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| Global Property Guide sees Lebanon’s housing market thriving amid Arab woes |
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Posted on 2 Feb 2010 |
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The latest note released by Global Property Guide on the property market in Lebanon indicated that the housing market in the country seems to be benefiting 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. Furthermore, the study noted that it doesn’t hurt that the country has relatively good climate and liberal society. As a result, Global Property Guide signaled that property prices are now rising strongly, fuelled by firm demand and a very strong economy.
In the second quarter of 2009, the average residential property price in the Beirut Central District (BCD) soared 40.7% to LP 8.85 million (US$ 6,000) per square meter from the same period last year, or 37.4% after inflation. The study noted that Lebanon has showed impressive results in the construction and real estate sectors during 2009. 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 LP 116.3 million (US$ 77,500).
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, house prices fell only 2.4% (-6.2% in real terms) during the year 2007. Global Property Guide indicated that 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 LP 1.2 million (US$ 3,500) per sq. m to LP 5.9 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.
The study highlighted that demand for Lebanese real estate come from three main groups, namely local residents, whose appetite grows apace, wealthy Lebanese expatriates, and foreign investors, mainly Arab nationals. 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.
Global Property Guide indicated that Housing loans have traditionally only been available to the developers of new properties. However, 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 LP 2.66 trillion (US$ 1.77 billion) in 2008, up 34% from a year earlier, according to the Central Bank. The study noted that the growth in the property market was fueled by the resilient banking sector and robust economic growth. The former is mainly attributed to conservative bank lending practices, excellent regulation and supervision by the Central Bank and the Banking Control Commission, limited exposure to derivatives and structured products, as prior to the eruption of the global crisis, the central bank issued a directive preventing banks from investing freely in structured financial products, and the fact that banks cannot lend property investors more than 60% of the real estate project cost. As to the strong economic growth, which is estimated at 7.0% in 2009, accompanied by a low inflation of around 2.5% in 2009 relative to 10.8% in 2008, a record high balance of payments and tourism activity, they were also major levers behind the booming property market in the country.
Lastly the report indicated that the biggest risk remains 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 LP 2.23 million (US$ 1,488) for a 150 sq. m apartment to LP 13.75 million (US$ 9,158) for a 750 sq. m apartment.
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