The good news for the Beirut property market is that the dangerous bubble everyone said would form has not. The reasons are straightforward: the two-years between the 2006 summer war and the June 2008 Doha Agreement, a period that was punctuated by the March 8 downtown sit-in and a spate of political assassinations, saw the property market hit rock bottom. Many Lebanese sold up and left, faced with a future filled with uncertainty and plagued by security concerns.
Post-Doha, Lebanon had guarantees and political consensus. It had a new president and within a year held successful elections. Almost overnight, Lebanon became a safe haven for capital fleeing the Gulf Cooperation Council in financial disarray, seeking property and land as well as investment opportunities in the tourism and retail sectors. At the same time prices on the global commodities market rose, leading to a hike in the cost of building materials and the price of oil needed to ship them. These factors, and the new found demand from returning Lebanese, gave the impression that the market was growing at an unsustainable pace. The reality was that it had come from the depths and was merely adjusting to new market forces.
The market has now peaked. With the cost of construction materials and the price of land unlikely to fall, demand for big apartments has stalled for five consecutive months and developers are reacting to the demand for smaller apartments. In short, the market is finding its new comfort zone.
Optimists predict a mild correction, and developers that entered the market early and bought land before prices exploded will enjoy a larger margin of maneuver.
The real concern is that many of the residential and commercial units that were bought as investments are unlikely to perform as well as they should. The Lebanese lira is currently offering an average of 5.7 percent on deposits, a rate of return that most new properties will be unable to achieve in the rental market. In fact, landlords will be lucky to get half that in the current climate. They will have to take what they can get unless they want inflation to eat into a non-performing asset.
Prices won’t come down dramatically, so for Lebanon’s property market to genuinely perform in line with local spending power, it is incumbent on the state to create a blueprint for general prosperity. Until Lebanese incomes rise to meet housing prices, domestic demand will never be able to keep Lebanon’s property market where it deserves to be.
The market has adjusted; now it’s Lebanon’s turn to do the same.
