Those who predicted that the towering, luxury residential developments in the BCD and its immediate environs would become a sad testament to unbridled optimism and crushed potential had better think again. The war is over; long live the peace. So say the major developers, who are reporting that prices are holding. And while demand may have dipped during and after the conflict, they are also talking of sustained confidence among Gulf investors, negligible cancellations, and sales enquiries when none was expected.
Karim Bassil, chairman of the developers Brei and the man behind the successful Convivium brand, is sitting in his Gemmaizeh office with Brei’s general manager Antoine Khoury.
“I have just been traveling in the region to get a feel for the mood and found out that things have not changed as far as investor confidence is concerned,” says the man with a (comparatively modest) real estate portfolio of $80 million, who is building a boutique hotel in Gemmaizeh and whose Convivium range of projects has now reached no. 7. “I assure you, the Lebanese who wanted to buy still do want to buy. True, some retracted but in the long run nothing really changed.”
On the BCD waterfront, Abed Azhari, assistant general manager of Stow, developers of the landmark Marina Towers, is equally optimistic (and his portfolio is slightly bigger, nudging $1 billion). “The first phase was due to be completed by mid-August. Obviously that didn’t happen. Now we have a delay of three months, but can you believe it? The tenants are not worried,” he raises his hands in wonder. “It’s business as usual. The interior decorators are all back.”
What do they know that we don’t? “Who knows?
” shrugs Azhari. “Apparently they see a better phase. They are saying this is the last war in Lebanon, and when I see someone who already has a heavy investment in this country increasing that investment, it must mean he has confidence in something. I have already been contacted by 4-5 potential clients since the end of the war.”
It doesn’t mean there weren’t jitters. Antoine Khoury, Brei’s general manager, admits there was a slowdown and the company adjusted its projections to assume a year’s delayed sales. “This is the worst case scenario,” says Khoury. “However, we are already seeing a trickle of new interest since the ceasefire. Real estate has a life cycle of four years. The impact of the war will last for a year max, so we have time to overcome the impact.”
Interestingly enough, according to Bassil, despite the uncertainty, Beirut remains an interesting option for diversified portfolios. “The situation can’t get any worse, can it? My foreign investors are still in with me. We adjusted our business plan and that was good enough for them. They believe in Lebanon, so why shouldn’t I? They see it as a risky country, but the returns are high.”
Abed Azhari agrees. “Let’s face it. You get a lot for your money here, so the risk is worth it.”
Khoury believes there will always be strong demand for property, especially from the Lebanese diaspora. “Dual nationals all want a pied-a-terre and Lebanon offers very good value for money.” Bassil interjects. “Where else can you find property at this value? In the area of Paris, where the riots happened, they are selling the square meter for euro 2,000. Now is the right time to invest – the price is as low as it will get.” But Paris is Paris. Is value enough? “Of course,” says Khoury.
Mouhamad Rabah, managing director of the Platinum Tower development, is used to managing political crises. “In 2005, we were delayed by an absent workforce and the demonstrations,” he remembers. “But despite a slight slump in the immediate aftermath, we experienced a boom in the summer and we were back on track.”
With the latest crisis, Rabah admits the contractor had to delay work until August 21, but he is confident lost time can be recouped to manageable levels. “We urged him to get back on track even if we have to incur more costs. Now I can say we are 90% on schedule with total delays of about 3-5 months, if one takes into consideration the rainy season and so on.”
Rabah says that over 50% of the Platinum Tower apartments have been sold, mainly the bigger ones, especially the 1,700m2 penthouses that are currently selling at around $7,500/m2 and which cost between $12 million to $13 million. The rest – around 900m2 – are selling for an average of around $6,500/m2 (if you want to slum it on the lower floors, a BCD-facing apartment can be snapped up for $4,500/m2).
Joseph Mouawad, chairman of the Mouawad Investment Group, is committed to $70 million of projects and is more sober about the war’s impact. “Time is money and we had delays…the fighting, the embargos and the uncertainty. We lost sales. People who were keen to buy are now in a wait-and-see mode.”
He admits that despite a sense of sustained confidence, he feels, for the time being at least, that the big money sales are on hold. “Sure, there are people with money for whom a million dollars is nothing. Yes, they are out there.” He perks up. “Listen, it is not a disaster, especially when you think that a few months ago we didn’t even know if we were going to live.” Did he ever fear for the BCD? “Yes of course. The Israelis talked about it and they were serious about it.”
Prices remain solid
But all agree that sales prices have held their nerve, and developers are certainly not willing to take a cut. “They have no choice,” explains Mouawad. “Land prices have risen steeply in the last year, so they can’t take their money and buy elsewhere. Also, we must remember that construction costs are now higher. There will now be more demand for labor due to the reconstruction. So you see, they can’t drop their prices.”
As the war forced many mega-projects in the design phase to be suspended, Mouawad is confident that this will push current demand into the waters of the existing supply stream, allowing those developers who are finishing projects to take advantage of the temporary freeze.
Azhari sees the trend as an endorsement of the historic resilience of Lebanese land prices. “The value of property has not dropped since the end of the civil war, except perhaps in 1997, when prices reached silly heights. Land is rare in Lebanon. It’s a small country with a small economy that stops and starts easily.”
Rabah also says that his company is not under any pressure to drop its prices. “They have remained firm. There is no rush to sell. Other developers might have to adjust because of commitments to the banks, but we have none of that. No one has pulled out and most of the enquiries have been about finishing schedules.”
But he does not see a downturn in overall development activity. While developers wait and see, they will finish the design phase and finish legal documents so that when they feel the market is moving, they can begin. “Other projects have been suspended, especially those still on the drawing board phase, but I don’t believe this will be a long- term trend.”
So for time being, those projects in the development phase are moving full steam ahead. “We are back to work,” shrugs Azhari. “We have a new project in the pipeline that is as big as Marina Towers and we were negotiating on it even during the war. Call it a gut feeling, but I believe we are heading towards a better situation.”
So is he a happy man? “I was not a happy man, but now I am beginning to be. We have sold all but three of our apartments in Marina Towers, and we have achieved our target of getting a good mix so that the area is not a ghost town for most of the year, like what happen in Ramlet el Baida in the 90s.”
Has Platinum had to adjust its marketing strategy? “Not really,” explains Rabah. “But what we have done is taken a decision to prioritize finishing the exterior and those apartments which have been sold as a priority, and then with the unsold apartments give greater flexibility to potential buyers.”
Was this a way of saying that he expects a dip in demand? “Listen, who is going to spend $5-7 million for an apartment today? No one. Not for the next couple of months, and we are certainly not going knocking on anyone’s door, but I can tell you this – if there is peace, we will see a 20-30% increase across the board both in land and retail prices. If not, then it will take another cycle and by that I mean another year for things to pick up, but it will. Lebanon is an important real estate market.”
While Mouawad’s long-term confidence is solid, he recognizes that there are still lingering internal questions. “Don’t forget that while the South is calm, our politicians are still fighting each other…they want this, they want that, and let’s not forget we have the UN Report and Iran and Syria.”
So what is the Mouawad Investment Group doing in the immediate term? “It is very simple. We are completing those projects that are under construction. We are finishing the projects under design phase but delaying construction for the time being, and we are currently suspending looking for other projects until the political situation becomes clear.”
The Beirut factor
But real estate is ultimately all about confidence. Bassil unveils his simple formula for Lebanon. “The appetite is still there,” he explains. “The Arabs all want to come here – even now! No matter what happens politically, this is all bullshit. Arabs want to have fun, go out and drink. If the war restarts they will leave, but they will come back. Lebanon is here to stay – say what you want about the Lebanese, but they rebuild.”
What was Abed Azhari’s darkest hour? “Well I never thought ‘that’s it, it’s over.’ I mean, we have been here before, but because this time we were booming and optimistic, perhaps over optimistic, I thought that maybe it would take a while to recover, maybe up to a year. We must remember that the whole country was at war, not isolated pockets like the previous wars.
“Believe it or not, the Gulf Arabs were inspired by our resistance and our determination not to be cowed by the fighting and destruction. In the US, if there is a fire alarm, they run into the street. Here, one day after the war ended, they returned to their land.”
Azhari believes that the commitment to Lebanon as the premium destination in the Arab world remains solid. “9/11 speeded up the inevitable. Dubai started it, but you need developments if you are to attract investors and tourists. They used to go elsewhere – now they come here because of what we can offer.
“Look at Syria and Jordan. They have stable governments and they don’t have war, and look at what we were able to do in a short space of time.” He leans back in his chair. “You know, every time we think of leaving, the attraction of this place pushes us to stay.”