Slump? What slump? If you listen to some of the pundits, one would be forgiven for thinking that the Beirut real-estate sector had forgotten the country is on the edge of the abyss. High-end developers still claim they are achieving $2,000/m2, that’s $500,000 for a “modest” new 250m2 apartment, albeit in sought-after Ashrafieh.
But for the average Lebanese, housing has become unaffordable. In the last three years, property prices in Beirut rose by around 50%, according to some figures. Despite the current unstable political climate, prices are not decreasing. In fact they are set to increase even more due to the rising cost of building material such as steel and cement and the weakness of the dollar against other currencies. Any rise in VAT will also be reflected in the price and the steady emigration of foreign laborers has resulted in the increase of labor prices. Another factor is that those Lebanese who can afford to buy are, securing property before foreign buyers return and drive up prices further.
Prime locations in Ashrafieh have in fact reached an unprecedented $4,500-5,000 per square meter, according to Patrick Geammal, chairman and managing director of Ascot, a real estate brokerage firm. “We have never seen the kinds of prices we have been seeing in the last 30 days,” he explains, speaking in mid-July, a period which saw Lebanon gripped by political crisis, bombs, assassination and battle. Yet despite this, municipal Beirut is experiencing a property boom, with tell-tale holes in the ground springing up everywhere.
Ashrafieh has been helped by the evolution of the Beirut Central District. Geammal says that prices now radiate outward from the BCD and now encompass the genteel Christian quarter Ashrafieh. Ten years ago, when the BCD was one vast construction site, the most desirable areas were in West Beirut — Verdun, Ramlet al-Baida and Ras Beirut — where commercial potential drove residential demand.
Ashrafieh was almost Suburbia. “In this part of town, that was not the case,” remembers Geammal. “The only people investing there were Ashrafieh residents themselves.” Today, hotels, restaurants, boutiques and shopping malls have seen it well and truly become part of Beirut’s metropolitan heartbeat and prices have hit the stratosphere, rivaling Verdun and Ras Beirut.
However, even with this spike in prices, Geammal believes that some Lebanese still find Beirut something of a bargain compared to other capitals. “A million dollars for Lebanese working here is a lot when you consider the salaries but for those living abroad, a million dollars for a 500-square-meter apartment, especially in a prime location, is nothing. Lebanon is still relatively cheap compared to prices in London or Paris.”
Not all are bullish
Raja Makarem, managing partner of Ramco, real estate advisors, is not so bullish. He believes that something has had to give during Lebanon’s worst political crisis since the end of the civil war. He says that projects for apartments larger than 600m2 have been halted and very few apartments larger than 400m2 or more (the $1 million-plus category) are selling. “The Gulf customers have stopped coming and the Lebanese living abroad have stopped buying large apartments.”
Any movement in the market, says Makarem, is being financed by Lebanese working in the Gulf who maintain their families in Lebanon. Makarem believes that this bracket has given the impression that real estate is on the up and further states it is this perception that kept asking prices artificially high as property owners hold out the price they want and not what is determined by the market. To back up his theory he says that new smaller-size projects have begun to slow down in the past six to eight weeks and interest could wane further.
But how does all this affect ‘regular’ or first time home buyers? With most of the construction focus on the high-end of the spectrum aimed at foreign buyers with foreign salaries, affordable (for Lebanese) new apartments are scarce and much sought after, driving up prices by as much as 25%, putting the “low-end” market out of the reach of most Lebanese.
In this climate, buyers are gradually accepting that one does not need a home the size of a football stadium to live comfortably. Lebanese who have lived abroad and have been forced to live in small apartments in London or Paris have realized that they don’t need to have a huge apartment to live well.
“The mentality has changed in Lebanon that yes, I can live in a 100 square meter apartment,” said Geammal. You also have the Lebanese and Gulf Arabs that only spend their holidays here and are willing to live in smaller quarters. “Think about when you are on vacation and how you and your family were able to stay in a hotel room and were still happy — it’s the same mentality,” adds Geammal. “You have to understand that many of these smaller apartments are bought by the same type of people as the larger apartments but with different mentalities.”
However, in Geammal’s view, the current market is not as skewed as it appears. “Imagine that there is a launching of 1,000 flats,” he says. “I sincerely believe that between the 3 million Lebanese living here and the 10 million living abroad, a thousand of them are successful enough to put half-a-million or so aside to buy an apartment. This isn’t like Dubai where they throw 100,000 flats on the market to see how they sell. In Lebanon, if no one buys there is no problem because if they don’t sell today they will sell tomorrow. If you are the owner of a $1 million flat, you can take a loan for $100,000 and it will not change your life. You don’t need to sell your property to make do.”
Ultimately it’s all about the allure of property, particularly to those living in this part of the world. For most Lebanese investment is about owning things — things you can show and things that you can touch. Property represents a secure commodity in which to invest their savings, as opposed to currencies, which are subject to market fluctuations, as evidenced by the recent decline of the dollar. For Lebanese, it’s about having a piece of land and being able to pass it on to future generations. “Cash has no value for us; if I had $10 million in real estate, I would be richer than if I had $50 million in cash,” argues Geammal. “If you wanted to take a loan from the bank, they wouldn’t ask how much you are worth but the value of your properties.” The old adage, “money in the bank,” just doesn’t cut it around here, it seems.