Lebanon Real Estate Market - Resilience in the Face of the Global Crisis
Lebanon’s real estate market has grown to become of the success stories of the country’s economy
The main characteristics of the Lebanese real estate sector and its prospects for growth and investment potential are under scrutiny in a new report from Bank Audi in Lebanon.
The report, Lebanon Real Estate, June 2010, says that the market has demonstrated a strong performance and resilience in the face of the recent global turbulence which triggered an acute slowdown in activity in both regional and global markets.
In recent years, price hikes in various market segments only contributed to bringing real estate prices more in line with regional and international averages.
Meanwhile, demand for real estate is genuine and non-speculative, Bank Audi says, with demand being driven by key factors such as the organic growth of Lebanese resident households, the large Diaspora community and a growing Arab demand for second homes in the country.
The effect of this increased demand has led to increases in prices. What has also emerged is a growing gap between the purchasing power of Lebanese residents and potential buyers and the quality of housing stock available to them in the market today, raising the question of affordability of accommodation for a large proportion of Lebanese residents.
With prices at record highs in Beirut demand is shifting to small-to-medium size estates and is increasingly headed to the capital city’s outskirts.
An increasing scarcity of land plots especially in the capital combined with healthy demand is providing support to land prices which are increasingly weighing on end-user prices.
The short-to-medium term outlook, according to Bank Audi, is that of flatter price growth relative to previous years, with less room for drastic appreciation after realty prices became more in phase with their fundamental value.
A number of factors have contributed enable the market to have been doing rather well recently. First, demand for real estate in Lebanon remains one of end-users rather than speculators as has been the case in some other countries in the region and globally.
This means that the great majority of realty buyers are not looking to make a “quick buck”; speculators do exist but they remain a smaller percentage relative to markets elsewhere and thus do not have a tangible impact on domestic market activity volumes. Speculators are roughly estimated not to exceed 20% of the total buyers, according to Ramco Real Estate Advisors.
Realty developers in Lebanon do not rely so much on financial leverage or borrowings from banks, but rather on their own funds to undertake projects, the report says.
Developers receive a financial boost from presale money that actually adds to self-financing, but leverage in real estate development remains relatively low, which underlines the solid financial foundations of the industry on the supply side, while also ensuring the continuity of projects underway in difficult times.
The stringent regulatory framework operating in the country actively contributed towards preventing the real estate sector from entering into a bubble.
The Central Bank of Lebanon limits loans for real estate from banks to 60% of a project’s value, while requiring collateral against the loans, which has the effect of putting a cap on leverage and reducing speculation.
Lebanon’s open real estate sector has benefited from the recent buoyant performance of the domestic economy, which recorded real growth of 9% in both 2008 and 2009 while experiencing continuously robust inflows of capital into the market.
Official figures put total investment in the Lebanese real estate at a high of nearly $7bn in 2009, which is slightly more than 20% of the country’s total output.
In the midst of the global crisis of late 2008 and early 2009, the real estate market was driven by local demand of Lebanese residents, and to a certain extent expatriates, accounting for an estimated 85%-90% of total demand, which helped the market to sustain healthy levels of activity.
The strong demand of Lebanese residents is mainly a consequence of a steady growth in population year on year at a long-term average of 1.6% per annum over the past couple of decades. Local demand has been supported by their strong ties with the large scattered and wealthy Diaspora community with expatriates accounting for about 40%-45% of real estate demand in the country.
Lebanese abroad are more and more seeking a foothold in their homeland with secondary residences now that their visits are more frequent following the normalisation of domestic political and security conditions over the past couple of years.
A noticeable recent trend in demand patterns has been the rising demand for properties on the outskirts of Beirut and surrounding areas; developers are extending the scope of their investments outside the capital city due to the scarcity of land plots available in Beirut where land and property prices are soaring.
Realty purchasers are also seeking less crowded residential streets with more greenery within more affordable areas. This trend is stimulated by ongoing infrastructure development with new roads linking the capital to major suburbs which facilitates daily commuting from home to workplace.
The residential segment of the real estate market has remained by far the largest segment, accounting in 2009 for more than 80% of new construction permits issued and it continues to witness sustained activity.
The total number of new residential projects under construction in Beirut at the present time is about 350. More than half the total projects under way are for relatively more affordable small-to-medium size residences valued at $500,000 and under.
Demand for realty in Lebanon has traditionally been more focused on purchasing houses rather than rentals. This is because real estate is widely viewed as a long-term investment and has been facilitated by home loan products from the banking sector.
There is a demand for rented properties coming mainly from foreigners working in the country and locals awaiting the completion of their permanent residence are in need of temporary accommodation.
David Morgan
Global Arab Network