After the striking surge in demand and prices witnessed in the Lebanese real-estate market in 2008, the industry seems to have stabilized in 2009.
Lebanese expatriates and Gulf nationals have been less keen to buy high-end apartments, evidenced by a decrease in activity in that market area. But local demand has remained robust, since it has been largely insulated from the global financial crisis and the country’s political instability.
With the high level of competition in the market, coupled with the effects of the global downturn in the Gulf, buyers are becoming increasingly careful and conscious of costs and quality, which has kept prices from repeating the rapid accession of 2008.
“Buyers used to come and sign their contracts right away. Now they are bringing their lawyers with them, to discuss contracts and the services included,” said Mohamad Saleh, chairman of Noor International. “Buyers are becoming more mature and careful because many projects in the Gulf were cancelled.”
The effect of a decrease in high-end demand and increased scrutiny on the part of buyers has had a cooling effect on prices that spiked wildly in 2008.
“In 2009, there hasn’t been much of a change in prices,” said Hani Haddad, managing director at A&H Construction and Development. “What happened is that if there was a customer and he wanted a 10 to 15 percent discount, you would give it to him, because demand is lower.”
There have also been a series of new trends sweeping the market, as developers look to expand their coverage outside of Beirut, building greener and more environmentally sustainable projects.
High-end hits the brakes
The overriding sentiment in the market at the end of 2009 is that high-end demand has decreased significantly. Some attribute this drop to the fact that expatriates, who represent the bulk of high-end demand, were affected by the financial crisis. Others believe the political void in Lebanon that followed the elections was the prime reason for the slowdown.
Nabil Sawabini, chairman and chief executive officer of MENA Capital, explained that although many think the political situation does not affect the market, those investing large amounts of money think twice if the environment appears unstable.
“If you are a buyer and spending millions of dollars on property, won’t you want to track your investment?” he said.
Elie Harb, president of Coldwell Banker, blames the slowdown on the economic situation.
“Whoever wants to buy for $2 million is thinking twice because the dollar has [lost value] and our products still rely on the European supply,” said Harb. “Secondly, things are very expensive and right now it is not easy to make money. If [investors] have some cash, they are not trying to buy with it.”
Demand from Gulf nationals has also quietened down. However, it seems the effects were not largely significant because of the strength of domestic demand.
“Foreign demand is less than 3 to 4 percent of the market,” said Harb. “So that demand, even if it vanished, is not a huge blow to the market.”
Even though demand has slowed, prices haven’t followed suit. In most cases they have stabilized, mainly due to Lebanese developers holding low amounts of leverage and being confident that the demand will pick up — they would rather wait for the inevitable upswing than decrease their prices.
David Mansour — developer of high-end projects including Mzar Lodge, Sioufi Towers, Tilal Fakra and others — said that even though expatriates are more encouraged to invest their money in the real estate sector than the stock market, the
increasing number of developments taking place in the city has made more choices available. With supply creeping ahead of demand, prices are kept from increasing as quickly.
“The crazy spike in prices is gone. Now the market is back to normal. Whoever wants to buy a [high-end] house can negotiate the price, he has a lot of options to buy from,” he said. “The market today is not a seller’s market. Buyers are more picky and sophisticated.”
Despite these issues, some high-end developers have increased prices. Greenstone, the real estate division of Johnny R. Saadé Holdings, increased prices per square
meter in their project ‘l’Armonial’ in the Ashrafieh district of Beirut, from $4,300 to $4,500.
“Since the beginning of the year, we have increased our prices because of fluctuations in terms of construction costs, the exchange rate and many other external factors,” said Karim Saadé, general manager at Greenstone.
Average price ($) per square meter for apartments eligible for loans from Habitat Bank
Mount Lebanon
Less land and more expensive
Most agree that the trigger for the hefty property price increases over the last few years has been the scarcity of available land in the capital. This, in turn, raised developers’ costs, which were then passed on to the end buyer.
“Land value is ridiculous now,” said A&H’s Haddad. “If you ask someone that has land in Ramlet El Baida, they ask for $20,000 to $25,000 per square meter. In
Verdun, they are asking the same.”
In response, developers increase their prices in order to secure profits and facilitate future investment. Haddad explained that usually, land accounts for some 50 percent of the investment costs, and with prices rising, this could soon reach 70
percent of total investment.
“If I want to sell an apartment today, it would not cost less than $8,000 per square meter [in these areas], and of course it would be without a sea view,” added Haddad.
With land becoming ever more expensive in Beirut, prices of properties are expected to continue rising, making it less affordable to buy an apartment in the capital for Lebanese in most income brackets.
Both developers and buyers are now expanding their scope and allocating investment to Beirut’s suburbs and other areas, in order to avoid paying high prices for land, not to mention getting away from the polluted and busy city. Buyers also prefer to take advantage of the greenery that is almost non-existent in the capital.
This trend is supported by the highways now being built, linking the city with the suburbs and encouraging people to move out of the city.
“There are some areas in Lebanon where you would never have thought of buying land and constructing,” said Antoine Chamoun, general manager at the Bank of Beirut Invest, which lends to the real estate sector. “But because things are more expensive, people are being encouraged to buy land in areas which were considered to be [to far from the city center].”
Turning green to gold
To stand out in an increasingly competitive market, real estate developers are focusing on quality and adopting greener initiatives. The latter includes using water and energy conservation techniques and employing waste disposal and water treatments methods. However, with the lack of adequate infrastructure to support these initiatives and the expensive nature of these technologies, going green is harder than is sounds.
“Technology in its early stages is expensive. As you develop, it becomes more affordable,” said Sawabini from MENA Capital, who are behind high-end projects such as Qoreitem Gardens, Sky Gate tower and the Ibrahim Sursock Residences.
“We are going to [start by using] technologies that make more sense to us today, and as technology develops, we are going to use more of it,” he said.
Sawabini added that he expected the trend of ‘green’ buildings will become more common in Lebanon within three to five years.
The bureaucratic issue
One of the main issues from which the industry suffers is the mire of bureaucracy developers face when attempting to elicit a construction license from the government.
“It takes six months to get a license, and longer for a tower,” said A&H’s Haddad.
Bilal Alayli, president of the Order of Engineers and Architects, added that one of the reasons why licensing takes so long is because the law is hard to understand and it creates a situation where developers find themselves having to go back and forth in order to complete the procedure.
“The law is also written in a way that two engineers can understand it in different ways, which creates a problem…so it should be clearer for everyone,” he added.
What to expect
Expectations in the industry seem to point to a continuing rise in prices because of a lower supply of land and rising local demand.
“Prices will only improve,” said Karim Makarem, director at Beirut-based real estate advisory company Ramco. “We had no prime minister, a war with our neighbor…not to mention the 15 years of Civil War where prices went up and kept on going up. This explains a little bit about the people who are buying for higher prices who don’t want to be quoted out.”
But most industry experts say the price hikes of 2008 are a thing of the past and 2010 will see more moderate pricing levels.
“Demand will remain steady, prices will probably improve by 10 to 15…maximum 20 percent,” said MENA Capital’s Sawabini.
The only caveat is that if lending increases dramatically, the resulting demand could push prices up. However, this could be offset by an increase in competition in the market as new developments begin to come online.
For now, however, the industry looks set to maintain stability through 2010.
