Why Foreign Investment Is Pouring Into Lebanon Real Estate

While political turmoil in Lebanon is fresh in the minds of foreign real estate investors, the May 2008 Doha Accord has brought peace and stability to the country …

While political turmoil in Lebanon is fresh in the minds of foreign real estate investors, the May 2008 Doha Accord has brought peace and stability to the country while leading to a boom in property prices. An attractive climate, liberal society and a robust economy have helped Lebanon’s housing market, which is highlighted by the strong performance of Beirut. See the following article from Global Property Guide for more on this.

Despite Lebanon’s troubled history, property prices are now rising strongly, fueled by firm demand and a very strong economy.

The housing market seems to benefit from its Arab neighbors’ troubles.  Despite the crisis engulfing Dubai and other GCC countries, Arab investors and wealthy Lebanese expatriates have been moving money into Lebanon’s property market.

It doesn’t hurt that Lebanon’s climate is great, the food wonderful, and Beirut society can be liberal – the heartland of pleasure and relaxation for the region.

In the second quarter of 2009, the average residential property price in the Beirut Central District (BCD) soared 40.7% to LBP8.85 million (US$6,000) per square metre from the same period last year, according to Ramco Real Estate Advisers and Bank Audi’s Research Department, or 37.4% after inflation.

“Lebanon has showed impressive results in the construction and real estate sectors during the first half of 2009,” said Georges Abou Jaoude of Renaissance Holdings, a local real estate developer. “These positive developments underline the country’s resiliency amid an ongoing global recession, and have further enhanced Lebanon’s reputation as a very attractive investment destination.”

This was Lebanon’s second boom year.  In 2008, the average property sales price was up 26.8% to LBP116.3 million (US$77,500), according to the Real Estate Registry.

The turning-point was when peace broke out, with the May 2008 Doha Accord.  Even before then Lebanon’s tragic politics had affected house prices surprisingly little.  The Israel-Hezbollah War from July 2006 to September 2006 caused Lebanese house prices to fall only 2.3% (-7.5% in real terms) during 2006. Similarly, although in May 2007 the violent Nahr al-Bared conflict erupted – Lebanon’s most severe internal conflict for almost two decades – house prices fell only 2.4% (-6.2% in real terms) during the year 2007.

High-end Beirut is in demand

Beirut Central District (BCD) has the most expensive properties in the country, with prices around 33% higher than Beirut’s outer districts. Residential property prices in the BCD have risen by about 24% annually in recent years, according to Ramco Real Estate Advisers.

High-end properties located in Beirut’s posh neighborhoods are still in demand with asking sales prices ranging from LBP1.2 million (US$3,500) per sq. m to LBP5.9 million (US$4,000) per sq. m.

On the other hand, prices have dropped by about 10% to 15% in the mid- to low-income segment since the onset of the global crisis, partly due to the sharp decline in construction costs and the developers’ willingness to accept lower profit margins to secure a sale, according to the latest Bank Audi report.

Gulf money pours in

Demand for Lebanese real estate come from three main groups.

  • Local residents, whose appetite grows apace
  • Wealthy Lebanese expatriates
  • Foreign investors, mainly Arab nationals. UAE investors made up 41.9% of total Arab investments in Lebanon in 2008, at LBP1.65 trillion (US$1.1 billion), according to the Inter-Arab Investment Guarantee Corporation.

In 2008, the value of property sales was LBP9.72 trillion (US$6.48 billion), up 54.4% on 2007, according to the Real Estate Registry.

The number of property transactions was 167,054 in 2008, up 8.4% from a year earlier.

Small-sized to medium-sized properties in Beirut and Mount Lebanon are in demand. Sales are dominated by properties with areas between 150 sq. m to 300 sq. m.

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Beirut accounted for about 52.4% of Lebanon’s 2009 transactions by value, according to the Real Estate Registry, followed by Metn (19.2%), Kesrouan (12.3%), North Lebanon (6.8%) and South Lebanon (5.8%).

Property sales are expected to rise further, as demand continues strong, and the economic outlook is bullish.

Mortgage market and interest rates

Most buyers pay cash, or benefit from pre-selling schemes. Homebuyers purchase an apartment unit during the construction phase, put a down payment and make monthly installments until the project is completed.

Housing loans have traditionally only been available to the developers of new properties. Yet today, several banks have begun offering mortgage loans directly to homebuyers.   In 2008, the Lebanese mortgage market grew to 6% of GDP, from an average of 4.9% from 2004 to 2007. Outstanding housing loans totaled LBP2.66 trillion (US$1.77 billion) in 2008, up 34% from a year earlier, according to the Banque du Liban.

Interest rates for housing loans are usually tied to the US prime rate or LIBOR, with a fixed percentage added, and currently 5.9%. The loan-to-value (LTV) ratio ranges from 50% to 85% of the appraised value or actual purchase price of the property (whichever is lower). The term period is usually from 20 to 30 years. Lebanese banks require both life and house insurance from loan applicants.

Resilient banking sector

The country’s banking sector has been resilient. In September 2009, banking activity grew by an astonishing 20% from a year earlier, the highest in the region, according to Bank Audi, with assets at LBP23.4 trillion (US$15.6 billion) in September 2009. The sector’s strength is attributable to:

  • Conservative bank lending practices
  • Excellent regulation and supervision by the Banque du Liban and the Banking Control Commission
  • Limited exposure to derivatives and structured products.  Prior to the eruption of the global crisis, the central bank issued a directive preventing banks from investing freely in structured financial products
  • Banks cannot lend property investors more than 60% of the real estate project cost.

The biggest risk – falling rental yields

Gross rental yields in residential housing have fallen from over 11% five years ago, to under 4% in 2009.  Larger apartments are on especially unattractive valuations, with rental yields lower than 3%.

In Beirut, the average monthly rent ranges from LBP2.23 million (US$1,488) for a 150 sq. m apartment to LBP13.75 million (US$9,158) for a 750 sq. m apartment, according to the latest Global Property Guide research.

Average rents for the market as a whole are lowered by the survival of many pre-1992 contracts, creating a class of sitting tenants paying low rents, who cannot be evicted except at great cost (see Lebanon’s Landlord and Tenant Law).  However this law does not affect post-1992 contracts, which are equally balanced between landlord and tenant. (The Global Property Guide’s research only covers current offers for sale and offers to rent, not existing contracts).

Robust economic growth

While many countries slipped into recession in 2008, the Lebanese economy grew by a spectacular 8.5%, the highest rate for 15 years. In 2009 growth of  6% is predicted to be reported, up from an earlier projection of 3%, according to Banque du Liban.

Inflation is expected to be 2.5% in 2009, down from 10.8% in 2008, based on the latest forecast from the IMF.

In August 2009, the balance of payments (BOP) recorded a surplus of LBP1.53 trillion (US$1.02 billion). For the first 8 months of 2009, Lebanon accumulated a surplus of about LBP6.56 trillion (US$4.37 billion), more than double the same period last year (US$2.0 billion).

Tourism is strong, due to the Doha Accord. In the first half of 2009, tourist arrivals surged to 761,415, up 61% on last year, according to the Ministry of Tourism.

In 2008, there were 1,332,551 tourist arrivals in the country, up from 1,017,072 in 2007. The services sector contributes over 67% of the country’s GDP.

Construction activity on the rise

Total construction permits, an indicator of future activity, rose 23% to 6.27 million sq. m. in the first half of 2009 from 5.1 million sq. m. from the same period last year, according to the Order of Engineers of Beirut and Tripoli. The surge in construction permits was a response to increasing housing demand.

In 2008, construction permits (measured in terms of area) rose by an astonishing 79% to 16.1 million sq. m., from an average of 4.1% for the past two years. Cement deliveries, also a gauge of the state of the construction sector, increased 7.7% to 4.2 million tons in 2008.

About 70% of the country’s total population owns their homes, according to Lebanon Opportunities.

Some of the major residential developments in Lebanon:

BeitMisk

BeitMisk is a huge $800 million residential community project in the mountainous Northern Metn region, covering more than 655,000 sq. m., and expected to house around 15,000 residents. Announced in mid-2009, BeitMisk  offers apartment units, villas and penthouses to homebuyers. It also offers a country club, gardens, recreational areas, and retail stores.

By July 2009, 32% of the units had been sold, with apartment prices starting at LBP2.48 million (US$1,650) per sq. m.  Townhouses are LBP3.15 million (US$2,100), according to Georges Abou Jaoude of Renaissance Holdings.

Beirut Towers

The Beirut Towers is a US$125 million luxury residential development in Beirut launched by Plus Properties, a Dubai-based developer. Still under construction, it consists of two 23-story towers, named Verdun and Ashrafieh—two of the most prestigious residential neighborhoods in the city. The two towers offer studio, one and two-bedroom apartments on single or duplex floors.

Venus Towers

This US$500 million residential development was launched last September 2009 by Venus Real Estate Development Co. It stretches over 7,510 meters in Marina, Solidere in Beirut. The development is surrounded by 3,500 sq. m of gardens, jogging tracks and playgrounds.

The Venus Towers has 3 luxurious residential buildings—Bloc A-30-story; Bloc B-26-story; and Bloc C-20-story. Apartments range from 250 sq. m to 650 sq. m. Amenities include a swimming pool, gymnasium, guest parking spaces, a commercial area and a security.

Marina Towers

The Marina Towers, completed in 2007, is a residential complex near the Beirut Marina. The development consists of the Marina Tower, Marina Court, and Marina Garden. The Marina Tower is the highest among the three buildings, at 150-m height built on over 7,000 sq. m land. On the other hand, the Marina Garden, surrounded by over 3,000 sq. m gardens, and the Marina Court, offers relatively smaller apartment units.

Sama Beirut

Launched in August 2009 by Antonios Projects, Sama Beirut is a 50-story mixed use project located in Ashrafieh, near downtown Beirut, set to be fully-operational by 2014.

Its 200-m skyscraper, set to become the tallest building in the country, will have residential, commercial and retail space. It offers residential apartments, with sizes ranging from 300 sq. m to 1,500 sq. m. In addition, the tower will also feature six commercial shops and office spaces.

Platinum Towers

Platinum Towers, at 153-meters, is currently Lebanon’s tallest residential building. The US$200 million building, completed in 2008, is in the heart of Beirut’s dynamic central district, along the Beirut Marina. Platinum Towers is only a few minutes away from the Beirut International Airport.

This article has been republished from Global Property Guide. You can also view this article at
Global Property Guide, an international real estate analysis site.

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