Two years ago, in a real estate special report, Executive quoted a source saying that by 2014 there would be an abundance of empty apartments on the market.
Today, “there are unsold apartments,” says Massaad Fares, CEO of Prime Consult. Getting more personal, Fares says that “slightly more than half” of his company’s mixed-use Sama Beirut is sold. The tower near Sodeco Square is the city’s tallest building and is set to be delivered in 2015.
There are indications the real estate market may be picking back up. Cement deliveries in the first four months of 2014, according to the most recent data, are up 9 percent compared to the same period in 2013. Both the number of real estate transactions and the value of said transactions are also up, but Jihad Ibrahim, general manager of Jamil Ibrahim Establishment, tells Executive that these last two figures can be misleading.
Slow years for development companies
The number and value of transactions are recorded at the General Directorate for Real Estate Affairs when apartments are handed over, not when contracts are signed (i.e., when sales happen), Ibrahim says. He notes that many developers focus heavily on off-plan sales, so many contracts are signed years before they are registered.
Therefore, increases in the number and value of transactions are not reliable indicators of new sales activity, he argues.
In the nation’s capital, “the only oxygen in the market is in the low-income segment,” says Ibrahim, whose family owned development company builds multimillion dollar flats for the top 1 percent of buyers.
Ibrahim’s firm has been particularly hard hit by the slow years. He says 40 percent of his stock is unsold and he’s sitting on parcels of land that should be holes in the ground by now.
“We’re finishing the projects we have on hand, and there are three or four big projects, and we stopped everything else,” he says. “We have seven projects with their permits ready that were supposed to be phased in … What we did was completely stop to see what we’ll do with the stock we have on hand.”
While 2014 may reverse the trend, real estate transactions reported to the country’s official registry had been shrinking in number since 2011, after nearly a decade of growth. Prices, however, have not followed transactions south given the particularities of Lebanon’s real estate market — its size is small, developers are not heavily leveraged, domestic demand is steady and expatriates are hungry for a slice of their homeland, even if that appetite can be suppressed by political and security instability.
While new projects (both big and small) are still being announced, Premiere Properties’ CEO Antoine Habr says developers are taking their time before launching new ventures.
“Business doesn’t stop, it just slows down,” he says. “I would say, instead of jumping immediately to the next idea or the next opportunity, people would [want to] take more time to analyze the market, study, recruit the right people to give them the right feedback and information, and [do] more pre-work preparation before jumping to the next opportunity like everyone used to do.”
With an eye on better times, Prime Consult’s Fares says many developers are buying up space for future use.
“They are all now buying land,” he says. “Developers, instead of developing, are buying the land, preparing the plans and taking their time in preparation.”
Habr argues it’s a buyer’s market all round.
“This is the right time to buy. This is the right time to invest,” he says. “There’s more room for negotiation on all levels. Definitely you can have good opportunities out there. There are no panic sales or anything, it’s just that when you sit with somebody, you’ll be able to negotiate better and get more of what you want, more than [you could] before.”
Meanwhile, for Ibrahim, land is an extra revenue stream in times he says are so tough that the company is laying off employees “for the first time in our history.”
He says the company has purchased large tracts of land in the Bekaa and the South, which is partially being developed into low-cost housing by subcontractors and partially sold at a profit.
Buying land in the meantime
“We’re not interested in the return on the construction, it is so insignificant for us,” says Ibrahim. “What’s significant is when you take a big lot, divvy it up and then sell it; there, the internal rate of return is much, much higher. When construction stops, we go into related businesses, which is land appropriation. We can afford to do that, keep ourselves busy, but it’s definitely not the answer.”
While groundbreakings may be fewer and farther between, there are new projects in the pipeline. Sayfco Holding announced late last year that it would be taking a 50,000-square-meter bite into the Mediterranean to build a new, $1 billion resort in Zouk, just north of Beirut. The company says it has a permit to reclaim land from the sea for the project that will sprawl over 100,000 square meters and become the country’s largest resort.
Fares says Prime Consult recently bought some 100,000 square meters of land on the Metn highway and is in negotiations to buy land in Jounieh — he refuses to reveal where — also for a resort.
Habr also teases details of a “well studied,” soon-to-be announced, two-tower gated community in the Mar Rukouz area of the eastern suburbs of Beirut. Like Premiere Properties’ other projects, the new one will utilize a dedicated, audited account with a major local bank for any money made off of pre-sales.
“We guarantee in this way that the funds of this project are dedicated to the construction of the project and not for speculation toward other investments, whether it be in real estate or for personal use,” Habr says.
“This is an initiative from the private sector whereby a few private developers are implementing this business model. But it’s not a [law]. That’s the problem. Like in Dubai or London or anywhere in Europe … it’s imposed by the legislation. In Lebanon it’s not.”
Of the new development’s location, Habr says the area is attractive because of its proximity to Beirut.
Fares calls the eastern suburbs “the future.” “The land in Beirut has become so expensive, it has become prohibitive to buy an apartment in Beirut,” he says.
An interesting question moving forward is what the future will hold for both the eastern suburbs and the rest of the country. To date, there has been no real long-term urban planning for the country’s development, and legislation has consistently become more friendly to developer’s wants (see “Higher Regulation“). A common theme that emerged from the interviews for this report is that developers will continue to buy up large parcels of land for self-sustained — often gated — communities.
What is unclear is whether or not the public sector — be it on the national level or in municipal offices — is thinking of how to oversee such future developments or how feasible it will be to tame the sprawling regulatory framework currently in place.