The rapid rise in housing prices and the banking sector’s exposure to the real estate market are becoming one of the risks that could expose Albania’s economy to sudden shocks.

The warning comes from international rating agency Moody’s, which, although it upgraded Albania’s outlook from “stable” to “positive,” identified the real estate market among the vulnerabilities that could undermine financial stability in the event of a sharp correction.

“Relatively high gross borrowing needs and banking-sector risks linked to the rapid rise in housing prices expose Albania to potential sudden shocks,” Moody’s assesses.

Moody’s links the risk not only to property prices, but also to their interplay with the financial sector. If prices were to undergo a sharp correction, the decline in the value of collateral could affect the quality of banks’ loan portfolios and lending conditions.

The significance of this risk becomes even clearer in the scenarios Moody’s sets out for the future course of Albania’s rating.

“Factors that could lead to a downgrade or a return of the outlook to stable are: The outlook could return to stable if economic growth slows significantly, fiscal deficits widen considerably, or financial-sector vulnerabilities increase, particularly those stemming from the real estate market or from unexpected external shocks,” the report states.

The assessment is particularly important given that Albania’s real estate market has gone through a long cycle of price growth, accompanied by an expansion in lending for home purchases.

Banks’ increased exposure to the property market has become increasingly evident. According to data from the Bank of Albania, at the end of 2025, loans to individuals for home purchases accounted for 26.8% of the loan portfolio, while loans to businesses for real estate accounted for 24.3%; together, they represented around 52% of the banking system’s total outstanding loans, worth approximately 470 billion lek, or €4.7 billion.

By the end of May 2026, exposure had increased further to 477 billion lek, more than €5 billion, representing a 12.5% expansion in one year and more than double the level at the beginning of 2020.

Precisely in response to developments in the property market, the Bank of Albania has introduced macroprudential limits on new real estate loans, based on the loan-to-value ratio and the ratio between the borrower’s installment and income.

The International Monetary Fund has also previously identified the same vulnerability. According to the IMF, since 2019, construction activity and real estate prices have risen significantly, while banks’ exposure to the sector has expanded.

In the third quarter of 2025, real estate-related loans accounted for around 20% of the banking system’s total assets. The IMF classified a sharp and unexpected decline in property prices as a risk with potentially high impact on the economy.

The warning about real estate comes in the same report in which Moody’s issued a positive signal about the country’s overall profile.

In its assessment published on September 18, the agency upgraded Albania’s outlook from “stable” to “positive” and confirmed its sovereign rating at “Ba3.”

The upgrade was supported by the strengthening of Albania’s fiscal and external position and the acceleration of reforms as part of the EU accession process.

Moody’s expects public debt to decline from 52.9% of GDP at the end of 2025 to 50.2% in 2027, while the current-account deficit, which fell to a historic low of 0.7% of GDP in 2025, is expected to remain close to 1% in 2026–2027.

The agency also forecasts economic growth of 3.6% in 2026 and 3.5% in 2027, but at the same time notes that relatively high borrowing needs and risks linked to the rapid rise in housing prices remain vulnerabilities for Albania’s economy./Monitor

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According to the Annual Banking System Supervision Report for 2025, the largest share consists of loans taken out by individuals to buy homes, which account for 26.8% of total lending in the banking system.

They are followed by real estate loans taken out by businesses, with a share of 24.3%. Taken together, these two categories make up about 52% of the total stock of loans issued by banks.

In value terms, the stock of loans for property and real estate stands at around 243.6 billion lek for individuals and 216 billion lek for businesses, reaching a total of about 470 billion lek, or approximately 4.7 billion euros.

These figures show that banks have built up significant exposure to the real estate market, both in the household segment and in the business segment.

The Bank of Albania has viewed the acceleration of real estate lending as a factor that could pose risks to financial stability. For this very reason, new limits were introduced last year on two key indicators: the ratio between the loan amount and the value of the property, as well as the ratio of the monthly installment to the borrower’s income.

These rules are intended to curb lending at very high levels relative to property prices and to prevent cases in which the monthly payment becomes a heavy burden on household budgets.

However, even after these interventions, real estate loans to individuals have continued to grow, while this trend has also been influenced by the property revaluation process accompanied by lower tax liabilities.

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