In general, the real estate market has not witnessed any changes in prices. It seems on the contrary that many people are now thinking to increase their prices. People believe that prices might shoot up. This is something we are sensing, as we are hearing of more and more commitments of Lebanese living abroad who are willing to come back if the situation improves. This will increase demand for everything. From inquiries we have been receiving after February 14, we noticed that prices are still being maintained by demand. It doesn’t seem that anybody sees this as an opportunity to bargain down prices, which is a very healthy situation.

The retail sector has suffered the most from the upheaval. Whether it is leisure or selling clothes, it is a luxury and people are sticking to their cash in times of hardship. This affects especially the downtown. In a climate of unhappiness people will wait with making new investments into retail space, as will the ones who are buying apartments. It’s normal but I don’t think that this short-term effect will influence the market. All depends on how long the crisis lasts. 40 days can be absorbed. If this crisis lasts one, two, three months, it can easily be absorbed by existing retail tenants. Especially in Lebanon, businesses have to be ready for surprises and a wise business man takes precautions for a temporary difficulty.

In residential real estate and in general, projects that have started are continuing and will not be stopped. Most projects that started in the last years have been pre-sold to 50%, 60%, and 70% prior to completion. These projects will continue, they made their sales, they made their profits. Also in commercial, the rules of the game require pre-lease before starting construction. From practical experience we know that it takes sometimes six months from inquiry until realization of a project.

I don’t think that enough time has passed to see any trend on the real estate market accelerate but we are receiving more inquiries than we had before the current developments. We have gone up from three to four inquiries per week to five or six and sometimes seven, and these are serious inquiries. It is still too early, however, to say what will last, what will continue. If there is demand it will be everywhere and if there is a reduction, it will be everywhere.

One year ago, the biggest buzz in Beirut was over the 100 million square mile Sannine Zenith resort project aiming to transform the barren backside of Mount Sannine into a wonderful world of recreation above the clouds. The project’s sheer dimension, ecological implications and foreign flair of investments stirred up ruckus in public opinion, but even more, it portrayed a golden tourism future for the country. Executive asked Habib Ziadeh, the administrative and financial consultant to Sannine Zenith if the current crisis changed the project’s outlook and where things stand today. 

Habib Ziadeh

Because of the political issues of the day, we are still in a time where nobody is free to talk business. The impact on Sannine Zenith is not yet tangible and we haven’t had enough time to see the consequences on the project. So while views are very subjective now and it is too early to say if the future will be either gloomy or rosy, nobody is panicking. The fundamentals remain in place and are still right. The mountain is still there, the weather is still there, and these are the pillars of the project.

As far as the development of the project, we are in Phase One. We had presented the public with a preliminary master plan [a year ago]. Now we are completing the final master plan, which will take about another month to finalize. This will be followed by another month of working on feasibility and placement issues. In May, we should have some figures.

Lebanon has high flying ambitions for attracting international tenants to base their regional presence in Beirut. Executive asked real estate consultant and broker Michael Dunn, chairman of Michael Dunn & Co, how the market for office space looks today and what scenario could make the country most interesting for foreign companies to locate here.

Michael Dunn

For the moment, there is zero demand. The only area where demand would be strong is for high security compounds with space. In the Beirut area, an isolated building surrounded by a high wall would immediately find a tenant from the diplomatic or corporate side.

In matters of international presence, a lot of companies have been leaving or stopped producing in Lebanon because of the high cost of electricity and similar factors. At the moment, we are losing companies. To attract international firms, I think we need for the whole country to become almost like a free zone. The opportunities are there and Lebanon could boom in a similar way like Hong Kong did in the 1970s. The question is whether the country could implode again. Certain groups want more power. If we can move away from that, all will be happy. We are not there yet, but I am extremely optimistic for the future. 

To assess the level of trust and activity in the real estate sector at the present juncture, Executive inquired about the perspective of a bank on the sector. Elie Azar, marketing manager at Lebanese Canadian Bank, told how the bank is dealing with the issue of housing loans and its own corporate real estate plans.

Elie Azar

We are granting housing loans at a slow pace to evaluate the situation of our customers. A person who wants to invest by buying a house should be relaxed in their decision. envisioning plays a big role in such a decision and at present, this is not the case. For the time being people are focusing on day-to-day problems and no one is pursuing long-term loans such as housing loans. All our own projects are now frozen. We bought nine branches from Al Madina Bank and United Credit Bank, of which we opened three. On the others, we are now waiting for the situation to improve but we are sure and ready to restart all our efforts at the proper time. The bank reflects the genuine impact on the market. All people were shocked by what happened and I think we need the time to restart again. In the US, after 9/11 it took them more than a year to restart. 

I think Lebanon will overcome this current and sad situation of political instability. It will come with free elections and a coherent government. Lebanese, Arab and foreign investors will again be interested in investing in Lebanon. It is true that major projects for residential high rises are concentrated in an area, the hotel district, that is suffering under the current situation too much these days but I am confident that all Lebanese are aware that we must all together be united as our late prime minister, Rafik Hariri, wanted. He was the architect of Lebanon and especially his beloved Beirut. This is why I think that we need time to forgive and forget those who directly or indirectly affected the stability and prosperity of the economic situation in Lebanon by killing the symbol of stability and development.

The Lebanese are now preoccupied with wanting to know the truth about the tragedy. They want stability of the Lebanese Pound and it is very important to have a solution to the current situation by forming a trustworthy government that will lead Lebanon out of this cloudy situation. I think things will soon change, by agreeing on confidence in Lebanon. Syria doesn’t have an alternative to banking in Lebanon and we don’t have any problems with Syrian people. The Syrian customer knows that he is most welcome in Lebanon, we don’t have any problem.

In the current crisis, real estate stands out as amazingly stable asset class. While they acknowledge that developers and buyers refrain from immediate investment decisions into new projects, sector experts anticipate at least consistent demand if not increased property prices.

Circumstances, the reasoning goes, do not alter the fundamentals that make Lebanese real estate valuable, the mountains, the climate, the sea, and the country’s attractiveness. “Investing in Lebanon is becoming more than a facility, it is a necessity. Those who are investing here are happy to invest under the freest and most democratic system in the Middle East,” said Raja Makarem of RAMCO real estate advisors.

The mood is noticeably different from two years ago when the market was gloomy. Even though the primary demand drivers then and now are external, namely Arab acquisitions of high-end residential real estate in select areas, the economic recovery of 2003 and 2004 appears to have been as good for confidence in Lebanese real estate as sales of real estate have been good for the economic recovery.

This is important, because real estate development and property transactions are acknowledged as influential ingredients in the makeup of the Lebanese economy. Construction permits and cement deliveries, which both improved markedly in 2003 and continued their upward development with growth by 4.3% and 3% in 2004, rank not for nothing with the nation’s most watched economic indicators. In the hard years of 1999 – 2002, a sluggish real estate sector had gone hand in hand with the recessive trends in the economy.

A continued positive outlook for the worth of immovable assets under present circumstances by the same logic can signify resilience for the Lebanese economy.  Moreover, the durable quality of real estate allows it to function as stabilizer in this difficult period of uncertainty over political changes. To an extent, this could even help in alleviating the fears caused by last month’s vicious attempts to cause instability by planting bombs in parts of the country.

However, it must also be noted that trends in real estate transactions resemble the inertia of a supertanker. They usually accelerate or decelerate slower than many other, faster paced sectors of the economy. Thus price developments may yet quite possibly respond unfavorably if the political quest of this spring were to fade into a persistent crisis of internal security due to foreign attempts to artificially destabilize the country in a bid to keep old power constellations from tumbling down.

The brightest light for an increasingly good real estate market in Lebanon thus lies in the fact that the country’s fundamentals are indicative of long-term peaceful coexistence and leaders of all communities in Lebanon know that they have nothing to gain from organized confrontations with other communities in the nation. What is a real cause for concern in this respect is solely the strong Lebanese tendency to give in to outside influences. 

Of course in the short term, by far not every signal in the market is positive. Beginning with the March 19 and 23 bombings of properties in the two Christian areas New Jdeideh and Kaslik, security concerns have aggravated the situation for retailers. Towards the end of last month, visibly affected areas were the downtown and major shopping malls in the greater Beirut metropolitan conurbation.

The strain on their revenues can make it difficult for tenants of retail and restaurant space who are weak in their reserves to meet their high overheads and leasing obligations. As the past six weeks saw first closures of retail and restaurant outlets in the downtown, it must be remembered, however, that the area has experienced a fairly high rate of tenant turnover throughout the past four years and that individual closure decisions may well have been more related to failure of store and eatery concepts than to the downtown’s undeniable drain in cash flow since 2/14.

Similarly, delays, concept changes or investor pullout from large commercial mall projects are highly unlikely to have been caused by the independence debate of the last few weeks. With at least six major shopping mall projects ranging from recently completed to in-the-pipeline, plus an array of even larger mixed commercial and tourism developments in the planning, industry insiders contend that in case of eventual investor withdrawals announced in the present period, the projects would have already been hampered in the past. The crisis situation would thus be used as a face-saving moment to excuse bowing out of a flawed idea, agreed several experts.   

An essential entity for all assessments of Lebanese real estate is Solidere, which last month seemed to be troubled at least momentarily as far as proceeding with new projects. The souks of Beirut by now give the impression of being the stage for a perennial play of unreliable announcements, after officials of the real estate company had trumpeted in November of 2004 for the umpteenth time that the start of construction for the retail sales space of the project was imminent (in this case for January 2005). But January came and went and a Solidere spokesperson last month told Executive that the promised works on the retail floor space had not yet begun and the company preferred not to discuss this matter for the time being.

Ramco’s Makarem did not see the latest delay in implementing the souks as abnormal, however, reasoning that large commercial projects need to secure tenants before starting construction. Citing restraints created by the laws and practices of commercial representation, he said that big department stores don’t come easily to Beirut and that formulas like those of ABC or Aishti could be more successful models for this environment.

It also bears reminding that Solidere has shown itself as returning to a very decent form in terms of its share prices, which except for the first brief instant remained unfazed throughout the 40 days after the Hariri assassination and entered the Easter holidays at a value of $9 per share. Overall, the performance of Solidere in the past 15 months justified the high assessment that local brokers and financial analysts saw in the stock’s potential.

In the resurging Beirut real estate scene, the city now spots a core of impressive quality, which resonates positively with attractive residential developments in other in other parts of town, such as Ramlet al Baida, Ashrafieh in general and the trendy Gemaizeh quarter in particular. Despite of a few projects where commercial interests, insensitivity to urban context or plain conventionalism in design created buildings that one would rather not see litter the skyline, the Beirut seafront is also gaining a new coherence. Especially around Raouche, where the cityscape had been mired with construction ruins and concrete boxes, eyesores of the sixties and seventies, a different architectural flavor is improving this visual calling card of Lebanon.

If the investment readiness of the Arab clientele and the nation’s expatriates are enhanced by the emergence of an accountable system of governance and newfound political stability, the outlook for real estate in Lebanon could be a strong buy under both investment and living purposes. But one may not forget that investments and projects are literally not more than the sector’s brick and mortar. The soul of Lebanese real estate is the quality of living and it needs to be preserved and even restored by cherishing the country’s communal balance and by finding a hitherto elusive harmony between settlement and nature.   

Supply and demand, local purchasing power and regional interest, have made up only one part of the challenges for the real estate sector. Another, very large bundle of challenges consisted throughout the reconstruction period in administrative red tape, insufficient town planning, and inability to realize a residential housing structure that observes the dignity of lower and middle income groups.

The biggest headache real estate developers in Lebanon have been confessing to in recent years was the bureaucratic hassle. As Beirut developer Jamil Ibrahim once described it, waste of time and money in handling arcane procedures in applying for building permits and any sort of real estate transactions consume over 10 times more effort than necessary. This administrative inefficiency is an obstacle to both local developers and international players that take a closer look at the Lebanese market.  

Much more than the procedural troubles, the disaster of public sector town planning and shortsighted private project planning threatens to impede the future profitability of the real estate market. Scarcity is a leading determinant in the value of real estate. But instead of applying a strategy of controlling quality and supply and thus increase property values, owners and builders all too often lunge after the quick buck without considering the damage they cause their own long-term interests. This private sector orientation towards cheap instant gratification has for the past decades been facilitated by absence of state authority during the war and then (in the reconstruction years until today) by lack of proper town planning and corruption that allowed circumvention of existing laws and regulations.

 As the last two years have demonstrated more than sufficiently, tourism plays a decisive role in the country’s economic future. Superb resort projects and enhancements of the tourism culture not withstanding, better town planning and development policies are absolutely needed if Lebanon wants to draw in tourists from Europe, Japan and the US in addition to its visitors from within the Middle East. Here the national interests of nurturing both tourism and substantial real estate values converge in the need to institute modern building codes and urban planning.

Last but not least, the need for sustainable housing has yet to be answered in Lebanon. The reliance on private sector initiative may be more suited to supply lower and middle-income families with suitable apartments, rather than trying to have the state act as central provider of housing projects, which are globally best known for their tendency to produce deplorable social conditions. But for the time being, the private sector has not yet been able to satisfy that demand. Government incentives for construction of affordable housing, measures to clean up and expedite administrative processes, and radical changes in the town planning agenda are the challenges that have to be met to complete the foundation for a healthy real estate boom in Lebanon.