It´s no surprise, given Lebanon´s slow economic growth, heightened domestic political bickering and the ongoing war in neighboring Syria, that things don´t look so hot in its property market.
Property prices are falling. Sales transactions continue to decline. And while there´s more construction, it remains far below pre-crisis levels.
During the year to end-Q2 2015, nationwide property prices fell by 6% (-2.74 inflation-adjusted), to an average of LBP188.71 million (US$125,000), according to Bank Audi. This was the fourth consecutive quarter of y-o-y property price falls.
During the latest quarter property prices were nominally unchanged, thought they actually increased by 1.13% when adjusted for inflation.
The Lebanese property market has experienced strong house price rises in recent years:
House prices in several areas of Lebanon doubled from 2008 to 2012, mainly due to increased demand from GCC investors after the oil price surge in 2008.
Because prices remain high, homebuyers have been moving out from Beirut, the capital, to look for cheaper housing. During the first seven months of 2015, Beirut accounted for just about 26.2% of the total value of property transactions, down from about 37.2% in 2007, based on figures from the Real Estate Registry.
Less expensive nearby areas, such as Baabda, Metn, and Kesrouan accounted for almost 54% of the total property sales in the first seven months of 2015, up from 47.3% in 2007.
Property prices and sales transactions in Lebanon are expected to continue falling in the coming months, according to local property experts.
The economy is expected to grow by a modest 2.5% this year, after annual GDP growth rates of 2% in 2014, 2.5% in 2013, 2.8% in 2012 and 0.9% in 2011, based on figures from the International Monetary Fund (IMF).
Lebanon´s religious communities maintain a watchful equilibrium. To maintain the balance of power between religious groups, the president must be a Maronite Catholic Christian, the prime minister a Sunni Muslim, the deputy prime minister an Orthodox Christian and the speaker of parliament a Shi’a Muslim. The 128 parliamentary seats are equally divided between Christian and Muslims.
The country’s economy and populace were ravaged during the Lebanese Civil War from 1975 to 1990. From the 1990s to the early-2000s, there was an uneasy calm, with external forces and militant groups occupying different parts of the country.
In 2005, former Prime Minister Rafik Hariri was assassinated. Then in July 2006, the Israel-Hezbollah War erupted, which caused large-scale damage to Beirut, undoing much of the good work done in the post-Civil War reconstruction programme. In May 2007, the violent Nahr al-Bared conflict, the most severe internal fighting in almost two decades, exploded and ravaged some parts of the country.
Finally in May 2008, the Doha Accord marked the end of an 18-month long political crisis. Local political and security conditions improved considerably, with the Lebanese government determined to pursue reforms focused on achieving economic revival, sustainable growth and political stability.
The political stability in the country helped the economy grow strongly, with an average annual GDP growth rate of 9.2% from 2007 to 2010.
However political tensions brought down the government of Prime Minister Saad al-Hariri in January 2011. He was succeeded by Najib Mikati, whose cabinet is dominated by Hezbollah and its allies.
In June 2011, the UN issued arrest warrants for four members of Hezbollah in the murder of former PM Rafik Hariri. Hezbollah was uncooperative and refused to allow any suspects to be arrested. Tensions have been exacerbated by the Arab Spring since December 2010.
By mid-2012, the Syrian conflict which began in March 2011 had spilled over into Lebanon in deadly clashes between Sunni Muslims and Alawites in Tripoli and Beirut. This raised fears that Lebanon’s already fragile political truce could collapse again into a sectarian strife. The number of Syrian refugees in Lebanon rose to over one million in April 2014 from about 700,000 people in September 2013. This has placed a severe strain on the country´s resources.
Then in March 2013, Najib Mikati’s government resigned amidst political tensions over upcoming elections. General elections, due last November 2014, were put on hold until 2017 due to security concerns over the conflict in Syria.
Economic growth has slowed sharply in the past four years, with annual GDP growth rates of just 2% in 2014, 2.5% in 2013, 2.8% in 2012 and 0.9% in 2011, based on figures from the International Monetary Fund (IMF). The economy is expected to grow by 2.5% this year.
The number of tourist arrivals dropped by an average of 16% per year from 2011 to 2013. But surprisingly in 2014, tourist arrivals increased by 6.4% y-o-y to 1,355,000 persons. In the first half of 2015, tourist arrivals rose again by 14.7% to 671,000 persons compared to the same period last year.
In Beirut, the average price of a 1st floor apartment under construction stood at LBP5.6 million (US$3,720) per square meter (sq. m.) in the second quarter of 2015, based on figures from a recent study conducted by Ramco Real Estate Advisers. The average price of a 238 sq. m. apartment was LBP1.33 billion (US$885,360).
Average apartment price (1st floor) in Beirut, Q2 2015
|Neigborhood||Central Business District||Ashrafieh||Ras Beirut||Municipal Beirut|
|Average Unit Price (USD/sq. m.)||6,679||3,607||3,574||3,720|
|Average Size (sq. m.)||331||229||229||238|
|Average Total Value (USD)||2,210,749||826,003||818,446||885,360|
|Source: Ramco Real Estate Advisers|
The number of property sales in Lebanon fell by 13.3% y-o-y to 15,774 units during the second quarter of 2015, according to Bank Audi.
Likewise, the value of property sales fell 19.2% to LBP2.97 trillion (US$1.96 billion) in Q2 2015 from the same period last, according to the Real Estate Registry.
Surprisingly, property investments by foreigners and other Arab nationals have risen, despite the continued regional political unrest, soaring by 31.6% y-o-y in Q2 2015 to 363 units, according to the Real Estate Registry.
In 2014, foreign homebuyers represent just about 1.69% of total property sales transactions in Lebanon, down from 2.04% in 2010 and 2.53% in 2009.
In 2014, newly issued construction permits rose by 4.8% to 13.55 million sq. m. from a year earlier, after annual declines of 12% in 2013, 10.8% in 2012, and 6.5% in 2011, based on figures from Banque Du Liban and the Order of Engineers.
The total number of construction permits in the country rose by an average of 16.4% annually from 2005 to 2010.
Some of the major residential developments in Lebanon:
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. The first batch of apartments is already available in the market. In 2015, the selling price of two- to three-bedroom apartments starts at US$2,000 per sq. m.
The Beirut Terraces is a 116 metre-high structure which offers a mix of apartments of different sizes and types such as simplex, duplex and townhouses with pools. The construction of the project was started in 2011 and expected to be completed by the end of 2015.
The Beirut Towers is a US$125 million luxury residential development in Beirut launched by Plus Properties, a Dubai-based developer. The residential project, completed recently, consists of two 23-storey 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.
This US$500 million residential development was launched last September 2009 by Venus Real Estate Development Co., and stretches over 7,510 metres in Marina, Solidere in Beirut.
The development is surrounded by 3,500 sq. m of gardens, jogging tracks and playgrounds.
Venus Towers has 3 luxurious residential buildings—Bloc A-30-storey; Bloc B-26-storey; and Bloc C-20-storey. 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.
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.
Launched in August 2009 by Antonios Projects, Sama Beirut is a 50-storey mixed use project located in Ashrafieh, near downtown Beirut. The project has been fully-operational since 2014.
Its 200-m skyscraper, the tallest building in the country, offers residential, commercial and retail space. Its residential apartments range from 300 sq. m to 1,500 sq. m. In addition, the tower also features six commercial shops and office spaces.
Platinum Towers, at 153-metres, is one of Lebanon’s tallest residential buildings. The US$200 million residential project, completed in 2008, is in the heart of Beirut’s dynamic central district, along the Beirut Marina. It is only a few minutes away from Beirut International Airport.
Platinum Towers consists of two buildings. The smaller one is by the sea, the other overlooks Beirut Central District.
In Lebanon, buyers have traditionally paid cash, or benefited from pre-selling schemes. They buy during construction, making down payments and then paying in monthly installments.Housing were traditionally only available to developers.
Yet today, an increasing number of banks offer mortgage loans directly to homebuyers. The size of the Lebanese mortgage market grew to 19.2% of GDP in 2014, from 17.9% in 2013 and an average of just 5.7% from 2004 to 2009.
Outstanding housing loans soared 15.75% to LBP14.9 trillion (US$9.88 billion) in 2014 from a year earlier, according to the Banque du Liban, haing risen an average of 32% annually from 2006 to 2013. Likewise, the total amount of new housing loans drawn increased 6.2% to LBP2.03 trillion (US$1.34 billion) in 2014.
In August 2015, the repo rate was kept at 10%, unchanged since December 2009.
Interest rates for housing loans are usually tied to the US prime rate or LIBOR, with a fixed percentage added. 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.
Gross rental yields in Beirut have been falling. Gross rental yields on Beirut apartments now range from 3.45% to 4.5%, very significantly down from an average of 10% to 11% about six years ago. Larger apartments in Beirut have lower yields.
The continuous decline in rental yields can be attributed to the dramatic increase in house prices in recent years.
In October 2013, the average monthly rents in Beirut ranged from LBP3.14 million (US$2,082) for 150 sq. m. apartments, to LBP8.12 million (US$5,380) for 400 sq. m. apartments, according to the Global Property Guide’s 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 pre-existing contracts).
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