Despite political tensions in Lebanon, particularly in the lead up to the presidential elections scheduled for September, the consumer real estate market is booming. Demand for small and medium sized residential apartments is not only high, but has increased over the past few months both inside the capital and in some of the country’s outlying regions. This, as disputes between Lebanese factions continue to escalate.
Latest research on the Lebanese real estate sector reveals demand is mainly coming from Lebanese who work and live abroad, and are looking for affordable secondary housing back home. It is estimated that the Lebanese diaspora have an accumulated wealth of US$60 to US$80bn.
In general, it is a good idea to invest in real estate anywhere… But West Beirut is very small and the demand for property is extremely high.
Beirut and its suburbs are becoming increasingly popular to these expatriate Lebanese, particularly in the areas of Ashrafieh, Ramlet el Baida and Tallet el Khayat. Outside Beirut Ghazir, Adma and Broumana are also witnessing high demand.
Prices have consequently risen by approximately 15 to 17% this year compared to 2006. While soaring demand is one of the reasons for the increase, the rise in the cost of building materials and land has also contributed. Steel has soared from around US$200 per tonne five years ago to about US$800 per tonne today. Cement prices have increased from US$75 per tonne before last summer’s July 12th to August 8th war between Hezbollah and Israel, to above US$110 today.
Also factored into the equation is the dwindling labour force caused by the recent departure of the large Syrian working population who had helped rebuild the country’s infrastructure after the civil war which took place between 1975 and 1990.
Economists predict prices will escalate even further and potential home sellers are taking that into account before putting their properties on the market. Analysts say the few homeowners who are willing to sell are doing so because they are in dire situations.
“I must say that most people are unwilling to sell because they are expecting the price to increase,” says Mohammed Zebib, Lebanese economist.
“People who are willing to participate in the market are either desperate for cash or asking for extremely high prices for their homes. In addition, prices are high due to the high inflation. Moreover, speculators are more active.”
Figures from 2006 reveal Beirut accounts for the majority of real estate transactions in Lebanon with 33% of total sales attributed to the capital. Mount Lebanon, comprised of Metn, Kesrwan and Jbeil made up 28% of sales. Baabda, Chouf and Aley accounted for 24% of transactions. The remaining three regions of the south, north and Bekaa held between 3 and 7% each. Analysts say buying in certain areas can be very advantageous for investors who are looking to make a profit in the near-term, rather than buying a residence for personal long-term use.
“The best place to invest in is West Beirut,” says Zebib.
Like most other places in the country, West Beirut has a mix of low and high-income housing. Although it is a predominantly Muslim area of the city, it has significant Druze and Christian populations as well.
“In general, it is a good idea to invest in real estate anywhere,” says Zebib. “But West Beirut is very small and the demand is extremely high.
“Thus, investing now will generate high returns in the future. In the case of Lebanon, the situation is different for the following factors: unique situation, beautiful weather, multicultural nation, and the traditional Lebanese hospitality.”
But analysts warn buyers should exert some caution before committing to a major purchase. Certain properties are overpriced for various reasons.
Some real estate agents may charge more if the buyer has been absent from the country for long enough to have no knowledge of the current state of the market.
Lebanon relies on foreign investment in its property sector to build new developments, provide jobs, and ultimately stir economic growth in recent years GCC investors have spent billions of dollars on real estate and tourism projects in the country.
“Some prices are overvalued,” says Zebib. “Thus you have to do your own investigation in order to pay the fair price. “Prices are overvalued because sellers knew that some buyers are not familiar with the market.”
Some analysts put the total volume of real estate transactions in Lebanon last year at US$3bn. And these figures tend to be slightly below the real value as certain individuals register lower values for tax purposes.
Many in the industry estimate the real value at 10 to 15% higher.
Last year, consumer real estate transactions in the first quarter of the year reached US$982m, while figures for this year’s first quarter registered at US$843m. Nonetheless, with a difference of only 14% during a time of political and economic uncertainty, analysts say the real estate market is performing well.
But when it comes to existing and potential multimillion and billion dollar corporate real estate deals, the industry is not without its problems.
Since the assassination of former Prime Minister Rafik Hariri on February 2005, the five separate political killings which ensued, and last summer’s war, investment in the country has taken a severe blow. Although developments that were set to take place before the murders are going ahead, Lebanon has not heard the announcement of upcoming mega projects since the death of the former prime minister, who is credited with launching the reconstruction process in the country.
Lebanon’s largest construction and development company, Solidere, which was created by Hariri to rebuild downtown Beirut, is currently in the spotlight.
Solidere is expanding regionally despite criticism from a coalition of shareholders who originally owned property in downtown Beirut. The firm dismissed allegations made by the group of downtown property owners after Solidere established Solidere International this past summer. The group says the firm violated corporate bylaws by establishing Solidere International.
In November last year an amendment to company regulations allowing Solidere to operate outside of Lebanon was approved at an extraordinary meeting of its board of directors, attended by investors controlling 80% of the company capital.
“In contrast to what they claimed this expansion of activities abroad will use Lebanese assets to strengthen Solidere’s presence in international markets and its balance sheet,” says Nabil Rached, Press Officer, Solidere.
The group filed a petition against the firm for using capital from local operations to fund the regional projects of its international branch.
Shareholders railed against what they dubbed a suspicious amendment to the firm’s corporate bylaws approved last November that allowed Solidere to operate outside the Beirut Central District.
While some analysts say the issue of Solidere is very complicated and lacks transparency, firm officials say the allegations lack evidence, are without legal basis, and have no relation to reality.
“This strategy comes at a time when the real estate and economy in the country is declining due to instability,” says Rached. “The decision to expand abroad absolutely does not mean Solidere Lebanon will abandon its projects in central Beirut especially when local operations are what gave Solidere access to foreign markets.”
Meanwhile, Lebanon’s Investment Development Authority, or IDAL, says the country missed an opportunity this year to attract the foreign investment into the country. Officials say they could have drawn over US$3bn worth of investments in 2007 if the political situation was stable.
Lebanon relies on foreign investment in its property sector to build new developments, provide jobs, and ultimately stir economic growth. In recent years GCC investors have spent billions of dollars on real estate and tourism projects in the country.
Gulf states are enjoying cash windfalls because of high oil revenues and those billions could have been advantageous for Lebanon.
Lebanon’s Investment Development Authority or IDAL processed US$510m worth of investment projects in 2006 reached. But in 2007 investments through IDAL have fallen to less than US$150m so far. A sharp contrast to what Lebanon was set to attract. IDAL expected to see over US$3.5bn worth of investments in 2007, but political tensions soured expectations.
Total Arab direct investment in Lebanon rose from US$1.78bn in 2005 to US$2.3bn in 2006. IDAL statistics reveal that 68.5% of the total Arab direct investment in Lebanon went to real estate projects.
IDAL officials say although investments processed by them took a beating this year, they are optimistic they’ll pick up once the new president is elected in September.
The vision for Lebanon and Beirut in particular is the creation of a first-class city which is a centre for international business, a hub for tourism and a residential haven.
Investment into the regeneration of Lebanon is not restricted to Beirut, but because Beirut is the capital of Lebanon this is where the majority of business takes place, where many international businesses seeking a regional hub are relocating and where substantial amounts of foreign investment are generally made during times of peace.
Analysts say the people who know and understand Lebanon acknowledge that it will always have its challenges, but in real estate, the trend will continue upward. After the election is over the future is bright.
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