A walk through central Beirut reveals a great paradox: despite the six years of war in neighboring Syria that has battered Lebanon’s economy, apartments, offices and shopping centers continue to be built in the city at startling rates. That Lebanon’s property market has not collapsed in the wake of the Syrian crisis can seem like a minor miracle – and many analysts frame it that way. But, as many point out, Lebanon’s property sector is underpinned by constraints in supply and steadily growing demand. The country, about a third the size of Belgium, has a growing population estimated at about 5m and an even larger expatriate population seeking footholds in their home state.
“The cycle in Lebanon is quite different from any other real estate cycle on earth – it’s an escalating cycle because of the scarcity of land,” says Lara Abi-Abdallah Kanj, head of real estate at Blominvest Bank. A conservative approach towards lending in the sector that prevails among local banks is the legacy of a property bubble that burst in the late 1990s, according to Marwan Barakat, assistant general manager of Lebanon’s Bank Audi. This means Lebanese developers are often not heavily burdened by debt. “They are using their own cash to erect all these construction projects, so, accordingly, they are not under pressure to decrease their prices significantly,” he says.
Investment from Lebanon’s global diaspora, estimated variously at 10m-15m people, has helped prop up prices during periods of strife. But, conversely, Lebanon’s property market can also be affected by events well beyond, as well as close to, its borders.
Mario Mohanna, general manager of the Patrimoine Conseil property agency, points to a graph charting the trajectory of Lebanon’s real estate transactions in terms of prices and volumes since 1990, marked with key events. Alongside conventional drivers of sentiment, such as interest rate rises, are the “Liberia events”, a reference to violence in the early 1990s that caused a rise in Lebanese property prices as expats in the west African country repatriated their savings.
Another is the September 11 attacks of 2001 in the US, as it caused Arab nationals to switch property investment to Lebanon from western countries. Tensions with neighboring Israel have also hit prices.
Prices began to rise sharply about a decade ago, coinciding with an oil price boom that encouraged investment from Lebanese working in the Gulf and other oil economies, such as Nigeria and Venezuela. This trend ended abruptly with the onset of civil war in neighboring Syria in 2011. Since then, Bank Audi’s Mr Barakat says prices have dropped by about 20 per cent while demand has shifted to smaller apartments and properties outside Beirut. Locals with more modest incomes make up a bigger portion of the market now.
Despite a refugee crisis, the capital has an oversupply of units, particularly at the high end. Janmarie Haggar, owner of JHM Estates property brokers, says demand among young buyers has recently shifted to “New York-style apartments” – of 60 to 90 square meters or so – and that the market has responded by providing smaller flats. Larger luxury units are moving more slowly. “If, indeed, you can afford a three, four or five million dollar flat, you are getting a very good deal, because those prices have dropped,” she says. “No one really wants those big flats.”
Raja Makarem, managing director of Ramco estate agents, says there are still many projects under construction that began before or near the outset of the Syrian crisis. “I think we are all waiting for Godot and better days,” Mr Makarem says. “But definitely, definitely, if I were to be asked … I think the only thing that can really change matters is the end of the war in Syria.”
The Daily Star