For hundreds of years, land has been a refuge investment and much-preferred option to cash. The same is true today, as investors have had enough scares with financial market investments — stocks, securities, futures and, of course, the more toxic products that came to surface during the 2008 financial meltdown. Land, though the least liquid of those assets, has proven to be a secure placement in Lebanon and, in some cases, extremely lucrative.
For investors who want to take a position in the Lebanese property sector without exposing themselves to the vagaries of project development, buying land is a safe haven and financially attractive in the mid-to-long term. Data gathered by Ramco show that appetite for buildable plots in Beirut is as vigorous as ever, despite the clear slowdown in real estate activity, the drop in many real estate indicators and the volatility of the political situation.
Buying land in Beirut involves two main investment strategies.
The long play
The first is a long-term investment strategy with an element of seeking considerable financial gain while perceiving land to be a safer option than equities or alternative investments. The long-term angle means that investors are willing to hold their properties for several years as their values continue to appreciate.
Buyers using this approach would search for plots in neighborhoods or areas that are currently snubbed by developers and end-users but offer obvious future growth. Such was the case with Corniche el Nahr and Mar Mikhael a few years ago. When the first investors bought into the areas, they were opening new markets. Pioneers in buying properties there did so at extremely attractive prices and were able to triple their initial investments — or more — in less than three years.
The safe bet
A more conservative strategy is to purchase land in established neighborhoods that are in demand by developers and end-users alike. This is a very safe investment, as land values are well assessed and a plot’s potential is easy to identify.
In this case, however, investors will have to be content with smaller profit margins, as the price growth potential of plots in renowned neighborhoods is limited. At the same time, the constant demand in those areas makes for, by property market terms, a very liquid market and investors can resell a property on short notice.
Such a strategy is appropriate for neighborhoods such as Ashrafieh’s ‘golden square’ or Hamra. It becomes critical in this case, however, to buy at the exact fair market value. As prices do not appreciate greatly in established neighborhoods, investors cannot hope to make a profit if they purchase above fair market prices.
For this reason, investors should be aware of the price of the built-up area (BUA) of the land, and not rely strictly on the practice of some landlords and brokers to quote the price of land in square meters. The price of the BUA allows investors to compare the value of plots with different exploitations. BUA prices are affected by zoning and additional exploitation benefits gained from being on corners, and so forth.
In many cases, it is also advisable to request a professional valuation of the plot to assess the accurate fair market value at the time of purchase.
Investors who do their homework on the fair value of a plot, are clear on their strategy and make their moves according to an area’s characteristics of either value retention or potential for future value appreciation will find that Beirut and its immediate suburbs still represent strong investment options.
At the same time, Beirut today is but one of numerous interesting options for land investors. As Lebanese real estate prices were booming for half a decade before they started stabilizing in late 2010, we encountered buyers who wanted to invest in land but could no longer afford the very high prices for plots in the Beirut metro area.
These buyers are looking farther afield and some areas, notably the coast between Beirut and Batroun, have been appreciating at quite a vertiginous pace. The market is dominated by speculative investments. Although many areas are not heavily developed (which is part of their charm), these communities are slowly being enveloped, with construction and plot values following on a constant rise.
Karim Makarem is director of Ramco Real Estate Advisers