Levant

A roof over every head

by Executive Staff
written by Executive Staff

One consequence of the population growth forecasted for the Middle East is the increasing need for affordable housing. Until recently, the region’s main property developers focused on the high-end market, while the public sector built subsidized homes for lower income groups. This stereotypical state of affairs has gradually changed face, as the tendency today is for governments to enter private-public partnerships (PPPs) with the region’s leading construction firms. 

Tameer Jordan, for example, is to construct 16,000 affordable homes outside Amman, and Orascom Hotels and Development (OHD) is building some 50,000 units in the 6th of October City on the outskirts of Cairo. Emaar recently won a $100 million contract to build social homes in Egypt and, as early as 2006, signed a memo of understanding with the Syrian government to build low-cost housing.

One thing is certain: constructing social housing is not just about solidarity, but makes perfect business sense. While very lucrative, the top-end of the market is limited in size as, at most, 20 percent of the region’s population is able to afford a top-notch villa or luxury apartment, let alone second, third or even fourth homes.

Market of the masses

“Some 80 percent of the world’s population lives on less than $10 a day, while some 50 percent live on less than $2.50 a day: that’s an enormous market,” said Markus Giebel, chief executive officer of Deyaar Development in the United Arab Emirates. “While it remains difficult to target the extreme poor, there are certainly opportunities in the low-income segment.”

Jonathan Reckford, CEO of Habitat for Humanity (HH), an American non-governmental organization constructing homes for the poor, explained that builders and property developers have so far largely ignored the lower-end market segments for a few basic reasons. The market’s top-end segment is extremely profitable, the region suffers from land scarcity, especially in urban areas, and zoning laws in most countries favor high-end development.

“Most importantly, it is extremely difficult for low-income groups to obtain mortgage loans, especially in the Middle East, while micro financing for housing hardly exists,” he said. “We have run such a program in Egypt for the past decade or so, and the results have been very promising. Over 95 percent of recipients pay their installments on time.”

The reason for the Egyptian government to downscale the role of its public building arm and enter PPPs, according to Egypt’s Minister of Housing Ahmed El Maghrabi, lies in the fact that the state simply cannot keep up with the rise in demand, which is mainly driven by a population growth rate of more than one million people a year.

“We will continue to work with the private sector in the future,” he said. “The government’s role will be limited to offering subsidized land and housing loans.”

One of the main contractors to build low-income housing in Egypt is OHD, which is in negotiations with the Turkish and Moroccan governments to build similar projects. Chairman and CEO Samih Sawiris said a number of conditions should be met to make PPPs regarding social housing schemes a success. First of all, he warned, companies that are only interested in making short-term profit should forget about entering the business.

“It’s a long-term investment,” he said. “Ultimately, it will make money through the appreciation of residual land values. The revenue cycle is 10 to 15 years.”

Sawiris stressed that high volume is crucial to keep construction costs down and urged governments to avoid the mistake of pushing the urban poor into an area or suburb far  from the urban core where, he said, they commonly make their money.

“People will refuse to go, as they do not have the money to commute,” he said.

Wrapped up in regulation

Finally, the state and its inevitable layers of red tape should stay away. Sawiris pointed to Egyptian regulations that stipulate a three-lane-road should be constructed when a project reaches a certain size. Yet most poor people do not drive and prefer to pay less for a sand road and have access to public transport instead. “Let the government provide the land and developers will do the rest,” he said.

There was one big absentee in the debate: green building. Can developers offer mass low-cost housing schemes and provide for green solutions in terms of water and energy use?

Maghrabi admitted that his government’s focus has been on housing people. Green building practices will have to come later. At next year’s World Economic Forum perhaps?  

0 comments
0 FacebookTwitterPinterestEmail
Levant

The Oriental assembly

by Executive Staff
written by Executive Staff

From May 15 to 17 the World Economic Forum (WEF) on the Middle East took place on the hot and humid shores of the Dead Sea in Jordan. Some 1,400 participants from across the globe, including some 1,000 private sector representatives, 14 heads of state and dozens of ministers, traveled to the earth’s lowest point to discuss the socio-economic issues facing the region.

As is so often the case with mega-gatherings such as the WEF, the most interesting words and opinions were not always expressed in the main conferences; many were found in the topic specific debates taking place on the meeting’s sidelines.

Participants and press happily met over coffee, lunch and dinner. And eat well they did as, according to one cook at the King Hussein Conference Center, the food bill for the first day amounted to some $90,000. Fortunately, the WEF has its sponsors.

There was also some controversy before the meeting even started. A small group of demonstrators in Amman protested over the attendance of an Israeli delegation, including Israeli President Shimon Peres, which was arguably the reason there were no Syrian or Iranian representatives.

In his opening speech, Jordan’s King Abdullah II referred at length to the Nakba and the Arab Peace Initiative (API). According to him, the Nakba was not just a catastrophe for the Palestinians, but for the entire region and the world.

“As we feel compassion for all who have suffered, let us also commit to joining the solution as well,” he said. That solution, said Abdullah, is the API.

“We have committed,” he said. “So now must Israel. The API has offered Israel a place in the neighborhood and more: acceptance by 57 nations.”

Abdullah also said that there can be no economic cooperation with Israel without a political solution. 

Away from politics, he identified the Arab youth as a “vital dynamic” of this year’s forum. 

“The 21st century has brought the Middle East its largest youth population in history,” said Abdullah. “In only a few years we will be looking to these 200 million young men and women for our region’s strategies, partnerships and solutions.”

From the plethora of topics discussed and debated at the Dead Sea, Executive highlights three in the following pages that in the future will play an ever more important role, particularly in the context of the region’s fast growing and ever younger population. These are the call for social housing; the state of the media; and the need for proper education.

0 comments
0 FacebookTwitterPinterestEmail
Levant

Banks hold the fort

by Executive Staff
written by Executive Staff

As with most countries in the Levant, Jordan has emerged relatively unharmed from the financial storm that ravaged the world. The Kingdom’s banking sector possessed few toxic assets. The Amman Stock Exchange (ASE) saw a decline of some 25 percent, far less than the world and Arab average. Still, Jordan’s economy appears faced with a tough road ahead. One of the crisis’ main victims so far has been real estate, which recorded a sharp fall in prices. In addition, remittances from the estimated 350,000 Jordanians living abroad are likely to decline and unemployment is set to rise. The economic growth forecast for 2009 is some 3 percent, down from 5.6 percent in 2008.

“The Jordanian banking sector has proven to be quite robust,” said Ali Nasser, an investment analyst at the Global Investment House in Amman. “The Central Bank of Jordan (CBJ) upholds strict regulations, which is one of the reasons that Jordan’s banks have not been directly affected by the credit crunch. Jordan’s loans to deposits ratio, for example, is 70 percent, while in the UAE it measures between 100 and 120 percent. In addition, the CBJ has responded adequately to the crisis. The only criticism one may have is that the CBJ could have reacted a bit earlier and more aggressively.”

Following the 2008 financial meltdown, Jordan’s central bank embraced an expansionary monetary policy in an attempt to boost the economy. Since last November, it cut interest rates three times, while the reserves to deposits ratio was reduced from 10 to 7 percent. Today, the re-discount rate stands at 5.25 percent and the interbank rate at 3.1 percent. To secure consumer confidence, the government guaranteed all bank deposits until the end of 2009.

In March, the International Monetary Fund’s mission to Jordan praised the measures, although most financial observers agree the central bank’s relaxation of monetary policy has so far not resulted in more dynamic lending practices. As with banks elsewhere, Jordanian banks have opted for a wait-and-see approach. Consequently, the CBJ currently holds excess bank reserves of some $4.5 billion.

“Banks will make profits in 2009, yet their results will be hampered by the economic slowdown and losses on the Jordan and other stock markets,” said Nasser. “In the first quarter of 2009, the prices of most bank shares were in decline, which is arguably the result of risk aversion in lending practices. Car loans for example were down some 70 percent, and it is very hard these days to get a housing loan.”

Amman Stock Exchange

Having recently celebrated its 10 year anniversary since privatization in 1999, the ASE has been affected by the financial crisis, although less than markets elsewhere. During the first half of 2008 the ASE price index had increased by some 30 percent to reach its highest level ever. Companies extracting potash and potassium did especially well, due to the food crisis and the demand for fertilizers.

Following the financial downturn in September 2008, however, the ASE price index went into free fall and closed the year 25 percent lower than the previous year. Market capitalization amounted to a bit more than $37 billion. While the industrial sector, which includes mining, declined by 11 percent, the service sector decreased by 17 percent, and the financial sector by 29 percent. The latter was dragged down by real estate firms that saw their average share price decrease by some 50 percent.

“Today, the ASE has absorbed the crisis and we can conclude that the losses were not as deep as elsewhere,” said ASE’s Chief Executive Officer Jalil Tarif. The Morgan Stanley index reveals that stock markets worldwide in 2008 declined by an average of 43 percent, while Arab markets fell by an average of 55 percent.

“One significant reason for the ASE’s limited losses has been the presence of foreign investors,” said Tarif. “This has had a stabilizing effect, as most of them are strategic partners; ‘hot money’ is not really an issue in Jordan.”

By the end of 2008, 49 percent of ASE shares were owned by foreigners, mostly Saudis (8 percent), Kuwaitis (7 percent), Lebanese (6 percent) and Qataris (4 percent). 

“The prospect for 2009 depends first of all on the direction of the international financial markets,” Tarif said. “Of course, the well-being of the US market is a key indicator for any market. Secondly, the movement of the oil price is important, as Jordan is a net-importer. Because of these factors, the future is difficult to predict. But this year’s first quarter results have been promising.”

The first quarter showed an average decline in profits of companies registered at the ASE of some 20 percent, yet the figure was dominated by the performance of financial and real estate firms.

“Ten years ago there were but five or six real estate firms registered at the ASE, while today there are some 40,” said Tarif. “Due to the crisis and banks being less willing to issue housing loans, some companies face difficulties to meet their obligations.”

Remittances

According to a report by the National Bank of Kuwait issued in February, some 350,000 Jordanians work in GCC countries. Their remittances amount to some 17 percent of the Jordan’s GDP. Due to the current crisis, especially in Dubai, remittances declined in the first quarter of 2009 by 18 percent compared to the last quarter of 2008. While most Jordanians abroad will try to stick it out as long as they can, many fear an increasing number will return home, putting more pressure on the domestic labor market. Officially, unemployment fell during the first quarter of 2009 to 12.1 percent, compared to 12.7 percent, yet in reality the number of jobless is thought to be double that figure.

In light of the above, Jordan’s central bank downgraded its forecast for economic growth from some 6 percent to an estimated 3 to 3.5 percent. But the good news is that inflation, which was a record-high 14 percent in 2008, fell to some 4 percent this year. That has not helped retail so far. While there were no vacancies to be seen in Amman’s main shopping centers, one shop keeper at the City Mall estimated a decrease in turnover of some 20 to 25 percent. So it seems that it is not just Jordan’s banks that are keeping a cautious eye on their money while awaiting better times ahead.

0 comments
0 FacebookTwitterPinterestEmail
Special SectionYoung Arab Leaders

Salah A.H. Al-Qahtani- Q&A

by Executive Staff
written by Executive Staff

Salah A. H. al-Qahtani is the executive vice president of Al Qahtani Pipe Coating Terminal and the chairman of the Saudi Arabian chapter of Young Arab Leaders (YAL). Executive magazine recently spoke with him about YAL’s critical role.

E  There’s been a lot of talk today about finding practical solutions to the problems young Arab students face, particularly with specialized education. Is that something affecting you in Saudi Arabia?

Yes, there is a lack of education, for sure. We understand it, but we have to just fix it, we don’t have to talk about it. What we have to do as business people is we have to train our kids. You have to build a team under your company. You build a team, and you educate them.

E  So, in other words, you see filling this gap as a responsibility of the private sector?

No, it’s not the responsibility of the business sector, it’s the responsibility of the government, but the question is, what can we do to boost it? In Saudi Arabia, we are a part of the government and at the same time we are not.

The way I see it, it’s like a wagon and a horse. The government is the wagon, but you need a horse — the business community — to move it.

The wagon, there’s a value in it, but you need the two together. And without the two, the government cannot build infrastructure that the businessman can use.

I’ve worked with a lot of charities, and I like to participate in a lot of government institutions, because the government has helped us to build. Our father and mother taught us to build for tomorrow — to build up young people who can help you in the future.

E  And this, I assume, is where Young Arab Leaders (YAL) comes in. How long has YAL been in Saudi Arabia?

YAL in Saudi Arabia started in 2004. I started two years ago, and I  took the chairmanship eight months ago.

E  What sort of initiatives have you undertaken?

The best that we have done, thanks to God, is we signed a deal with a Saudi economics newspaper. This is a huge deal for us. They can train the students in a number of fields, including even PR work, like how to deal with news. Also every event that they have, anytime they have a speaker, they will bring it to our group, and invite our YAL members. In the last six months, we’ve had an event every six weeks.

Also — this is very good news, everyone is so happy about it — we just did an agreement with Cisco Systems, two weeks ago. The plan is that we get 200 students, all mature boys, class ‘A’, from university, and they get to work with Cisco for between eight and 12 weeks.

E  Like an internship program?

Right. We had a party to celebrate the deal, and the chairman of commerce in the kingdom came.

E  And young people are signing up for this?

Just last week, the board of YAL Saudi — me and my colleagues — we went to all the universities and explained that we have this system; these are the pros of it, these are the cons, and we need students. I brought in seven, one of my colleagues brought in 10, and now we have already signed up 25 students.

E  Sounds like things are taking off in Saudi.

When I started as chairman we had 84 members. Now we have 118.

0 comments
0 FacebookTwitterPinterestEmail
Special SectionYoung Arab Leaders

Elwy Taymour- Q&A

by Executive Staff
written by Executive Staff

Executive sat down to talk with Elwy Taymour after a press conference announcing the opening of the YAL Egypt Branch, the appointment of Taymour as its chair, and the formal launch of a program called Learning for Life, which is “designed to help Arab students bridge the gap between universities’ academic output and the marketplace requirements.”

E  So here we are, minute one.

Right. We just started, this is minute one.

E  Egypt seems like a pretty big gap in coverage.

What happened was that Young Arab Leaders realized from the very beginning that Egypt was very important, but for two or three years nothing really happened.

E  Why not?

I think it just didn’t materialize. But the Minister of Investment came in with SODIC [an Egyptian company that has been running a pilot program for the past year], and they tried to push the program and start the chapter. What’s good about Egypt is that the nucleus of the program was started before all this was organized, so there’s a structure that we can build around to hit the ground running.

E  So tell me what’s been happening

We’re doing two main things. We have the Learning for Life program, and the grants associated with it, but then we also have donated money for labs, for actual labs at the universities and that’s going to be an ongoing thing. It’s always going to be there, it’s always going to be serving as place to offer training courses.

E  It seems that students coming out of university without the necessary training for the workforce is a real problem in Egypt.

It’s always been a problem with this region. I think more and more there’s a gap between people coming out of university versus what’s out there waiting for them. Everyone wants to be an engineer and a doctor, and there’s a ton of other things out there that nobody knows how to do. So, I think one of the main things of YAL is that each chapter will try to reduce that gap. By introducing courses, by maybe getting a little bit more of a headway than what the government is doing, in terms of providing these guys with a little more of something to look forward to when they come out.

E  Do you have any specific plans, now that you’re in charge?

To continue the initiatives that have already started, that’s one. Second, I really would like to start working in places other than Cairo, so the focus is also going to be, for me, like Alexandria, and some of the poorer places in upper Egypt. That’s a priority for us and to also encourage more people to dedicate some of their own time to participating in the programs.

E  You mean adults, or kids?

Whichever. Whether they’re people who decide to join the chapter, or people who are older and would like to volunteer some of their time.

E  Big plans, it sounds like.

Well, I think these programs are quite important, but I also think that what Egypt suffers from is a lot of little problems. I think fundamentally there are things that need to change in the country, but to begin with, there are smaller things. If you were to assume the quality of education is currently at 20 percent of its potential, for it to jump to 60 percent or 70 percent I think you need very small things to change. Getting kids exposure to the arts and things like that, I think, is something much more important that we can focus on that will create a much bigger impact. I think the most important thing right now are the small things that we can change.

0 comments
0 FacebookTwitterPinterestEmail
Special SectionYoung Arab Leaders

The first step in progress

by Executive Staff
written by Executive Staff

Dr. Omar bin Sulaiman, the chairman of Young Arab Leaders (YAL), didn’t have to pay very close attention at YAL’s annual forum in Beirut last month to pick up on the high levels of youth frustration — although it’s probably a good thing he did.

“How do you start?” a young woman, a YAL member from Egypt, asked from the audience. She was standing with a microphone in a large ballroom at the Habtoor Grand Hotel during a morning discussion on how to create more opportunities for youth. And she was expressing a recurring sentiment.

“Young people do not have enough expertise to write a correct business plan,” she said. “We end up with young people saying, ‘No one will give me a job if I don’t have the right connections.’ Meanwhile, the public sector says you need more education. The private sector says the public sector has to change first. Your parents say go find a job.”

Like so many others in the ballroom, she was feeling exasperated. For one thing, the financial crisis had severely limited job opportunities. But she had also found that gaps in higher learning left recent graduates just a little shy of what hiring companies expect from them.

This is precisely the role Sulaiman envisions YAL playing. YAL has big ideas and lofty goals — their four pioneering initiatives are education, entrepreneurship, dialogue and leadership — but Sulaiman is a practical man, and he believes in practical solutions.

He was sitting in the front row and wasn’t supposed to be part of the discussion — he’d already given some introductory remarks earlier in the day — but now he rose to respond to this young woman.

“Who here is ready to train someone on the spot?” he said, turning to face the crowd. Half the adults in the room raised their hands. “That’s 400 hands! We could start right here, with ourselves!”

It was a start

Later, during a break in the forum, Sulaiman told Executive, “frustration is a part of life… We all go through it. You know, your house, your friends, sometimes something frustrates you. It’s fine, it’s a part of life. As long as you move on from that.”

Over the past year, YAL has faced its own frustrations and challenges — the economic crisis being at the top of the list — and it has steadily worked to make itself more streamlined and structured. They moved away from the non-profit model. They elected their first CEO, Assem Kabesh. They opened a new branch in Egypt. And, as Sulaiman pointed out, they increased their reach to more that 4,000 “beneficiaries” — nearly half of them in the past four months alone.

“You want a culture of debate, but eventually you want to move on,” he told Executive. “You don’t want to debate it forever. Kill the issue, hammer the issue, but move on. That’s what I was trying to bridge. Stop saying, ‘Why aren’t you doing something about it?’ We need to say, ‘I’ll do something about it.’”

At lunchtime — over Lebanese cuisine at the hotel’s spacious pool bar — several students said they agreed with this sentiment. They wanted more solutions, and fewer debates, especially political ones.

“If we had gotten into politics this morning,” a young Lebanese YAL member said, “we never would have gotten out of the room.”

In the afternoon, Sulaiman’s practical problem-solving was put to a test. The YAL forum-goers divided up into smaller breakout sessions, with experts discussing each of YAL’s main initiatives.

At the session on entrepreneurship, Rami Makhzoumi, the moderator (also President and CEO of Future Pipe Industries,) took a cue from Sulaiman and used the opportunity to ask the members of the panel, all corporate executives, if they would be willing to pledge to consider the applications of any young men and women who went through a YAL training course. They all said “yes.”

0 comments
0 FacebookTwitterPinterestEmail
Executive Insights

Engaging employees for the company’s success

by Tommy Weir
written by Tommy Weir

In the midst of the financial crisis, most organizations are looking for a proven way to improve their financial performance.

The likelihood is that you are as well, and there is a proven way you can do it. Kenexa Research Institute (KRI) studies conclude that there is a relationship between employee engagement and an organization’s financial performance.

In the graph below we see that organizations with high employee engagement scores have two times the annual net income of those firms with low employee engagement scores. This data points to the fact that there is a direct linkage and correlation between engaging your employees and an improvement in your financial performance.

Global employee engagement & annual income

Source: Kenexa Research Institute (2009)

You may be wondering, “What is employee engagement?” According to Jack Wiley at KRI, employee engagement is “The extent to which employees are motivated to contribute to organizational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals.”

Simply stated, employee engagement = employee pride + employee satisfaction + employee advocacy + employee retention. In other words, engaged employees are proud and extremely satisfied with where they work. They’re so satisfied they tell people about it and recommend their company as a good place to work. Engaged employees rarely think about looking for a new job with another company.

Some organizational leaders are skeptical about assertions that employees can be this satisfied. If you fall in this category as a leader, you need to reflect on the research analyzing employee engagement and understand the conclusive evidence supporting this research.

The way that employee engagement relates to an organization’s financial performance is that it drives an employee’s performance in terms of conscientiousness, organizational commitment and productivity. Additionally, higher employee engagement reduces absenteeism and employee turnover. These combined factors give us the most important result of employee engagement: an improvement in an organizations’ service quality and customer satisfaction.

Since it’s most probable that your organization wants to improve its customer service and financial performance, let’s contemplate the most relevant question: “What can an organization do to improve employee engagement?”

According to Wiley, to increase employees engagement, organizations need the following. 

  • Leaders who inspire confidence in the future because employees want to know what the future is and how their work relates to it.
  • Managers who recognize employees and emphasize quality and improvement as priorities.
  • To provide employees with exciting work and the opportunity to improve their skills. Employees who enjoy their work and are encouraged (and given the opportunity) to get better, contribute the most to organizational success.
  • Most importantly, organizations must demonstrate a genuine responsibility to their employees and communities.

So, how do you think your company is doing on employee engagement? Let’s take a look in the Gulf Cooperation Council and see what employee engagement scores indicate.

Employee engagement in the BRIC countries (Brazil, Russia, India and China) and GCC

0 = employees are not engaged at all

80 = employees are highly engaged
Source: Kenexa Research Institute (2009)

On average, organizations in the GCC are in line with global averages when it comes to employee engagement. But they are way behind India, which has a highly engaged workforce,which is one of the reasons why Indian organizations perform well and grow. If organizations in the region want to be global leaders, there is tremendous room for improvement in employee engagement.

One of the peculiarities about the GCC is the dual workforce: homegrown (nationals) and imported (expatriate) talent. Do you think there is a difference between the engagement of nationals and ex-pats?

Employee engagement in the GCC — comparing  ex-pats to nationals

0 = employees are not engaged at all
100 = employees are completely engaged
Source: Kenexa Research Institute (2009)

The results across the GCC are scattered as to who is the most engaged: homegrown or imported. But on  the whole, organizations in the GCC and all over the world have an incredible opportunity to improve their financial performance by driving employee engagement.

In conclusion, is your workforce motivated to contribute to organizational success, and willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals? It is important for every organization to understand its specific employee engagement score and implement a plan to improve it and, in turn, to improve the organization’s financial performance.

Tommy Weir serves as managing director of the EM Leadership Center

0 comments
0 FacebookTwitterPinterestEmail
Editorial

Orphans and the ghosts of martyrs past

by Yasser Akkaoui
written by Yasser Akkaoui

This month’s Lebanese elections will be dominated by orphans and the ghosts of martyrs past. On the March 14 ticket no less than five children — Saad Hariri, Walid Jumblatt, Nayla Tueni, Michel Moawad and Nadim Gemayel  — of slain politicians are all, in one way or another, forced to follow in a tragic tradition that has become the hallmark of Lebanese politics. Meanwhile, the opposition March 8 bloc has its own martyrs whose blood has helped make the soil of Lebanon so sacrosanct.

Yes indeed, we Lebanese do like honoring our dead, but the living must not be forgotten. It is of the utmost importance that our politicians, while recalling past sacrifice, do not lose sight of future obligations. Lebanon is a country dominated by its business community — its bankers, its financiers, its hoteliers, its restaurant owners, its retailers, its property developers, its traders and its small business owners.

From the mega-wealthy, who shape the Beirut skyline, to the shopkeepers on every street corner, business, more than politics, is what courses through Lebanese veins. Any future government, whatever its stripe, must provide to the electorate a robust economic blue print, a model to drag the country from its slough of despondency. Now is the time to deliver on the promises.

The good news is that regionally the markets are picking up, clawing back one third of the losses sustained since the meltdown. It is the first sign that the critically-ill patient is on the mend. More money will be pumped into the region, but this time it will be allocated prudently into those companies that have demonstrated they suitably restructured and shed the fat of corporate excess.

But this new financial nutrition will take time to filter into the region’s bloodstream, and in the meantime, new regulations must be adopted to ensure this new investment is safeguarded. Meanwhile, the price of oil is creeping upwards and this bodes well for regional economies.

For the moment, let’s hope the dead can breathe life into the living.

0 comments
0 FacebookTwitterPinterestEmail
Lebanon

Real estate – The house made of brick

by Executive Staff
written by Executive Staff

The region’s real estate markets have seen better times. Jordan’s property prices continue to plummet. Dubai’s real estate bubble has burst. The rest of the Gulf Cooperation Council hasn’t fared much better. In Lebanon, prospective buyers waited for prices to follow suit; figuring the past year’s decrease in construction cost and the lower demand from Lebanese expatriates would bring prices down. But Lebanon’s real estate has had a very different experience from its regional colleagues since last fall’s crash began.

Real estate prices in Lebanon are not going up — but they’re not going down. Demand from expatriates has slowed, but prices have not taken a plunge mainly due to strong local demand and scarcity of land and properties. Still, some prices have decreased 10 to 20 percent because developers who had the luxury of inflating prices due to high demand are being forced to return to the original, fair market value of properties.

Demand leveling out
Local demand for Lebanese real estate has not decreased, since the Lebanese economy, as a whole, has not been severely affected by the financial crisis. The banking sector is still performing well and making loans available. Companies operating in Lebanon are not shutting down or sacking employees, leaving the local demand for properties intact.
What is triggering a concern is the demand from Lebanese expatriates, who represent the largest portion of the market and dominate the mid-range and high-end segments. There is an ongoing debate about how hard the crisis has hit expatriates, and how that will affect the real estate sector.
“Definitely we are seeing the impact,” adds Hani Haddad, managing director of A&H Construction and Development, of his firm’s performance over the last few months. “The demand was much lower. But it is starting to pick up again,” he says.
A&H specializes in high-end properties, whose clientele is comprised mainly of Lebanese expatriates. Haddad says one of the reasons for the lower demand was that people stopped buying. They assumed prices would go down, as in other countries in the region.
“They waited and prices didn’t go down. So maybe now they are starting to change their mind,” he says.
Some say that demand in Lebanon has not been impacted at all, while others say expatriates have started to return with no money to buy a house, consequently lowering the demand for properties in Lebanon.
Coldwell Banker President Elie Harb says that there is no evidence that demand has gone down.
“It is a normal cycle,” he says. “Every year, we see these months have the lowest activity.”
Harb says expatriates who drive Lebanon’s real estate market are highly educated managers and professionals with high incomes. He says it is doubtful large swaths of these professionals would lose their jobs, and is optimistic the real estate market will recover soon.
Christian Baz of Baz Real Estate disagrees.
“All market segments will be affected,” says Baz. “People are coming back broke. They either bought their house already, or are broke and will live with their parents.”
Those who are still buying are currently enjoying the luxury of making an unhurried choice, at least compared to how the Lebanese market was a year ago. Stable prices mean buyers have more time to compare properties, without having to worry about prices going up the next day, or another buyer aquiring the property.
“Properties are not selling as quickly as they used to,” says Karim Makarem, director at RAMCO. “While not so long ago, if you saw a property, the next day it could be sold. Now it is not sitting, but you might have a few days, a week or two before you make an offer.”
Sandro Saade, co-general manager at Greenstone, says prospective buyers are now “pickier.”
“[The consumer] is asking questions, and making sure that the product that is delivered is of better quality and is reflected in the price being asked,” says Saade.

A fair price?
Many factors play a role in determining Lebanon’s property prices, the most important being the availibility of land, construction materials, profits and demand. When the market was peaking, all these indicators were heading upwards. Land became scarcer and construction material more expensive. People rushed to buy properties for fear of further price increases. Some developers jacked up prices, confident consumers would buy out of necessity.
“People have overpaid… because they were either mislead, or they refused to get advice and they went with their gut feeling,” says Makarem. This created a vicious circle where prices rose and buyers rushed to make purchases, which then caused prices to rise again.
Developers who took advantage of the rush are the ones who are now being forced to rollback inflated prices. The lower cost of construction material and dwindiling demand has left them with no other option.
“Certain developers have reduced their asking prices by up to 20 percent,” Makarem says. “But their asking prices were overpriced to start with.”
He adds that there is a huge risk in doing so, because when the market slows down, buyers will know the price increase was unjustified and it will hurt the developer’s reputation.
Other developers who set their prices according to ‘reasonable’ parameters are not finding it necessary to decrease their prices. They did not use the increase in construction material costs as an excuse to inflate prices. And now they say the decrease in the cost of construction material is not substantial enough to trigger a price decrease.
“The cost of construction has not lowered substantially, as people think,” says Karim Saade, the other co-general manager at Greenstone. Saade says this is one of the reasons why Greenstone and other reputable developers are maintaining their current prices. Haddad from A&H concurs.
“We stick to our prices, we don’t lower them and we don’t increase them,” he says.
Even if conventional wisdom says the cost of construction material has decreased and prices should go down, land remains very expensive. In densely packed Beirut, finding a plot to build on has become more difficult, and developers are now including the high cost of land in their cost structure, making apartments expensive.
“There is no land anymore [in Beirut]. And if there is, they are asking for ridiculous prices,” says Haddad.
Makarem says the city’s spatial limits may drive prices up in the boom times, but generally the limited supply helps contribute to the stability of Beirut’s real estate market.
“As long as that is the case, I don’t see any reason why the prices of end products should collapse,” he says.

Money to give
Most Lebanese buyers rely on financing to purchase property. With a healthy banking sector, Lebanon has not been hit by a lack of liquidity, and buyers can acquire home loans or mortgages provided by banks in partnership with the Public Corporation for Housing.
“Conditions are still the same,” says Antoine Chamoun, general manager of Bank of Beirut Invest. “The flow of people is still the same, and I may say even more than before.”
But the situation has changed for expatriates. The crisis has put a lot of expat’s jobs at risk, and Bank of Beirut, and other banks, are increasing the level of scrutiny on the financial status of applicants, the stability of their jobs and other sources of income.
“We are looking more at the source and the stability of the income. We are also seeing if the employer is affected or not,” says Chamoun.
He says the heightened scrutiny and generally bleak economic conditions outside Lebanon has caused expatriate applications to decrease.
The credit situation for developers is better. Developers in Lebanon, compared to their regional colleagues, are not over-leveraged and they continue to apply for loans. A bank not only provides project financing depending on developer’s financial situation, but also on the specific project. The bank studies market activity in the area, the expected sales and other factors.
“We are receiving a lot of applications from developers for project financing — the number [of applications] has not changed,” says Chamoun.

Developers sitting pretty
Most developers are in a good position in Lebanon due to having sold a majority of their projects. Consequently, they have not been forced to sell at a discount as demand has slowed, which has kept prices stable.
“We started the sales process in September 2008, and have sold so far 35 percent of the project, which is a very good result. So we are quite confident” says Greenstone’s Saade.
Developers have not changed their operating strategies. They did not feel the need to. On the contrary, they are still planning ahead and looking for new projects and future investments. Currently there are 300 new construction projects in Beirut, according to Makarem, totaling some 1.6 million square meters of built up area.
A new trend that is coming to the market is the construction of smaller, cheaper units because the financial crisis might lower the budget of some people looking for more affordable units to rent or buy. Brokers are advising developers to focus on the mid-range market, and several developers are considering the change.
“The true demand is to build a house of 150-160 square meters with three bedrooms, and having the price below $200,000, so that 90 percent of the local market can buy” says Harb from Coldwell Banker.
Haddad says that his firm, A&H, might consider building smaller units, but it is still a dilemma because in the high-end segment the target market is usually families who are used to big spaces. Still, they might consider it for their next project. “Our budget is $1.5 million. Maybe you can go smaller, take it down to $500,000,” adds Haddad.

Awaiting the summer
Real Estate professionals are optimistic about the summer. Most believe that if elections go well, the real estate market in Lebanon will bloom again, since it will represent a safe haven for those who still have money and are willing to invest.
“I think in the summer you might find a lot people looking to buy,” says Makarem. “If ever [people] needed evidence that no matter what happens, the [real estate]sector in Lebanon is extremely secure, they have it.”

0 comments
0 FacebookTwitterPinterestEmail
Lebanon

Rest & recreation – Clubs find summer’s groove

by Executive Staff
written by Executive Staff

With the Mediterranean a few feet away, and a table groaning with plates of grilled prawns, it’s hard to picture Oceana beach club as a scene of any duress. Life here among the bronzed and beautiful is good. But in 2006, as owner Nicolas Sawan says, the first Israeli bombs to hit the Dammour area were just a few hundred meters away.

“They hit the bridge where we had the Oceana sign,” he says.
Beyond the human carnage and destruction wrought by the July war, Lebanon’s tourist heavy economy also took a blow. The initial overall economic cost was estimated at $2.8 billion and the year, which had begun with a record flow of tourists, saw an 85 percent drop from the previous August, according to Tourism Ministry statistics. The owners of Lebanon’s beach clubs, who had been preparing for a bumper season, were hit particularly hard. Sawan, for example, claims he invested $200,000 on an advertising and marketing campaign that year.
Although the conflict lasted almost exactly the length of Lebanon’s high tourist season — from mid-July to mid-August — Oceana reopened after the bombs stopped falling, just to prove a point: Lebanon doesn’t give up that easily. But the experience left Sawan and other beach club owners with a little less spring in their step, even as this year the Tourism Ministry is once again recording significant year-on-year increases of visitors, up 53 percent in the first quarter.
Ziad Abdo, Oceana’s general manager, said the club would not be investing nearly as much — perhaps half the original amount — in its marketing campaign as they had in 2006. While Oceana still runs radio advertisements, they are playing it a bit cooler, hoping instead to bring in new clients through other means.

A pool of one’s own
For example, they have carved out creative new transport strategies, including an exclusive deal with the Intercontinental Phoenicia Hotel, which will provide a free shuttle service to and from Oceana for its guests. They’re also planning to offer arrival via sea; visitors can leave from the Marina at Dbayeh and take a boat directly to Oceana. Thanks to these innovations, they’re expecting a 30 percent increase from last year’s 62,000 entries.
Gilbert Khoury, owner of Bamboo Bay beach club in Jiyeh, also had to make some hard choices in the wake of the war.
“Because of the 2006 war we had a huge amount of losses, around half a million dollars,” he says. Once bitten, he is now twice shy: after the war, and against the background of continuing conflict and instability that has plagued Lebanon, he abandoned plans to develop a resort and hotel complex on an adjacent property.
“Because of the problems from 2005 to 2008, we decided not to develop a hotel-resort complex as we’d initially planned. It was too risky to invest this much money,” says Khoury.
Instead, he reinvested almost $500,000 in an upgrade and expansion of Bamboo Bay, in order to reposition the club as “one of the most Class A and A plus” projects on Lebanon’s coast, as he puts it. To that end, he’s enlarged the total area of the club from 12,000 to

19,000 square meters, adding 14 private “terraces,” or bungalows, along the beach, and six terraces with private dip pools. Each terrace has its own changing area, shower and restroom. There’s also a “mega-terrace,” which has a larger dip pool, solarium and private bar, as well as a butler service.
“It’s like a micro-beach resort that you can rent privately for the day,” Khoury says.
On top of this substantial investment in infrastructure, Khoury has made what he considers an even more important investment, in human resources.

Select clientele
“Last year, we had a big crisis in hiring qualified staff, because a lot of people left to work abroad. This year, it’s the opposite. Because of the work crisis in the Middle East, we’ve been able to hire a lot of qualified staff from the Gulf,” Khoury says.
“People are willing to come back to Lebanon and work, and that’s what we’re most excited about. It’s not only a restructuring of the physical aspect, but also a deep managerial restructuring. Our staff is very motivated, very qualified, and it’s going to make a big difference in the quality of service this year,” he adds.
Despite increasing the size of the club by more than 50 percent, Khoury plans to limit the number of clients he lets in to 800, maintaining a high area-to-client ratio that will set Bamboo Bay apart. In a tiny, nosy country like Lebanon, what greater luxury is there than a little extra room to breathe? 
At Lazy B, they’ve also placed a premium on space, capping admission at 500 visitors and, as Karima Hawa, wife of owner Georges Boustani, points out, leaving around a third of their land untouched and unused.
“We left it just the way it was,” she says.
Daisy Boustani, Georges’ mother and the club’s designer, has re-done the bar and replaced the furniture for this year. But she’s not expecting anything out of the ordinary.
“We’re just working for the people who are used to coming here,” she says.

0 comments
0 FacebookTwitterPinterestEmail