While new, high-end residential developments continue to define the current residential market, the bulk of Lebanon’s residential real estate sector is marked by illiquidity and inflexible prices because of many owners’ reluctance to sell and an unwillingness to accept professional valuations.
However, a drop in interest rates, prompting investors – notably, Gulf Arabs and Lebanese expats – to turn their attention to real estate, has offset many of these hidebound attitudes. This trend is not only reflected in the heightened development activity along the West Beirut and Solidere seafront, where multi-million dollar apartments are selling well, but in areas hitherto unfancied by foreign Arab nationals, such as Ashrafieh and Gemaizeh. The “local” market is characterized by affordable new build at $500 per m2 plus “old” properties that can be refurbished at the tenants’ leisure. But it is the latter sector that brokers often find difficulties in achieving sales when faced with the ingrown Lebanese unwillingness to acknowledge the need for cash. Brokers also complain that potential vendors are susceptible to the ill-informed views of real estate “amateurs” who assure them their property is worth more than the broker has quoted. “We tell people what the real value of their property is. They either like it, or they don’t like it. That’s their problem, not ours,” stated Joe C. Kanaan, president of Sodeco Gestion real estate consultants. Raja Makarem of RAMCO real estate consultants, said: “The Lebanese always overvalue their property. The greatest difficulty is convincing them of its real value. They treat property as a matter of honor. That’s why they don’t like to say that they want to sell. This makes the property more difficult to market.”
But how do local buyers choose where they live? Do they, like their counterparts in the West, use the usual criteria – proximity to schools, shops, etc? “They don’t think that way,” said Patrick Geammal, chairman and managing director of Ascot real estate brokers. “They think more about area and who is going to be their neighbor, about the reputation of the building they are going to live in (directly linked to who lives in it) than where they are going to send their kids to school – they don’t give a damn about that.” Other brokers underline the value attached to a sea view. The Lebanese often choose a residence close to that of their parents and usually remain in areas with which they identify religiously, although brokers say that at the upper end of the market – often characterized by educated, well-traveled Lebanese – this is changing. The Solidere district is cited as an example of residential sectarian blending. “I see some movement from West Beirut to Ashrafieh, to Gemaizeh,” said Karim Ibrahim, managing partner of the development firm Constructa. “But, I don’t see it the other way around,” he added, “I don’t see anyone from Ashrafieh buying an apartment in Hamra.” In general, Ashrafieh remains predominantly Christian, while West Beirut continues to be associated with Muslims. In another development, brokers say they are witnessing many Lebanese from the northern suburbs, such as Kaslik and Jounieh, choosing to buy in Beirut. If this turns out to be more than a mere blip on the graph, it will be a welcome reversal, as many residents of the Kesrwan region have been reluctant to return to or move to a capital many still associate with the war.
But it’s the foreign money that is today driving the market. According to Geammal, 60% to 70% of current apartment purchases in the Solidere district can be attributed to Gulf Arabs. In Ain Mreisseh, Verdun and Ramlet al-Baida, the figure drops to 40%, but demand still exceeds supply in the most popular, high-end neighborhoods, brokers say. And while most Lebanese view real estate as a life investment, Gulf Arabs see their Lebanese homes as more of a commodity, an attitude that may breathe some dynamism into the local residential market. Elsewhere, Gulf nationals are seeking to buy beyond their traditional areas. Although they have yet to populate the Christian Kesrwan area and the Metn in the same way they have in the Mount Lebanon resorts of Bhamdoun and Aley, more and more Gulf Arabs are choosing to live in Ashrafieh and Gemaizeh, where they are attracted by lower prices. They now account for 10% to 15% of sales in these neighborhoods.
According to Kanaan, such Gulf buyers want to distance themselves from other, more typical GCC nationals. “They are not like the Gulf Arabs who come to Lebanon only to smoke NARGILEHS and drink sodas downtown. These guys appreciate a more refined lifestyle. They integrate. Of course, if someone arrives in Ashrafieh with four wives veiled from head to foot and an army of Sri Lankan maids, people will not appreciate it.” Brokers admit that many Lebanese buyers of upscale apartments in Ashrafieh now ask them if any Arabs live in the building. “We tell them yes but that they are not like the rest,” quipped one broker with a shrug. “They don’t want to be sharing buildings with most of Riyadh.”
Many residents, and of course developers, welcome the inflow of Gulf money. Brokers say it is good for the market. “It’s fantastic,” said Makarem. “I am very happy to see it. It’s very healthy. It proves we’ve got over the war effect.” But he added: “I wish we could see more Christians buying houses in West Beirut.”
Some professionals contend that biased brokers are hindering the trend by not showing Gulf Arab buyers apartments in Christian neighborhoods, and playing down the attributes of these districts. “They are very badly advised,” said Geammal. “Brokers try to convince them that people of their religion should live in Ramlet al-Baida, not in Ashrafieh. But there are opportunities today in Ashrafieh, Saife and Gemmaizeh that they are not being shown.”
Finally, Brokers are divided as to whether there is a market for studio and one-bedroom apartments. “I don’t see any one- or even two-bedroom projects, especially in Beirut,” observed Ibrahim. “It’s a losing business.” Lebanese buyers, notably husbands-to-be under cultural pressure to own a home before marrying, feel they have to buy a large apartment straightaway. But many prospective husbands don’t have the funds. Marriages are postponed as a result, and the effect on a real estate sector, which clearly cannot satisfy all needs, is negative. Some real estate insiders, though, maintain that there is room in the market for high-end one-bedroom apartments, which would serve, among others, the university-enrolled sons and daughters of wealthy Lebanese as well as affluent professionals, who, for one reason or another, would like a ‘pied-a-terre’ beyond the confines of their family home. “For the moment, one-bedroom apartments are associated with low-cost, undistinguished housing. A good building, in a good area, especially Solidere, with all the amenities, would generate a lot of demand,” stated Makarem.