Ready2invest Guide To Property Investment In Albania

Albania overview

Massive EU funding Future NATO and EU memb er Investor-friendly environ ment

“Albania’s real charm lies in its coastline, which stretches more than 200 miles from the Adriatic, in the north, to the Ionian, in the south.” The Sunday Times, August 2007

“We are very confident that Albania has a bright future and can look forward to sustainable growth.” Colliers International, May 2008

“There are no major differences between [Albania’s] political parties in the realm of economic or foreign policy, as all participants tend to be pro-EU and pro-NATO.” Albanianeconomy.com

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Albania For so long closed to the outside world, Albania is now relishing the chance to enter the world stage. With high levels of EU funding pouring into the country to improve its infrastructure, and a government keen to attract foreign investment, the conditions are right to support excellent capital growth. Featuring some of the last undeveloped coastline on the Mediterranean, Albania is a property success story waiting to happen. Croatia

Montenegro

Serbia

Lake Soulari

Shkodër Shëngjin

Durrës

Adriatic Sea

Tirana Elbasan

Albania

The Former Yugoslav Republic of Macedonia Lake Ohrid Lake Prespa

Korçë

Vlora Italy

Strait of Otranto Sarandë Ionian Sea

How to get there The Mother Teresa International Airport in Tirana has recently been the subject of a major upgrade. A new €50 million modernised terminal opened in March 2007 that increased the airport’s yearly capacity to 1 million passengers. As that figure had already been surpassed by the end of 2007, the airport has invested an additional €30 million in another expansion scheme, due for completion in 2009.

Greece

Several international airlines fly direct to this airport from cities including London, Athens, Budapest, Vienna, Munich, Cologne, Milan, Barcelona and even New York. BA and Albanian Airlines serve the UK (from London Gatwick and Stansted) but many budget airlines fly there from Italy and central Europe, boosting tourism and creating greater demand for accommodation. This will ultimately encourage other carriers to include Tirana in their destinations.

Albania at a glance Area: Capital: Population: Currency: Climate: Languages: Government: Local time:

28,748 km2 Tirana 3,600,523 Lek (ALL); 1 ALL = £0.0055; £1 = 180.711 Temperate; dry, hot summers; cool, wet winters Albanian (official); Greek, Vlach, Romani, Slavic dialects Democratic GMT+1



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Why invest in Albania? While prices in some parts of nearby Croatia and Montenegro have rocketed to €10,000 per m2, a slice of Albanian coastline can still be purchased for around €800 per m2.

Tax incentives Foreigners are free to buy land, residential property and commercial units in Albania. And they enjoy all the same tax benefits as the locals do, which means no VAT or capital gains tax, and no state property, withholding or inheritance tax – even the 3% stamp duty is payable by the seller. See the table on page 7 for more details. The last resort Albania remains one of the last chances to buy coastal property in Europe at affordable prices. While prices in some parts of nearby Croatia and Montenegro have rocketed to €10,000 per m2, a slice of Albanian coastline can still be purchased for around €900 per m2. The country might not be as picturesque as the other Balkan hotspots but its equally pristine waters, rugged mountains and unspoilt beaches make it an affordable substitute to its Adriatic neighbours. A European Union Albania embarked on the road to EU membership in June 2006 when it signed the Stabilisation and Association Agreement (SAA). Widely acknowledged to be the first step towards EU accession, commentators predict that Albania could become a full member of the EU as soon as 2014. Before that NATO membership is planned for July 2008.

Tirana- Albania’s busy capital

Infrastructure Under the PHARE and CARDS schemes the EU has so far allocated a financial assistance package of more than €422 million to help Albania’s reconstruction and development. A new thermal energy plant (a commodity the current prime minister, Sali Berisha, plans to be exporting by 20111) is being built in Vlora. Durrës, 35km from the capital Tirana, is receiving an €80 million investment from the EU to renovate its gateway port. Also planned is an arterial road that will link Albania directly with Dubrovnik in Croatia. Several other new highways have already been built slashing journey times to key destinations from the capital Tirana.

Jal beach, on the coast of Vlora

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Political reform Albania spent four decades as a communist dictatorship and had a problematic shift to democratic rule. Now the EU wants the country to embark on a series of reforms focussing on ensuring political integrity, election standards and freedom of the press to accelerate accession to Europe. These reforms have the extra benefit of challenging the negative perceptions of the country too.

“There are fresh efforts to reduce corruption, increase transparency and encourage foreign investment.” FT.com

Economic growth The Albanian economy is growing by around 5% per year2. This figure is higher than the European average where even the strongest economies such as France and the UK are only achieving annual growth of 2-3%. Foreign investment has increased fourfold to more than US$2 billion in 2006, and banks including Raiffeisen, Societe Generale, Credit Agricole and the American Bank of Albania have now set up offices in the country. Looking ahead, the government is committed to an ongoing privatisation programme, fuelled by low operating costs and a young population. Tourist hotspot The Mother Teresa Airport upgrade reportedly increased tourism by 22% in 2007 alone. Already popular among Italians, Albania has recently attracted a lot of interest from the British and worldwide press3 keen to find out more about this undiscovered destination. Timing Albania is at the beginning of its property cycle. It has yet to be marketed heavily on the international scene, a factor which traditionally boosts prices. Developers are snapping up land across the country and, as competition increases, the prices of finished units should be pushed up dramatically. Getting into a market at the right time gives investors the opportunity to maximise profit margins from the early boost in property prices as the market gains exposure. Village on hillside, Lake Ohrid region

1. http://search.ft.com/ftArticle?queryText=hydro%20berisha&y=0&aje=true&x=0&id=070816010426&ct=0 2. http://www.worldbank.org.al/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/ALBANIAEXTN/0,,menuPK:301421~pagePK:141132~piPK:141107~theSitePK:301412,00.html 3 http://www.guardian.co.uk/travel/2007/aug/11/saturday.albania



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Political overview Today, Albania is classed as an emerging democracy and terrific strides are being taken towards a stable and open political system. In the 2005 general elections, the Democratic Party and its allies won by promising to reduce crime and corruption, to promote economic growth, and decrease the size of government1.

Albania has signed the Stabilisation and Association Agreement with the view to joining the European Union by 2014.

The second-largest parliamentary group, the Socialist Party, returned to opposition after eight years in power. In what was the second highest voter turnout in all worldwide democratic elections that year, the election, and particularly the orderly transition of power, was considered an important step forward in the country’s political development and stability. In this new era for Albania, the communist regime associated with Enver Hoxha, which governed the country for the best part of 50 years after WWII, is firmly in the country’s past2. The modern political system is based on a constitution passed in 1998. Parliamentary elections are held every four years, while the head of state (the President) is elected every five years by parliament. The current President is Bamir Topi, who took up his position in July 2007.

Inside Albania’s government building

Currently the government is working hard to instigate a series of reforms designed to attract increased levels of foreign investment and reduce the grey economy, which is thought to be as much as 50% of annual GDP. The policies appear to be working, with more than 1,000 foreign companies now operating in Albania including a growing list of international banks - a sure sign of confidence in the government’s policies and indeed the country’s financial sector. Albania’s standing in the international political arena is set to be further enhanced should it achieve membership of NATO in July 2008. The country has also signed the Stabilisation and Association Agreement with European Union, which has already committed €495 million3 from 2001 to assist Albania’s accession plans. There is strong reason to believe the country will join the EU in 2014 as planned, bringing with it more security and growth.

President Bamir Topi, elected July 2007

1. http://www.cia.gov/library/publications/the-world-factbook/geos/al.html 2. Mediterranean Europe (Lonely Planet Publications) 3. http://ec.europa.eu/enlargement/how-does-it-work/financial-assistance/cards/bilateral_cooperation/albania_en.htm

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Economic overview Fifteen years ago Albania introduced a series of economic reforms similar to those of other newly democratic countries of central and Eastern Europe.

Tax State property tax: VAT: Capital gains tax: Rental tax: Withholding tax: Inheritance tax: Stamp duty:

The interim years have seen the economy make progress, but there have been definite setbacks along the way. Most notably, the collapse of pyramid investment schemes in 1997 threw the country into crisis as 70% of the population lost their life savings and violent riots broke out. Since then the reforms have slowly started to prove a success.

NONE NONE NONE 10% of rental income NONE NONE 3% (paid by the seller)

Since 2002 GDP has increased by 5% a year – driven by the growth of the construction and tourist industries – and now stands at US$9.1 billion1. Inflation is low and stable at 2.4% and foreign investment is at an all time high reaching US$2.1 billion in 2006. The economy is bolstered by nearly US$1 billion2 a year sent back by Albanians living abroad. But challenges remain. The construction of a new thermal power plant in the southern Albanian town of Vlora will help relieve energy shortages3. The government is also moving to improve the national road network with a US$56 million Transport Project loan4. The current government is also committed to stamping out corruption and organised crime, both hot issues for NATO and EU membership. Albania’s economic fundamentals are strong and there is great potential for further progress and wealth generation – exactly the sort of conditions that lead to good longterm investment opportunities.

The mountainous backdrop of Shkodra in northern Albania.

1. 2. 3. 4.

http://devdata.worldbank.org/external/CPProfile.asp?PTYPE=CP&CCODE=ALB http://www.economist.com/world/europe/displaystory.cfm?story_id=9657129 http://go.worldbank.org/UFB7TEVF60 http://web.worldbank.org/external/projects/main?Projectid=P078949&Type=Overview&theSitePK=40941&pagePK=64283627&menuPK=64282134&piPK=64290415



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FAQs Owning residential real estate in Albania is easier than ever, thanks to the latest property ownership provisions and access to our dedicated English-speaking lawyers. Q: Are there restrictions to foreign ownership? A: No. Restrictions pertain to agricultural land only. Q: Do I need to create a company to buy property in Albania? A: Unlike Montenegro or Romania there is no need to create a local company. You need only create a company if you intend to purchase land or to undertake commercial activity. Q: Is co-ownership allowed in Albania? A: Yes. A co-ownership is an arrangement whereby two or more persons buy a property together and wish to provide for leaving their share (when they die) to someone other than the other co-owners. Q: Do I need a lawyer to buy a property in Albania? A: Yes. Please see one of our deal brochures for full details of the independent lawyers we recommend. Q: What is the cost of the Public Notary? A: 1% of the purchase price. Q: What are the other costs linked to a property purchase? A: Title application fee = €200 Insurance (approx.) = €100 Maintenance (approx.) = €3-5 per m2 Our recommended lawyers’ fees = €650 incl VAT Q: Do you offer property management services? A: No. Ready2invest does not offer a property management service, but we can recommend some. Q: Do I have to pay state or local taxes on my property? A: No. There is no state tax on real estate. Q: Do I have to pay VAT on land, apartment and/or any property purchase? A: No. The sale of buildings and land is not subject to VAT.

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Q: Do I have to pay capital gains tax on resale of my property? A: No. There is no capital gains tax in the case of personal ownership. Q: Do I have to pay a tax on rent? A: An income tax of 10% is due on the amount of the rent. Q: Do I have to pay wealth tax? A: No. There is no wealth tax in Albania. Q: Can capital and/or profits be repatriated without difficulty by a non-resident? A: There is no withholding tax in Albania. Capital and profits can be repatriated once you have paid the legally due taxes. Q: What is the level of inheritance/gift taxes in Albania? A: There is no inheritance tax and gift tax is just 3%. Q: What happens if the builder defaults? A: The builder either raises finance from a bank or the bank guarantees the mortgages of the prospective buyers. Nonetheless the bank will request a performance bond from the builder to ensure that in the event of the developer default, funds are available to finish the construction. Furthermore the quality and financial standing of the builders is always thoroughly checked. All companies involved in the construction are members of, and regulated by, the Albanian Chamber of Builders. These companies are medium to large in size with a good track record of providing quality work, delivered in realistic timescales.