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BANKS AND REAL ESTATE LOANS Issues and Prospects

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

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  1. 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

  2. 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

  3. BANKS AND REAL ESTATE LOANS Issues and Prospects General ELVIN MEKA 13-05-2008

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. BANKS AND REAL ESTATE LOANS Issues and Prospects Contacting AAB URL: www.aab.al E-mail: secretariat@aab-al.org ELVIN MEKA 13-05-2008

  14. BANKS AND REAL ESTATE LOANS Issues and Prospects THANK YOU! ELVIN MEKA 13-05-2008

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