Property Report

Albania | Residential Market

Balkimo Research | 3Q2010

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Albania overview

Albania is bordered by Montenegro and Kosovo tothe north, the Republic of Macedonia to the east,Greece to the southeast and Italy lies across theMediterranean to the west. At its narrowest point,close to where the Adriatic and Ionian Seas meet,Italy and Albania are only 75km (47 miles) apart.Albania's highest point is the summit of Mt Jezerca(2693m/8835ft), in the Dinaric Alps in the far north.

The largest lake in the Balkans, Lake of Shkodra,straddles the border between Albania andMontenegro. In the southeast, Lake Ohrid is sharedwith Macedonia and the Prespa Lakes betweenAlbania, Macedonia and Greece. The country covers atotal of 28’000 square kilometers and its population is3.7 million. English, Italian and Greek languages arewidely spoken all over the country.

Area: 28'748 sq. km.Major cities: Capital--Tirana (900'000, 2005 est.).Others-- Durres (200'000, 2005 est.), Shkodra (81'000,2005 est.), Vlora (120'000, 2005 est.).Terrain: Situated in the southwestern region of theBalkan Peninsula, Albania is mountainous but flatalong its coastline with the Adriatic Sea.Climate: Mild, temperate; cool, wet winters; dry, hotsummers.Type: Parliamentary democracy.Constitution: Adopted by popular referendumNovember 28, 1998.Independence: November 28, 1912 (from theOttoman Empire).Branches: Executive—President (head of state), PrimeMinister (head of government), Council of Ministers(cabinet). Legislative--140-seat unicameral People'sAssemblyMain political parties: Democratic Party of Albania(DP); Albanian Socialist Party (SP); Socialist Movementfor Integration (LSI).History: The History of Albania began over threemillennia ago with certain tribes residing in the area.After being conquered by the Roman Empire andlater the Ottoman Empire, Albania became anindependent state. 20 years ago Albania started theconversion from communism. Since 2009, Albania is aNATO member and a candidate for EU membership.

Economical situation

World Bank head in Tirana, in the framework of theintroduction to the report “Doing Business 2010” declaredthat Albania is ranked second among reformatoryeconomies in the world that are making business easier.Mrs. Nuamah mentioned a reduction of taxation on profitfrom 20 % to 10 %, the creation of the National LicensingCenter and the new possibility to pay taxes online to bethe main contributors of this evaluation.

The Transition report, issued by the European Bank forReconstruction & Development (EBRD) appraised Albaniaas a country in progress, with strong economic growth inseveral major sectors leading the development. Macro-economic performance of Albania is strong: TheInternational Monetary Fund (IMF) foresees a growth of2.2% for 2010 while for 2011 according to the IMF growthwill be back at 6%.

International Finance Corporation (IFC) showed Albania asan attractive place on aspects of business opportunities.Areas such as employment, registering property,enforcing contracts, paying taxes and trading acrossborders were better performed in Albania compared toother countries. Moody's have recently classified Albaniaas a country of "stable outlook" despite the deteriorationof the conditions in global financial markets; Albaniakeeps a stable rating of B1. Albania is performing well,record economic growth, low inflation rate, stable foreignexchange reserves and foreign direct investments (FDIs);credit is also stable showing the country is becomingincreasingly attractive for FDIs.

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Balkimo Research | Residential 3Q2010

Albania is one of Europe's fastest growing economies.Since 2001, Albania has maintained an impressive growthrate, averaging between 5% to 6% each year and povertylevels continue to decline. Albania has made significantprogress since its transition from a communist regimetowards a market-based economy. Most recently London-based Citigroup expressed their interest in operating inAlbania. Citigroup considers Albania an attractive place forforeign investments in three fields: International capitalmarket, privatizations and other funding in energy.

Economic growth In almost every traveler's guide, Albania is described asthe least developed country in Europe. This may be truebut this is only a part of the story. The expansion of grossdomestic product (GDP) was accompanied by a controlledinflation rate. Consumer demand is expected to increaseand will result in renewed interest from foreign investors.Low wages are also anticipated and act as an incentive toforeign investors. The improving GDP and inflationsituation have significantly reduced unemployment in pastyears. Albania's GDP has constantly passed the 5% markfor many years. These are positive factors for thedevelopment of the Real Estate market. Furthermore thecountry is still better off than others in the region. Albaniais the fastest growing of all the South Eastern Countriesand became an EU candidate as well as a NATO memberin May 2009. Furthermore, Albania will have one of thefew positive GDP’s in Europe this year.

IMF announced that Albania was one of only two EUcountries that recorded positive economic growth of2.2% in 2009!

Foreign investors in Albania

Albania, even in the current condition has a new kindof visitor - the Real Estate Investment Tourist or REIT aswe like to call the foreign private investors, familyoffices, Real Estate fund managers, Hedge funds andothers looking to buy into the Albanian propertymarket. Main investors arguments are: market price;climate; emergence of Tourism; large freehold seasidelands; non-resident mortgage; endless unspoiledbeaches; strong capital gain potential; favourable taxestreatment; economic growth >5% = new middle class;urbanization; Diaspora returning; low cost of living; lowwages; low inflation; efficient banking system; Strategicgeographic location; NATO membership; EU 2014, …

Many representatives of foreign companies expressedtheir assessments on the recent achievements in theAlbanian economy, as well as the considerableimprovement of the business climate. These changesconvinced many companies to select Albania, amongother neighboring countries, to implement theirproject.

Foreign investments in Albania are fully protected bylaw. They cannot be nationalized, expropriated orsubject to any other measures. Several tax incentives inthe tourism sector are available for investors. OneInternational hotel chain is established in Tirana andothers are looking to come. A first small marina is nowoperational in Vlora and a growing number ofdevelopers are working on different seaside resorts.We believe that this is just the start as there is 350 kmof virgin coast line.

Balkimo Research | Residential 3Q2010

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GDP - real growth rate

Tourism and Leisure

Despite the global economic downturn, Albania’s NationalTourism Agency announced that the country has seen a40% increase in visitor numbers in 2009!

Albania is a country of great natural beauty which includessandy white Mediterranean beaches, rocky mountains,fertile plains, big and small lakes, natural monuments, andremote virgin areas.

In spite of its picturesque nature, Albania hasn't been ableto attract significant numbers of foreign tourists and themassive exodus of young and qualified people hasreduced the market demand, making all the goods andservices very cheap for foreigners.

Thanks to the recently announced EU candidature pavingthe way for EU membership as well as the NATOmembership, Albania will receive further funding whichwill contribute to the development of infrastructure; a keypoint for tourism development.

USAID helped hotels around Albania establish ways tobetter market their accommodation. For the first time,hotel rooms across Albania can be reserved andconfirmed instantly through more than 3’000 Web sitesaround the world. The tourist industry hopes that thisstep alone will provide a major boost, since Albanianhotels will now be able to reach the global marketplaceand draw upon a much larger base of potential visitors.

The government has already approved a partial CoastalDevelopment Bill in an attempt to counter excessiveconstruction along the coast that could jeopardizetourism. A gloomy example of this can be seen in Durres/Golem.

Albania has spectacular mountain scenery, an unspoiledcoastline and an ancient history and culture. Albania ismaking progress and we are positive on the developmentof specific seaside resorts dedicated to European budgetfamily and pensioners.

Albania as a tourism destination

If you come to visit Albania you will see how beautifulthe country is and that contrary to popular belief it is asecure country with one of the lowest crime rates perhabitant in the world. Look at what Lonely PlanetGuide to Albania says “The new Albania packs a wildpunch of traditional Mediterranean charm, delightfullyhospitable people and a madly colorful art-drivenrenaissance in the capital, Tirana. The country offers awealth of attractions, including sandy whiteMediterranean beaches, rocky mountains, fertile plains,lakes, natural monuments and remote, pristine areas.Ruins and archaeological treasures reflect a rich historydating back to the Illyrians”.

In the heart of the Mediterranean, on the Adriatic andIonian Seas, Albania is fast becoming one of the world'smost interesting getaways. Still relatively unspoiled byglobalization, tourists will notice an inspiring mixture ofcivilizations and cultures. Inexpensive goods andservices are attracting tourists and visitors of all ages.As an example, good restaurants with Mediterraneancuisine are priced between 7€ - 15$ per person.

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Explore the heritage of a

country influenced by the

Greeks, Romans, Italians

and Turks. (The Bradt Travel

Guide).

Balkimo Research | Residential 3Q2010

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2003 2004 2005 2006 2007 2008 2009

Travel to and in the country

In the past years huge infrastructure investments havebeen finalized which will support future property demand.

in March 2007 the state of the art Tirana Internationalairport located just 15 minutes away from the city opened.14 airlines fly from Tirana International airport to 31destinations. More than 1.3 million passengers used theairport in 2009. Main airlines included Adria, Alitalia,Austrian, British Airway, Lufthansa, Olympic, Malev,Albanian Airlines, Turkish Airlines offering direct regularflights to London, Vienna, Frankfurt, Munich, Rome, Milan,Athens, Istanbul, Zurich, Budapest, Zagreb, Sofia, Prishtina,and most recently New-York.

The port of Durres is located 33 km west of the capitalTirana. On average, four ferries dock every day, carryingmore than 700’000 passengers every year. A new terminalworth €15 million and funded by the EBRD has beenconstructed by the Slovenian company SCT. The newterminal include 5’000 sqm of service and duty free space,with a parking lot for 2’000 cars.

Albania's other seaports are Vlora, Saranda, and Shengjin.Regular ferry, freight, and passenger services from Durresand Vlora are going to Trieste, Ancona, and Bari in Italy andDubrovnik in Croatia. Ferry services are also betweenSaranda and the Greek island of Corfu.

A massive improvement scheme is underway in Albania’stransportation network -- improvements that will shrinktravel times, make the country more accessible andmaximize Albania's strategic ports. Currently the majorcities of the country are linked with first class nationalroads. There is a brand new four lane highway connectingthe city of Durres with the cities of Tirana and Fier.

Albania is partaking in the construction of what it sees asthree major corridors of transportation. The major priorityis the construction of the Durres-Prishtina highway. TheOPEC Fund, the World Bank and a pool of Greek banksfinanced the construction of the pivotal 170 km four-lanehighway traversing the country from Durres up to theborder with Kosovo. The total cost of the highway was ±

EUR 1 Billion led by a US-Turkish consortium and headed byBechtel. The Highway was inaugurated in June 2009 byPrime Minister Sali Berisha and the Turkish Prime Minister

Recep Erdogan. The new roadway is cutting travel timealong the route from six to two hours, boosting coastaltrade and northeast tourism.

The second priority is the construction of Europeancorridor 8, linking Albania with the Republic ofMacedonia and Greece. It is mostly finished and anextension to Thessaloniki via Pogradec is alsocomplete.

The third priority for the government is theconstruction of the north-south axis of the country;it is sometimes referred to as the Adriatic–Ionianmotorway. It is part of a larger regional highwayconnecting Croatia with Greece along the Adriaticand Ionian coasts. This highway is critical for Albaniato make the most of its incredible potential fortourism on its lengthy coast.

It is anticipated that by 2015 the majority of thesections of these two corridors will have beencompleted. Albania will then have an estimated 759km’s of highway connecting it to its neighbours. End2010 will also see the completion of the missing last20 km section of four-lane highway between thecities of Durres and Vlora.

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Balkimo Research | Residential 3Q2010

Residential Markets

With steady but continuous economic growth in Albania, the past decade has witnessed a surge in urban regeneration with the construction of many new residential developments in the main cities. The ‘New Urban Market’ has been fuelled by people’s demands for higher quality and newer properties and the clients for this market have predominantly been investors and the local market with new wealth as opportunities and new businesses have flourished.

As Albania’s economy and growth as a tourist destination has recently flourished, a different property market which is relatively new to the country has emerged. The ‘Tourist’ and in some cases ‘Second Home’ market has begun. Predominantly these new markets have been initiated and dominated by early coastal developments and with them have come not only the new Albanians with money but also foreign purchasers.

Residential Supply

New large urban residential developments outside Tiranahave dominated the market in the past 12 months as it isdifficult to obtain building permits inside the capital.

On the coast local builders not really concerned or awareof market demand are still constructing the typical eightstorey mid quality building with apartments averaging 75sqm. Nevertheless, in 2008/2009 a small number ofinternational developers have been expanding theirbusinesses in Albania. They have introduced new practicesand constructed buildings of a higher quality with betterinsulation and sound proofing. Large vacation resorts areplanned by foreign investors and will come to fruition inthe next years.

Residential Demand

In general urban demand remains weak even if first homeownership is the incentive for most local buyers with off-plan apartments forming the bulk of sales.

Foreign real estate buyers are focused on coastalproperties looking for quality apartments fromtrustworthy developers. Demand for coastal property ofthis type soared in the past 18 months from foreignerslooking for vacation homes and a new middle class lookingto access the property market with mortgage loan. Thebanks currently facing falling local interest rates are alsokeen to increase their mortgage loan customers in thissegment.

Price levels

Like in many other Eastern European countries, theprices in Albania are denominated in Euros and alltransaction are completed in Euros. New high-endresidential developments in Tirana centre maintainthe highest asking prices with the gold medal at€2’750/sqm. In the mid-market prices for newapartments range from €500-800/sqm. Mostprojects have similar pricing irrespective of the size,quality or location, which is a sign that the market isstill developing.

The mid-market forms the majority of propertytransactions. More expensive apartment’s averagefrom €1’200-1’600 per square meter, many of themhave remained on the market for long periods,representing a downward trend when compared topast years.

Looking ahead we estimate that urban residentialprices are set to continue a downturn pattern takingvalues back to the level they were some years ago.Urban supply is another key factor affectingproperty values. When there are too manyproperties on the market, there is downwardpressure on prices, and this is the case in Albania.Sales volumes are also due to hit their low this yearas consumer confidence is declining in the face ofrising economical issues.

On the other hand, well priced and well locatedcoastal properties are facing continuous demand. Ingeneral, we foresee a positive pattern in coastalproperty as demand is driven by foreign investorschasing yield in buy-to-let investments as well aslocals looking for affordable second homes.

As of mid 2010, the property price range in Euro persqm for new apartments looked like this:

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Balkimo Research | Residential 3Q2010

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Tirana Durres Vlora Saranda

Price level EUR/sqm

Why Balkimo?

With a team of 15 multilingual real estateprofessionals and offices in Tirana and Vlora, Balkimois without discussion the largest Real Estate agency inAlbania. In 2009 Balkimo became the Agent of Savills,one of the largest international property consultantswith 19’500 employees and 200 offices worldwide.

Balkimo was founded in 2004 by a Swissentrepreneur living in Albania for many years.Balkimo offers “foreign” versus “local” practice in theproperty market, providing purchase, lease/rent, off-plan sale, management and appraisal in bothresidential and commercial sectors to local andinternational investors.

Balkimo directors have been interviewed by theFINANCIAL TIMES, BELLEVUE MAGAZIN, SUNDAYTIMES, IL GIORNAL ECONOMICA,… Balkimo has alsobeen invited as the first Albanian company to attendMIPIM 2008 the world largest property show inCannes. Balkimo was also selected by the stateinvestment agency Albinvest and the Municipality ofTirana as the sole representative to the real estateEuropean exhibition EXPO Real 2007 in Munich.

Furthermore, we are also investors and the firstforeigners which invested, co-developed andregistered 2 residential seaside developments. Thisgives us a very concrete experience and as such weunderstand all aspects of property investment youare interested in.

DISCLAMER. Finally, in accordance with our normal practice, we would state that this report is for general informative purposes only and does notconstitute a formal valuation, appraisal or recommendation. It is only for the use of the persons to whom it is addressed and no responsibility canbe accepted to any third party for the whole or any part of its contents. It may not be published, reproduced or quoted in part or in whole, nor mayit be used as a basis for any contract, prospectus, agreement or other document without prior consent, which will not be unreasonably withheld.

Whilst every effort has been made to ensure that the data contained in it is correct, no responsibility can be taken for omissions or erroneous dataprovided by a third party of due to information being unavailable or inaccessible during the research period. The estimates and conclusionscontained in this report have been conscientiously prepared in the light of our experience in the property market and information that we were ableto collect, but their accuracy cannot be guaranteed.

Rogner HotelTirana, AlbaniaT: +355 69 209 91 [email protected] www.balkimo.com

• Albania's tourism industry has been growing at a rate > 20% per year!• The tourism sector generated revenues of 2.5 billion Euros in 2009, 15% of GDP!• Albania is the only country in the world generating 99% of its energy from green Hydropower!• The Albanian Riviera stretches some 350km forming one of the last unspoilt coastline in Europe!• Albania’s central location in the Mediterranean makes it highly accessible to Europe’s 732 million strongpopulation. Less than three hours direct BA flight from London to Tirana!

Balkimo Research | Residential 3Q2010