Property rights are a critical factor in shaping the economic development and prosperity of any nation, but as Albania attempts to pivot into the tourism sector, it has become an even more pressing and immediate issue that needs to be addressed. Despite efforts to institutionalise property rights since the 1990s, issues surrounding land ownership, legal disputes, and an inefficient bureaucratic system continue to affect the country’s overall prosperity.

Albania’s property rights–particularly physical property rights–remain considerably weaker than those of EU member states and neighbouring countries. The International Property Rights Index (IPRI) measures how effectively countries protect physical and intellectual property, with higher scores often reflecting the gap between wealthy and poorer nations. For instance, Finland scores 8.3 and Switzerland 8.2, indicating strong protections, whilst Haiti and Venezuela lag behind with scores of 3.1 and 2.8. Albania’s low score of 4.2 places it closer to the aforementioned Haiti and Venezuela, rather than other nations who have traditionally focused on the tourism sector, such as the UAE (7.0) and Spain (6.0).

The country’s long-standing challenges with property rights have frequently manifested themselves into very real and tangible conflict and unrest. Much of this turmoil originates from Albania’s communist past, during which private ownership was abolished. The resulting legacy of unresolved land claims and legal uncertainty still persists today. However, rather than enacting robust legal and land reforms or reinvesting money from the privatisation of unprofitable state-owned enterprises, Albania, in the early post-communist era, followed a path best described as feudal corruption. Families frequently clashed over land and property, while the burgeoning political class took advantage of these conflicts for political gain. Political factions would often promise powerful families additional land, property, or rights in exchange for their loyalty. During this period, confusion over property rights fueled widespread unrest, as no one had a clear understanding of who owned what, how much of it, or how they had come to own it. This instability further weakened Albania’s fragile post-communist economy, which inevitably buckled under the weight of these complex and multifaceted issues. This vicious cycle of corruption, lack of property rights, and violence between large families eroded trust in the government, weakening the economy and ultimately plunging the nation into civil war.

During the six months of anarchy, many new buildings were erected, and even more claims were staked on land that people believed to be vacant, or worse, promised to a rival faction. There was widespread squatting on abandoned properties, with individuals or groups occupying land or buildings without any formal ownership rights. In the aftermath of the civil war, numerous instances of forged property documents and illegal transactions emerged, as many took advantage of the chaos to claim properties through fraudulent means, including bribery. This toxic combination of factors–unclear ownership, corruption, and political manipulation–formed the foundation of Albania’s current property rights framework, where, as the saying goes, “I forti mbizotëron” (the strong prevail).

Albanian authorities have identified approximately 440,000 unauthorised structures erected without permits, with illegal construction continuing to present a formidable barrier to the formalisation of property titles. Although a process to either legalise or remove these structures began in 2006, it remains incomplete. The ongoing dilemma has incited frequent clashes between squatters, owners of allegedly illegal buildings, and the Albanian State Police, particularly over demolitions aimed at clearing the way for public infrastructure projects.

To tackle this and other pressing challenges, the government launched e-Albania in 2020, an online portal designed to provide citizens with access to a wide range of public services, including applications for property titles. Despite this initiative, obtaining these titles remains complex. In an effort to streamline property management, the government established the State Cadastre Agency (ASHK) in April 2019, merging several agencies responsible for property matters. Additionally, legislation approved in March 2020, seeks to consolidate property rights by finalising land allocation and privatisation processes.

Although there has been progress, it has certainly been slow. According to a review of property rights issues by ICG Research Albania, the normalised average of legalisation permits awarded between 2006 and 2022 is a mere 2.9%—an alarming reality that requires immediate attention. The European Commission has identified significant issues in the functioning of this institution, including poor infrastructure and a lack of alignment with international standards. Most of the data remains un-digitised, further contributing to inaccuracies and providing opportunities for bribery and corruption. These concerns should be at the forefront of government reform.

In addition to the domestic challenges, foreign ownership presents another layer of complexity. The share of properties purchased by non-Albanian residents has steadily increased, with 13% of total sales in 2022 and 14% in 2023. In the first half of 2024, this figure nearly doubled to 27%, driven primarily by buyers from the EU. While foreign demand does contribute to the increase in house prices, it also brings significant investment and stimulates economic growth – key objectives that Albania is seeking to achieve. The core issue, however, lies in the inelastic supply of housing. This shortage stems from insecure land titles, which discourage new construction. When property rights are uncertain, developers are reluctant to invest in new buildings, given the long-term commitment required. Therefore, rather than imposing restrictions on foreign buyers, efforts should be concentrated on addressing the deeper structural issues constraining the expansion of housing supply.

In the first half of 2024, the Fischer Index, which captures changes in house prices, recorded an 8% increase compared to the same period in the previous year. This underscores the rapid rise in property prices in Albania, primarily driven by the limited supply of legalised properties. Additional factors contributing to this trend include rising labour costs, exacerbated by high emigration rates, and the increasing price of raw materials. Furthermore, speculative investments and the growing appeal of Albanian real estate — particularly along the coastline — among EU-based buyers have also contributed to the upward pressure on prices.

Without targeted reforms, the Albanian real estate market risks facing even greater affordability challenges and increased volatility. While the Albanian Central Bank and other agencies have “reassured” the public that a housing bubble is unlikely, the government must take decisive action to address the urgent issues at hand. Accelerating the digitisation of cadastral data is crucial for modernising property management. This measure would enhance transparency, improve accuracy and ultimately lead to a more responsive real estate market. In the long run, Albania has to improve its property rights score more broadly, and thereby enhance its overall economic freedom score.