In 2009 the real estate industry in Lebanon witnessed another year of promising growth and continued to represent an integral part of the economy. Despite a slight drop in total transactions, construction activity remained robust with increasing numbers of permits issued and a steady growth in cement deliveries, a major real estate indicator in the country.
With lending proving to be a challenge in 2009 — particularly in over-indebted real estate markets such as Dubai — Lebanese banks have been offering incentives to the sector since the second half of 2009 in the form of improved lending conditions for both locals and expatriates. As a result, demand on housing is expected to increase in 2010, especially in the middle-income segment of the market.
Real estate growth
Due to the lack of official figures, the industry is forced to rely on indicators to measure activity in the sector. According to Bilal Alayli, president of the Order of Engineers and Architects, the prime indicator to watch is the number of construction permits issued each year.
Official figures from the Order of Engineers in Beirut and Tripoli show that construction permits in the first ten months of 2009 totaled some 10,172,000 square meters, up by 7.4 percent compared to the same period in 2008 and by 41.2 to the same period in 2007.
According to Bank Audi, 47.9 percent of the total permits were issued in Mount Lebanon, while 20.7 were issued in the North, 15.7 percent in the South, 9 percent in Beirut and 6.8 percent issued in the Bekaa region.
The other major indicator, cement deliveries, also increased; rising by 18 percent in the first nine months of 2009 over the same period in 2008, according to the Banque du Liban, Lebanon’s central bank.
On the demand side, figures did not mirror the growth of other indicators but remained stable, with the number of sales transactions totaling 55,482 in the year to September: some 3 percent lower than during the first nine months of 2008, according to the General Directorate of Land Registry and Cadastre (GDLRC). The total value of real estate transactions reached $4.3 billion in the same period, 3.7 percent lower than the first nine months of 2008.
According to Lebanon’s finance ministry, property registration fees in 2008 represented 1.3 percent of the country’s gross domestic product and amounted to $415 million, dropping to 1 percent of GDP in 2009.
Karim Makarem, director at Beirut-based real estate advisory company Ramco, said that the GDLRC’s numbers are inaccurate, as more than half of the projects launched are sold ‘off-plan’ — the property is not registered until the development is handed over, which obfuscates figures significantly.
“You will see a much higher figure released in two years, because a lot of properties that were bought in the boom period will be registered in a year or two,” he said.
Makarem also added that some developers might give incorrect statements about the value and size of an apartment.
“You are relying on people to tell the truth, which is very difficult,” he quipped.
Investments on the rise
Despite the lack of accurate data, one thing seems rather certain: investments in the real estate sector are ever increasing, especially in Beirut, where what little land remains is being bought and developed quickly, pushing prices to record highs.
According to Alayli there were 200 empty land plots in Beirut at the beginning of 2009.
Construction permits (in 1000s of square meters) for the first 10 months of the year
Sales transactions in the first 9 months of the year (in numbers)
“Recently I received some statistics saying there are still around 139,” he added, noting that the decreasing supply of land will boost prices in 2010.
According to Makarem, at this moment there are around 400 projects in Beirut under construction or in the pipeline, with an average size of 300 square meters per apartment.
“Of the [projects] being completed in 2009, the pre-sale rate is around 85 percent, which is very impressive,” he said.
Foreign investors also seemed keen for a slice of the country’s development market last year; more than 68 percent of total foreign direct investment in 2008 targeted the real estate sector, to the tune of some $2.2 billion, according to the Investment Development Authority of Lebanon (IDAL).
Nonetheless, many in the industry still believe foreign investment in the sector could have been higher, but was stunted by political concerns relating to the political instability surrounding government formation and the restraints of the overriding global financial situation.
“We had a very large American investment development company in town, who commissioned studies and visited a number of locations in Lebanon looking to invest big amounts of money in the country,” said Makarem. “But [they] decided to delay until, most likely, 2011 because of the political vacuum.”
Makarem added that money coming from other Arab countries has slowed due to the effects of the credit crisis and ailing real estate markets in the Gulf Cooperation Council.
A premier example of this phenomenon is the Beirut Gate project, currently being developed in the Beirut Central District by the Abu Dhabi Investment House and Sayfco Holding. Chahe Yerevanian, chairman of Sayfco Holding, explained that the Beirut Gate project had been initially delayed because of the effects of the financial crisis on the Gulf, but has since been reinstated and is back in action.
Antoine Chamoun, general manager at Bank of Beirut Invest said: “People are realizing that real estate investment is the best investment [they can make]. Those who are not investing in real estate now aren’t doing so because they can’t, not because they don’t want to.”
Surge in lending
To spur on the burgeoning real estate sector, the central bank dropped reserve requirements on 60 percent of loan categories in July 2009, allowing banks to drop interest rates on these categories, which included housing.
Since then, most banks have started offering primary housing loans to both Lebanese locals and expatriates in Lebanese lira at rates of around 5 percent. The directives will stay valid until June 2010 and can be extended until June 2011.
“We have strongly felt the impact [of increasing demand] since interest rates decreased,” said Chamoun, who declined to comment on the total value of loans active in the sector.
For their part, government affiliated lending institutions, such as the Habitat Bank and the Public Corporation of Housing (PCH), have seen constant lending activity in 2009, with better facilities offered to the middle-income segment of the market.
The PCH is owned by the government and gives loans in partnership with private banks, while the government only holds a 20 percent stake in the Habitat Bank.
The difference between the two institutions lies in their lending requirements. PCH only lends to income level segments below or equal to 10 times the minimum wage, or up to $3,300 per month, while Habitat Bank lends to those who earn at least $1,000 per month with no ceiling. The largest loan granted by the PCH is $120,000, while the Habitat Bank will give up to $300,000.
According to Joseph Sassine, president and director general of the Habitat Bank, the interest rate on loans is currently 4.99 percent, as opposed to the 6 to 8 percent seen prior to August of this year.
Sassine added that the Habitat Bank gave around $80 million in loans in 2008 and that it expects to reach the same figure in 2009. That said, he expects loans to increase in 2010 to more than $133 million, mainly as a result of the decrease in interest rates.
The premier grievance of the real estate industry seems to be the fact that banks don’t give loans to off-plan properties, except to some developers, and then only on a case-by-case basis.
“There should be a system where the loans are given right away,” said Elie Harb, president of Coldwell Banker. “The banks have to take a certain risk by providing the developer with a prepaid amount.”
Mohamad Saleh, chairman of Noor International, said banks should give developers loans, in installments as projects are constructed.
With the world slowly recovering from the financial crisis and the political and security situation in Lebanon stabilizing, many predict that the real estate sector will witness significant growth in 2010. In their view, investors will see the Lebanese market as a safe haven for investments in the context of the global downturn, especially as the country maintains a healthy banking sector and carries robust local demand.
“All this will allow Lebanon to return to being an investment hub and benefit from the Lebanese diaspora, who were looking at investing in Lebanon for a very long time, not to the mention the Arabs,” said Nabil Itani, chairman of IDAL.