For savvy investors who jumped on the downtown train and bought off-plan properties in Beirut’s first high-rise towers, it isn’t uncommon to hear cigar lounge stories of 300 percent re-sale profits. Around 2005, prices per square meter hovered near $2,500 and the cost of construction was still relatively low, making Beirut cheaper than the capitals of Egypt, Syria and Jordan.

By 2009, prices in Beirut had jumped 250 percent. The average registered real estate sales value also showed a 47.2 percent increase in the first five months of 2010, according to a Bank Audi report in June, though most of these sales were likely initiated during the frenzied buying spree of 2009.

Nassib Ghobril, head of economic research and analysis at Byblos Bank, sees the hand of speculators in the meteoric price rises.

“Speculators have been increasingly active, especially in Beirut… the price increases cannot be justified only by demand,” he told Executive.

Given that most developers use their pre-sales to finance the bulk of their projects, problems can arise when a building is partially sold and construction has started, but then sales (and thus financing) dry up as the market cools, leaving the project at risk of stalling and investors out of pocket.

As of June, there were nearly 350 residential buildings under construction in Beirut, with the 24 in Beirut’s Central District (BCD) experiencing the most difficulty selling, according to Bank Audi’s report.

While this type of news has prompted some to wonder whether the golden property bubble may be about to burst, Emilio Khoury, owner of brokerage MetreKarre, said: “‘Bubble’ is a very big word. Prices are freezing and the market is adjusting… but there will always be demand,” especially for smaller luxury apartments of around 200 square meters in downtown or Ashrafieh.

Speculators? What speculators?

Many brokers and developers disagree with Ghobril, arguing that speculation is near zero in Lebanon, or at least it is so minimal that it does not affect property prices.

“Even if speculation accounts for 20 percent of the Beirut market, that… is only 10 percent of the whole real estate sector,” said Elie Harb, president of Coldwell Banker; therefore, short-term flipping does not significantly drive up prices. He added that Beirut prices have risen to appropriate levels, given the limited land area and intense demand by expatriates. The 500 or so flats being constructed now are nearly the last residential segments of the reconstruction.

As of the end of September, off-plan starting prices in downtown rang up at an average of $6,000 per square meter, largely due to the increase in land prices as plots run out, according to a source at Care Group, the real estate sales and marketing firm.

Patrick Geammal, chairman of Ascot Real Estate brokerage, said estimates are difficult to formulate without proper information. “In every large project in Lebanon, there are usually 10 to 20 associates that go into a project… if each one reserves one or two flats, they say in the beginning that half of the project has been sold, so to know how much was really sold [to end-users] is difficult to assess in Lebanon. Sometimes the same company resells to its own directors.”

Mireille Korab, head of sales and marketing at FFA Real Estate, says that resales mostly occur when there are no more units available in the project; at that point, the developer is nearly out of the picture, thus they have little information regarding the resale market — or, by association, the scope of speculation in Lebanon.

Although Georges Chehwane, chairman of real estate developers and marketers Plus Holdings, believes about half of the off-plan buyers in the BCD were not end-users, he argues that they are “hardly speculators,” particularly in comparison to the Dubai market at the height of its bubble in 2008. “In hindsight we know that 75 to 80 percent of those buying homes in Dubai were speculators,” he pointed out. These speculators only put down a 5 to 10 percent payment on pre-launch price tags before flipping the properties as prices rose — for those who got out before the party ended. 

“There is no speculation in Lebanon in terms of people who don’t have enough money to pay for the apartment,” said Chehwane. “There are some investors, yes, but these people have the full capacity to pay” between the pre-launch down payment and the time of project delivery, at which point they either rent out the property or sell it for gain.

Chehwane says this behavior is not risky like the speculators of Dubai, and in fact guarantees that speculation in Lebanon hovers around 1 or 2 percent of the market. Of the half-sold Plus towers under construction in downtown, he says 80 percent of the buyers are end users and 20 percent are investors. In September 2008 during the “aggressive pre-launch campaign,” investors made up 35 percent of the buyers.

As proof that resales emanate from investors and not speculators, Chehwane said “of the 60 units sold in Plus Towers 1 and 2, only one party applied for a bank loan,” and the contract obliges them to pay nearly 40 percent of the full unit price before reselling the unit, minimizing risk.

Others, such as Karim Bassil, chairman of Byblos Real Estate Investment, also said that while they have been approached by speculators, they try to limit speculative activity. Bassil said speculators account for only 1 percent of buyers in his residential projects in Faqra and Gemmayze.

Massaad Fares, founder of Prime Consult and president of the Real Estate Association of Lebanon, said he has not allowed the bulk sale of flats in the upcoming 50-story Sama tower in Ashrafieh, which is already 30 percent sold. He claims that units are being bought up entirely by end-users, and that the same is true for all of his project portfolios. So far all buyers in Sama tower are Lebanese (though some 65 percent reside outside the country) with the exception of one Gulf national.

One Lebanese investor wanted to buy three floors in the upcoming landmark tower in Ashrafieh, but Fares said he did not allow the sale, noting that there was no need to sell in bulk since the owner Fadi Antonios is well capitalized.

Like Harb, Fares believes speculation in the market is less than 10 percent and “only occurs in specific situations whereby the developer himself has promoted it in such a way.”

Geammal of Ascot Real Estate said speculation in Lebanon is mainly related to land, not apartments, but adds: “Some entrepreneurs have come to Lebanon with a ‘Dubai mentality’ where they encourage speculators by telling them to buy off-plan as an investment, without even seeing the flat, telling the buyer that he can sell it later for a 50 percent profit.”

“There is no speculation in Lebanon in terms of people who don’t have enough money to pay for the apartment. There are…investors, but these people have the full capacity to pay”

It’s all money in the end

Salim Tayssoun, chief executive officer of Ascot, rebuffed the idea that developers would refuse to sell to speculators: “I hardly think that anyone in Lebanon [would] reject a check because he thinks the buyer is a speculator and not an end-user.”

Chehwane took a similar line, saying that developers often claim not to deal with speculators “to give an impression that we are so sure of our project… that we choose our clients.”

Fares insisted that: “It’s not wrong or right… It’s another way of financing a project. As an economist, I have to say it depends on their financial situation to tell whether [selling to speculators] is wrong or right.”

Real estate investment reached $7 billion dollars in 2009, according to Bank Audi, and Fares claims only some $500 million of those transactions are somewhat speculative in nature. This, he argued, means speculation is not a problem for Lebanon’s economy. Indeed, re-sales keep the market stimulated, said Fares, adding that: “If the area becomes dead, there is no reference as to how much units are worth, because there’s no more buying or selling in that area, and the lack of transparency hurts everybody.”

The hotspots

Brokers say the most resale activity in the last two years occurred on Beirut’s downtown coastline, specifically in the vicinity of Marina Towers.

“I would do the same if I was in their position,” concedes Fares. “The people who bought there bought for very cheap prices, for $2,500 if bought at the time of launching, when there was so much hype because it was the first mega project… now the square meter is at $7,000 there.”

Christian Baz of Baz Real Estate is currently trying to re-sell three 300 square meter apartments in Ashrafieh’s Le Patio, still under construction, as their respective owners bought units during off-plan sales and now hope to make a 20 percent profit margin in their resale. With the starting price at $4,200 per square meter, each has an asking price of about $1.26 million and more for higher floors. The problem, he says, is that most buyers in today’s market stop well short of the million-dollar mark. Baz adds that in most high-profile towers under construction in Ashrafieh, 10 to 20 percent of the units bought are to be resold before the building is delivered to market.

Marcus Marktanner, assistant professor in the economics department at the American University of Beirut, suggested that the focus should be on the sustainability of speculation in the Beirut property market, rather than the actual amount of speculation taking place.

“Whenever in the history of Lebanon money flushed into the economy, it was because of speculation,” he said, adding that the current state of the housing market is sustainable because Lebanon is in the fortunate position of having high demand from wealthy buyers coupled with inelastic local supply. Marktanner added that those investors still in the market are more cautious and well capitalized enough to withstand the cooling period the market has recently entered.

Rachid Tawk, owner of Victoria real estate company, says the real problem is the influx of inexperienced builders who price units higher than they should be, rather than using legitimate market studies to price their projects. The oversaturation of builders resulted in an oversupply in the market, especially in Ashrafieh, and as a result, the market needs two to three years to reach stability between demand and supply.

Beirut’s retail rent soaring

The average retail rent in Beirut’s downtown district, at $551 per square meter per year, is higher than any other city in the Middle East, according to a September 20 report covering 269 global retail centers by Cushman & Wakefield titled “Main Streets Across the World 2010.” In comparison to Dubai, which has “far too many shops, not enough people and a recession,” Beirut has an undersupply and shops have high turnover, given the 2.5 million resident population, according to Mike Dunn who worked on the report.  The second most expensive retail center in the Middle East is Ramat Aviv in Tel Aviv, with average retail rent going for $505 per square meter per year, and the third is in Lebanon’s ABC Ashrafieh Mall, where the average rent is $479 per square meter per year. Whereas rental rates had dropped in Jordan, Bahrain, Qatar and the UAE, Lebanon was among the countries that showed some increase in demand, as well as Israel, Kuwait and Saudi Arabia. New York’s Fifth Avenue remains the world’s most expensive retail center, where rent hovers around $6,105 per square meter per year.

World’s most expensive flat sold

Brothers Christian and Nick Candy, who bought the famous Monaco home of Lebanese-born financier Edmond Safra in the early 2000s for a mere $15.8 million, have now sold the 5,334-square-meter flat for $308 million, making it the most expensive flat ever sold. The buyer, who is rumored to be Arab, snapped up the two-story penthouse in Monaco on a 97-year lease. Christian Candy, 36, revealed in a 2009 interview that he spent $41 million renovating the property, which includes 30 rooms, a highly secure panic room, a state of the art surveillance system, a media room and a spa with an infinity pool. Safra was 67 when he died in an arson fire in the flat in 1999.

Hefty housing for Beirut’s expatriates

For the first time, Beirut has ranked as the most expensive city in the Middle East in terms of rental housing prices for expatriates, shifting from its position at 28th place globally last year to 10th place this year, according to a survey by EuroCost International. The survey analyzes two and three-bedroom apartments of high quality in expatriate communities in 250 cities worldwide. This year also marks the first time that Beirut has glided into the top 20, surpassing Paris and Abu Dhabi. Bank Audi reports that the upward shift is partly due to “real estate speculation that has generated a strong increase in the supply of high quality housing.” It added that the fall in rental rates in other Arab cities helped push Beirut upwards on the list. Abu Dhabi, the only other Arab city in the top 20, fell from 11th to 12th place in the past year.

Ranking of most expensive cities (rental)

Jordanian expatriates boost housing

Jordan has seen a 14 percent surge in the number of apartments sold in the first eight months of this year compared to the same period last year, reaching 14,109, according to a Department of Land and Survey report. The report put the boost down to the stability of housing prices and the government’s recent exemptions on taxes and fees. Real estate trading expanded 26 percent during this eight month period, reaching 3.5 billion Jordanian dinars ($4.9 billion), but the report also mentioned that real estate-derived government revenues were 7 percent lower than in the same eight-month period in 2009, due to the halving of registration fees from 10 percent to 5 percent and the exemption of fees altogether on the first 150 square meters of any apartment of 300 square meters or less. Zuhair Omar, president of the Housing Investors Society, told the Jordan Times the surge was due to Jordanian expatriates returning home for the month of Ramadan and buying properties before returning to their countries of employment, mostly in the Gulf.

Saving the city’s spirit

“Lebanon considers itself a pioneer in everything, but when it comes to this we are way behind other Arab countries,” said Lebanon’s culture minister Salim Wardy to AFP, in regard to preserving heritage buildings in Lebanon. His remarks followed the September 25 march in Gemmayze, organized by the Save Beirut Heritage association, where hundreds protested at the neighborhood’s new high-rise construction sites. A consortium of heritage groups and activists held signs calling on the government to legally protect designated buildings that reflect Lebanese heritage. The scope of the problem is quantified by official figures, which according to The Daily Star, show that out of the 1,200 designated heritage buildings listed by the Ministry of Culture in 1995, only 400 remain standing today.

March organizer Georgio Guy Tarraf claims “several dozen” buildings will be destroyed by the end of 2010, adding, “It’s a massive shame to lose our heritage — we must all come together to fight this and stop developers evicting any more people or tearing down any more of our history.” According to Tarraf’s written statement, they plan to save Beirut’s heritage by, firstly, reforming the old rental law which would allow original owners to reclaim homes that have been rented out indefinitely to those paying below market rent rates. The group also plans to set up a “rehabilitation fund” to maintain historical districts by using tax revenue from new building permits. Thirdly, they are calling for proper zoning that would limit the height of new buildings in historical neighborhoods. A hotline has been set up to accept eye-witness reports of demolitions, which now require the minister’s signature.

Egyptian housing project under fire

A September 14 supreme court ruling in Egypt upheld a June 22 decision that effectively cancels the government’s sale of 33 million square meters of land to the Talaat Moustafa Group (TMG) Holding, Egypt’s largest listed property developer. The land was for the company’s Madinaty project, for which investors and homeowners have already bought units. The government’s New Urban Communities Authority received $2.3 billion in housing units in return for selling the land, which it should have sold at a public auction according to a 1998 Egyptian law. The deal was under fire as the firm was receiving unusual and first-of-a-kind exemptions on construction fees and free electricity, water and sewage utilities from the government, reported Bloomberg. The $3 billion housing project located on the outskirts of Cairo was supposed to provide homes for 600,000 and have a golf course and hotels. Finance Minister Youssef Boutros-Ghali said the government would come up with a solution to “preserve the rights of all the shareholders and buyers” in Madinaty, according to Reuters Africa. Egypt’s cabinet said it would scrap the original contract for TMG’s estimated $3 billion Madinaty project after a court ruled the deal was illegal, but would reallocate the same land to the firm in a new contract. Also in Cairo, a subsidiary of TMG announced September 1 that it had paid $145 million to buy the remaining 43.7 percent stake in Cairo’s Four Seasons Hotel, which it now wholly owns.

Turkey’s property eyeballed

Turkey is the best location for residential investment in Europe, according to Global Property Guide. The research firm says in its recent report that “property in Turkey is now substantially undervalued using all conventional metrics,” especially since it is the most visited place in Europe after Monaco and London. Low taxes, mortgage rates, and newly voted-in reforms have all given Turkey’s residential property market a boost. “The housing boom’s pre-conditions are repeating themselves in Turkey today,” said Matthew Montagu-Pollock, Global Property Guide publisher. From their height in June 2007, residential prices have fallen by 15 percent nominally, “although the drop may be closer to 30 to 70 percent, after adjustments for inflation,” according to the report. High-end property in Istanbul costs on average $3,210 per square meter, compared to $5,290 per square meter in Madrid and $19,400 per square meter in London.