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BANKS AND REAL ESTATE LOANS Issues and Prospects. International Co nference o n the R eal E state D evelopment in A lbania Tirana, 13-14 May 2008. Dr. Elvin MEKA ALBANIAN ASSOCIATION OF BANKS. BANKS AND REAL ESTATE LOANS Issues and Prospects. General.

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Banks and real estate loans issues and prospects

BANKSAND REAL ESTATE LOANS Issues and Prospects

International Conference on the Real Estate Development in Albania Tirana, 13-14 May 2008

Dr. Elvin MEKA

ALBANIAN ASSOCIATION OF BANKS


BANKS AND REAL ESTATE LOANS Issues and Prospects

General

  • An ever-increasing type of loan;

  • Loans, the primary source of real estate funding;

  • The biggest loan item within the banking system’s

    balance sheet;

  • Only 24.3% of extended real estate loans in

    domestic currency (ALL); the rest in foreign

    currency (~70% in EUR, 5% in US$);

  • More than 63% of real estate loans (end-2007)

    extended to individuals.

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

General

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

General

  • the volume of non-performing

    real estate loans, compared to

    the volume of outstanding

    non-performing loans in the

    banking system, is still

    considered to be low,

  • the quality of actual real estate

    loan portfolio remains good.

Source: Bank of Albania

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Main features

PERIOD:

  • Minimum: 5 years

  • Average: 15 years;

  • Maximum: 25 years

    GRACE PERIOD:

  • Up to 12 months

    LOAN-TO-ASSET VALUE (financing limit):

  • From 60% to 100% of the market value of the

    collateral

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Main features (2)

ADMINISTRATIVE FEE:

  • 1-2% (Min. EUR 150)

    INTEREST RATE:

  • Loans in domestic currency:

    • Minimum:12m T-Bills + 3% - 5%

    • Maximum: 12m T-Bills + 7% - 9%

  • FX Loans:

    • Minimum:EURIBOR/LIBOR+ 2.5% - 3.5%

    • Maximum: EURIBOR/LIBOR+ 7%

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Main features (3)

TYPE OF COLLATERAL:

  • Physical collateral:

    • The purchased house;

    • The house of borrowers' relatives;

    • Unfinished buildings (rarely);

    • Shop on a residential building;

    • Land.

  • Other Guarantees:

    • bank guarantee;

    • cash collateral;

    • Treasury Bills.

Source: Bank of Albania

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Issues

General economic and social issues:

  • Informal economy and employment;

  • Fragile sustainability of the economic development, not clear projections for the coming years;

  • High job circulation and turnover;

  • Urban infrastructure still under improvement.

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Issues (2)

Legal issues:

  • Frequent changes and loopholes in the land-related legal framework and regulatory basis;

  • Uncertainties over ownership lack of clear ownership and countable cases of property’s overlap (expected to be resolved within 2009);

  • Property disputes, the most common cases in Albanian Courts; 40-50% of court cases involve property dispute;

  • Long-lasting and problematic process of restitution and compensation of the properties expropriated by the communist regime;

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Issues (3)

Property’s registration issues:

  • The property’s registration with the Real Estate Registry Office, still a bumpy ride; lack of a digital register;

  • Long-lasting and time-consuming procedures (mainly at Bailiff’s Office), for collateral enforcement, in case of defaulted loans and respective foreclosures;

  • Difficulties in having a temporary registration and a respective mortgage on this temporary registration;

  • Rare usage of under-construction-buildings as collateral;

  • Pre-signed (entrepreneurship) contracts not an eligible document for temporary mortgage.

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Prospects & Recommendations

  • Speeding up the process of resolving land-related issues;

  • Setting up a digitalized data system at RERO, gathered from different state institution, such as Bailiff’s Office, courts, social insurance, tax office, RERO office, attorney general etc;

  • Banks’ access to the above digital register;

  • Shortening the time for collateral enforcement;

  • Extensive usage of under-construction-buildings as collateral;

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Prospects & Recommendations (2)

  • Closer monitoring of the market, implementing regional and international experience;

  • Credit rating and risk assessment models to be based upon to Albanian market conditions;

  • More efforts to develop a vibrant real estate secondary market;

  • More capacity building within RERO and Bailiff’s Offices;

  • Assessing the possibility to implement financial innovation in the real estate market, by linking it with capital markets.

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

Contacting AAB

URL: www.aab.al

E-mail: [email protected]

ELVIN MEKA 13-05-2008


BANKS AND REAL ESTATE LOANS Issues and Prospects

THANK YOU!

ELVIN MEKA 13-05-2008


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