The acquisition of the former Carlton Hotel seafront property by Jamil Ibrahim Establishments in mid-January gave Lebanon’s real estate sector an optimistic start to the year. According to Karim Ibrahim, managing partner of the firm, this was “one of [Lebanon’s] the largest real estate transactions.” The eventual plans for the site will be contested in an architectural contest with a deadline of March 30.
This is not the only big development taking place as many grand luxury residential complexes are going up across the city. Of particular interest these days is Wadi Abou Jamil, a residential area in the Beirut Central District. Several five-star residential projects are underway by premiere developers such as Stow’s Stow Wadi complex, Mouawad’s The Pavillions with a separate villa and townhomes, and Ven Invest’s Wadi Residence of 80 apartments, each ranging 100-900 square meters (sqm).
The Sursock area in Achrafieh is also a new hotspot with the addition of three residential towers under construction, the latest Jamil Ibrahim’s Le Dome de Sursock two-block tower breaking ground this month. Jamil Saab’s $18 million Sursock Tower will be finished in June of this year. Nearby Saifi is home to several ongoing projects such as Byblos Real Estate Investment’s (BREI) Convivium brand of luxury apartments which range from a 700 sqm penthouse in Convivium III to small, 36 sqm studio apartments in Convivium VI. The seafront area in West Beirut is also a key area as many new developments take place.
The new trend has been to focus on incorporating gardens in the design such as Jamil Saab’s Le Patio in Achrafieh, which includes 700 sqm of green area, and MENA Capital’s Qoreitem Gardens in West Beirut that are surrounded by the landscaped gardens of Daouk Villas.
Lebanese are moving the market
The local real estate market is heating up at a time when those abroad are seeing a downturn as a result of the US subprime meltdown that has spread to European and global markets. Coinciding with this upsurge is the decline of the dollar to the euro and other instabilities in worldwide markets that are making Lebanese expatriates who search for ways to hedge against mounting inflation and safe harbors for their wealth view the real estate market in their homeland as a golden opportunity.
In addition, compared to real estate prices in the region, the Lebanese market is considered to be underpriced. Levantine neighbors Syria and Jordan, and even farther Egypt, are much more expensive than Lebanon, mainly because of the recent inflow of Iraqi, and GCC, investments. As Ibrahim pointed out, “Ten years ago we used to compare our prices to Dubai and now we are cheaper than Syria. Today, the expats are seeing that they can afford to buy a 300 sqm apartment in Beirut. They know that one day the political situation will get better and prices will get back to where they should have been because the area is more desirable than elsewhere. If they wait, they know they won’t be able to buy the same kind of apartment.”
And so they are buying. Most developers have witnessed a shift in demand from GCC buyers, which dominated the market in previous years, to mainly Lebanese expatriates. While Gulf Arabs are waiting for political stability to return to the country, Lebanese are undeterred. “Lebanese investors are always a little bit stronger and do not hesitate to invest,” explained Selim Yasmine, real estate marketing and sales manager for MENA Capital. Around 70% of all current real estate buyers are Lebanese living in the Gulf and Africa, compared to circa 20% before.
However, the market did face difficulties during the first half of 2007. Sales slumped and construction was interrupted briefly by strikes and political instability. Abed Azhari, assistant general manager at Stow, reported that “until probably the third quarter there was a slowdown in demand because of the political situation. It was a bit dead. We had some people approach us, but only at the interest level. Then, in the fourth quarter, we had what could be characterized as a boom — things started picking up again.” As a reason for this development, he said that “in the beginning, people didn’t know what would happen and waited. Then they saw that nothing major happened and moved forward.”
Pierre Abou Jaber, CEO and partner of Ven Invest had been surprised by the sudden take-off in sales of his latest project, Wadi Residence, during the last three months of 2007. Interest was so high that the developer sold 25% of the 80-apartment complex before it was officially launched.
Meanwhile, over the last year other development projects continued and prices increased by around 40%, according to Antoine el-Khoury, general manager at BREI. Developers agree that land scarcity in the capital is the main reason for pushing prices up. In the suburban areas on the edge of the city prices remain relatively unchanged. Mountain resort areas have seen an upswing in development interest for summer destinations such as Aley as well as ski resort areas like Faraya-Mzaar.
Construction
Putting prices in perspective
Joseph Mouawad, chairman of Mouawad Projects, put the increase of price in a historical perspective. “Over the past three years, prices in Solidere have increased by 30% to 50% in some places. Achrafieh prices have gone up as much as 70-80% in that time. West Beirut has also had their prices doubled from $2,500 to $5,000 per sqm.”
The Beirut Central District has been hit hard by the ongoing protests and the ‘tent city’ erected in December 2006, causing Mouawad to lament, “Prices should be much higher than what they are now. When the price per square meter in West Beirut is $5,000 and I’m selling at $4,000 per sqm in BCD, something is wrong. The prices in BCD should be at least 50% higher than anywhere else in Beirut.” According to him, one of the reasons for the higher prices is that the kind of infrastructure and development planning that is part of the BCD does not exist anywhere else in Beirut. “Achrafieh was not planned to have so much development,” he said. “In the BCD everything was planned for.”
But prices along the Marina area of the BCD — known as the “Golden Strip” — are now between $7,000-8,000/sqm. Stow currently has the Beirut Water District under construction, which will be a mix of residential and commercial space plus a yachting club and could see their prices per square meter hit $10,000 when it goes on the market.
Real estate prices were also affected by the increasing costs of building materials. Over the past year, cement and iron prices have increased and in conjunction with the decline of the dollar this has made these materials significantly more expensive. For Chafic Saab, of Jamil Saab, this meant that their Le Patio will now cost $30 million instead of the originally planned $25 million.
The loss of manpower is another big issue. An estimated 14,000 Lebanese engineers have left to work in the Gulf and abroad. “In the beginning of 2007, we increased the packages for our engineers by 30% so they wouldn’t think of leaving,” said Ibrahim. Others also found it difficult to retain and recruit engineers.
Mouawad pointed out that if stability can’t be maintained and a political solution to the presidential void is not found, there is the possibility of a slowdown in selling apartments. “It’s starting to become a problem now because prices are going up. If the situation stays the same, people could get scared about their future and the future of their children.”
He went on to say that, “If you had asked me two months ago ‘Would you be rushing to start a new project?’ I would’ve said, yes, definitely. Today, I would say that one should wait a little bit. The situation we are facing right now is getting more and more serious.”
Developers are forecasting this year to see 20-30% price increases, provided the political conditions remain the same. If it were to improve, the real estate market could pick up even more. As Yasmine commented, “Imagine what the pent-up demand will do to the market when the political situation is resolved, especially as in the past year we have become relatively inexpensive compared to the Arab countries in our immediate neighborhood.”
Developers agree that even in the worst case scenario, because of the limited supply of land and the high standard of living, prices would only plateau and await better times, but never go down. Further down the road, Ibrahim believes, “If the political situation is resolved and there is stability for the next 15 years, prices in Beirut could become comparable to Dubai again.”
