals use all their savings, or take loans, which constantly cause the reduction of consumption

and saving possibilities in order to afford the installments and other loan expenses. So, from this point of

view, this in vestment may have an adverse effect, even on GDP. But, the q uestion we raise in this study is:

what impact has th e real estate market in Albanian economy? We b egin the study by emphasizing the

importance of the real estate market, and then we identify key developments related to this market‘s

financing, price developments and the construction activity, as an important part of the market itself. The

study is concluded with a regression analysis on the role the real estate market plays in the Albanian

economy.

Keywords: GDP; construction cost index; regression analysis

1. Introduction

Investment in real estates is and has always been one of the most controversial issues in the economic

environment. This results mostly because of the complexity of this form of investment and the

importance and close relations with several socio-economic aspects of a society. The claim that

investment in real estate is one of the most profitable, sustainable and less risky investment is

generally accepted, but we should expand the analysis on this issue.

The real estate market has a huge impact on social and economic development of a country, and it

involves many aspects which increase the complexity of the impact analysis and often have opposite

directions. This can be supported by the fact that real estate is one of the most important items in

1 Associate Professor, PhD, University of Tirana, Faculty of Economy, Department of Finance, Albania, Address: Square

―Mother Teresa‖, PO Box No. 183, Tirana, Albania, Corresponding author: dorinakripa@feut.edu.al.

2 M sc., University o f Tirana, Faculty of Economy, Albania, Address: Square ―Mother Teresa‖, PO Box No. 183, Tirana,

Albania, E-mail: dorinakripa@feut.edu.al.

3 According to economic experts