The real estate market is the subject of much speculation, usually the negative kind. There are very few optimists who still see it as a lucrative sector. Yet the reality is not so bleak. Demand exists but only for the right product at the fair market price. Prices have started to adjust but effective drops are minor. Developers continue to look for new land to develop. Buyers, both local and expatriate, constitute a steady, end-user demand. The market rests on solid foundations. The only unknown that could either unhinge or improve this delicate balance is the political and security environment – something economic players have no control over.
Slight price drops
Real estate prices are the latest obsession of Beirutis. There is a consensus that apartment prices in Beirut have dropped. Opinions diverge about the exact magnitude of the drop. “Experts” flaunt percentages – anywhere between 10 and 30 percent. These opinions are never based on any accurate and reliable market information.
Actual market data confirms a drop in prices. The research department at Ramco sarl has been compiling price information on buildings under construction in Municipal Beirut since 2005. What our data shows is that the average price of new apartments has dropped by less than 5 percent in 2015, depending on the area. The study covered a panel of around 250 buildings that were in construction in both 2014 and 2015 in 67 neighborhoods across Beirut.
[pullquote] Buyers, both local and expatriate, constitute a steady end-user demand [/pullquote]
These are asking sale prices that do not take into account the discounts offered by developers during negotiations to finalize a sales deal, which has been current market practice for the past several years.
Wide price discrepancies in Beirut
Apartment prices vary widely from one neighborhood to another across Municipal Beirut. Logically, the most expensive apartments are located on the seafront stretch between Beirut Central District (BCD) and Ramlet El Baida, where prices vary between $7,000 and $10,000 sqm on the first floor.
Some projects with direct access to the seashore, such as Summerland Residence and Beirut Waterfront, post even higher prices. These remain a minority and cater to a very narrow niche clientele.
Overall, however, nothing in the capital can still be purchased at less than the symbolic bar of $2,000 sqm on the first floor. The most affordable neighborhoods are clustered at the center of Beirut, just south of BCD, from Bachoura to Tarik El Jdideh further south. Prices lie between $2,088 and $2,400 sqm on the first floor. The north and easternmost neighborhoods of Ashrafieh are the next most affordable in the capital. Areas like Beddawi have an average sales price of $2,600 sqm on the first floor. A Ramco study concluded in Spring 2015 for 345 buildings under construction in different areas of Beirut revealed the following averages: the average asking sales price of apartments stood at $885,360 on the first floor; the average apartment size was of 238 sqm; the average unit price stood at $3,720 sqm on the first floor, before negotiation.
Large new stock
Around 10,100 new apartments are currently under construction across Municipal Beirut. This is a drop of about 3.8 percent over 2014, but remains an important stock.
The majority of the projects under construction are located in Ras Beirut, which accounts for half of the stock under construction, with around 5,050 apartments. Ashrafieh comes next with about 3,900 apartments.
BCD, however, holds the lead as the individual neighborhood with the largest upcoming residential stock. The neighborhood’s 1.91 square kilometers count about 1,100 apartments under construction spread across 19 residential projects. Two mega-projects with more than 140 apartments each boost BCD’s figures.
The main change on the market is in the size of apartments. Developers have responded to the slowdown in sales by putting smaller apartments on the market – targeting more accessible budgets.
During the past 12 months, apartments across Municipal Beirut have lost about 14 sqm, dropping from 252 sqm to 238 sqm. Obviously, apartment sizes differ from one neighborhood to another.
BCD, for instance, the prime residential address of the country, still offers the largest apartments. They average 333 sqm. Traditionally, BCD has been the leader of the luxury residential market, topping the charts in terms of size of apartments, prices, quality of construction and design. The average apartment size in BCD is about 40 percent larger than the average size of apartments across Municipal Beirut, which stands at 238 sqm.
[pullquote] Current market conditions are not conducive to profitable speculative investments [/pullquote]
The average size of apartments in Ashrafieh and Ras Beirut are almost similar at 227 sqm and 226 sqm, respectively. They are slightly below the Beirut overall average, which is inflated by apartment sizes in BCD.
Even the high-end residential market has seen the apartment sizes shrinking. A few years ago, 450 to 600 sqm were common in the most prime neighborhoods of the capital. Today, no developer would venture down that lane. Even the most luxurious towers currently being built offer apartments between 325 and 400 sqm at most.
Beirut remains an end-user market. Speculative investments remain very limited, shielding the market from the sudden and often random fluctuations of other money and investment markets. The slowdown that has characterized the market for the past two or three years also deters speculators, as prices have remained almost stable and are now starting to drop slightly. Speculators feed on an ebullient market, in which they can turn their property over quickly at a sizable profit.
Current market conditions are not conducive to profitable speculative investments. This seeming paradox helps protect the market from overheating and keeps prices closer to their fair market values by removing the “fake” demand that speculators represent.
There are some investors still interested in purchasing small apartments in certain neighborhoods of Beirut which are easy to then place on the rental market. This is still a lucrative investment, provided it is the right product. Apartments can be easily rented when they are small and located in a clean building. The building could be new or old, provided it is well kept and offers good basic amenities, such as parking facilities, elevator, generator, janitor, etc.
Mostly local demand
The vast majority of transactions are concluded by local residents buying a primary or secondary residence, for themselves or for their children. Local demand represents the majority of the local market. Its appetite fluctuates at the rhythm of the security and political crises, but returns at the first signs of a security lull.
Lebanese expats constitute the second largest source of demand for end-user homes. Their higher average levels of income than the local population makes them a choice target clientele.
Expats living in the Gulf countries and Africa tend to buy large apartments to use as primary residences. Expats living in Europe and, to a lesser extent, North America constitute the main demand for small apartments to be used as a pied-à-terre during their stays in Lebanon.
High-performing commercial markets
The commercial landscape has developed tremendously during the past several years. With a sluggish residential market, developers have turned to a much undersupplied commercial market – with some very successful results.
At the beginning of 2015, the capital counted 37 office projects within its municipal limits. These will offer around 195,000 sqm of office space.
Projects tend to be located in the peripheral zones of Beirut, avoiding the heaviest of the traffic congestions. Areas such as Corniche El Nahr, Rmeil, Badaro, the National Museum and Adlieh have seen a surge in office developments over the past few years.
The new stock is clean, modern and modular, offering flexible internal partitioning and plenty of parking spaces. Sales prices start at a minimum of $3,500 sqm, regardless of the exact location.
[pullquote] Projects tend to be located in the peripheral zones of Beirut, avoiding the heaviest of the traffic congestions [/pullquote]
BCD and the eastern and central segments of Charles Malek Avenue of course remain the main hub for prime office developments. They offer the best supply in terms of architecture, construction quality and common amenities and services.
The capital has historically been in dire undersupply of good quality office stock. The newest office buildings dated back to the early 1990s and, with a few exceptions, the majority was of middle-market quality and had been aging poorly. The new arrival of modern office buildings was thus much-awaited and most projects sold well.
Lands stand firm
The land market has been standing its ground. Land prices have remained predominantly unchanged across Municipal Beirut. Virgin land is rare in and immediately around the capital. Demand pressure is high, so landowners feel confident enough to stand firm on their asking prices.
Land prices, however, are often incongruent with the state of the market. With dropping sales prices of completed apartments, developers’ replacement cost for land is becoming too high. There is sustained interest by developers and an appetite for new plots of land, but only at a price that can ensure the project’s financial success.
A few landowners have understood that market realities have changed and are willing – more or less reticently – to drop their asking prices. For now, they remain a very thin minority, however. Most landowners refuse to reduce their prices sufficiently to entice developers into making a serious purchasing offer.
The boom years are certainly well behind us. The market is in a phase of slowdown, but it is not in crisis. Developers are eager to agree to a 10-15 percent discount and the prices of built developments have dropped very slightly. Under the very difficult security, political and economic environments, stagnation is a sign of solidity.
The underlying fundamentals of the real estate market are solid: developers are highly solvent, demand is vigilant but sustained, speculation is close to nil and lending to individual homebuyers is very carefully regulated by the central bank.
Provided there are no major changes in the broad political and security scenes, the market should continue to stagnate, slowly absorbing existing stock and adjusting to new market realities: smaller budgets and more careful buyers.