Lebanon’s real estate market, especially its high-end segment, has been directly impacted by internal and external constraints. Both the financial crisis and the delayed formation of a new government have buyers thinking carefully about their next investments. Still, considering current circumstances, the market performed fairly well this season and developers are more or less content with the overall outcome.
Sales numbers have not drastically dropped, and prices did not decrease further than the 10 to 15 percent recorded in the first six months of the year. But experts agree that units priced at above $1 million are hard to sell, and demand is concentrated on the lower market segment — mostly ranging between $300,000 and $700,000.
Moreover, even though Gulf investors don’t represent a big chunk of the demand, they were particularly absent this summer.
“[The high demand] has materialized to a large degree for the Lebanese, but less for the Gulf people who have been waiting for the government to be elected or to be formed,” said Nabil Sawabini, chairman and CEO of Mena Capital. “So its late formation has delayed some of the potential sales that we were expecting.”
Hani Haddad, managing director at A&H Construction and Development, agreed with Sawabini.
“Gulf investors have been asking a lot but not buying a lot. After the elections they started buying but not as much as they used to before. They are still very hesitant compared to normal,” he said.
With Gulf investors adopting a wait-and-see approach, the demand is mostly Lebanese, either locals or expatriates. However, with budgets cut due to financial difficulties, there is a new trend sweeping the market. While maintaining luxurious standards, Lebanese buyers are currently looking for smaller apartments with smaller budgets, which are now hard to find.
‘Smaller’ is the trend
“We want them (developers) to decrease the size for the budget to decrease,” said Christian Baz, general manager of Baz Real Estate. Baz gave examples of some of his customers wanting small but luxurious apartments for around $400,000 in decent areas.
“There is no supply to meet the demand; those who were demanding apartments for more than $1 million have disappeared,” said Baz.
High-end developers concur with Baz, admitting that smaller apartments are what buyers are looking for at the moment.
Karim Bassil, chairman of Byblos Real Estate Investment (BREI), said he is struggling to sell larger apartments.
“Some people that are used to living in 400 square meter apartments are looking for 200 square meters. And some that are used to Beirut are willing to go outside the capital; there is no easy cash like there was before,” said Bassil.
Consequently, developers are aiming to target a lower market segment through their future projects, thus satisfying the true demand in the market.
“There are definitely many who are looking for different types of properties, which we don’t have today, but we will hopefully have in the future,” said Sawabini. “In terms of size, it doesn’t have to be very high-end as most of our projects are. But high-end, good quality, decent location and smaller sized apartments are definitely the demand and we will be satisfying it.”
Summer property indicators
Construction permits (in square meters)
What numbers say
In the first six months of 2009, real estate sales transactions dropped 3.3 percent year-on-year, according the Bank Audi second quarter real estate report. The report added that in the same period, sales transactions to foreigners dropped to 9.6 percent, compared to 18.5 percent in the first half of 2008.
This summer, adding June and July together, foreign sales increased 8 percent year-on-year. According to Sawabini, the increase is not an indicator of the activity during the two months. A big part of sales could have been agreed upon in April or May, while contracts were left to be signed in June or July. So July numbers could be an accumulation of the former three months because many people don’t come to Lebanon until the beginning of the summer.
As for the total number of sales transactions, it registered a decrease of 7 percent over the same period. This number also is not very indicative, experts say, because even though it gives an overall assessment of the sales activity, it does not show what the demand is truly for. Baz explained that numbers don’t show if the apartments sold were small or big, thus not giving a true indicator of the market demand.
“There is also an old apartment that was sold for $800,000 and registered at $400,000,” he said, adding also that it is possible for a sale to be registered in the name of a Lebanese company owned by a foreigner.
“There are no regulations. We know [more] because we are the ones who are selling.”
Government or no government
Many factors play a role in determining the future expectations of the Lebanese real estate market. Although it has always been considered a safe haven for real estate investments, some say that the delay in forming a government, rather than the financial crisis, is the main reason for the slowdown in demand. Sawabini from Mena Capital said that without a government being formed, sales could be cut in half.
“They are investing millions of dollars — they want to have more insurance,” he said.
Haddad from A&H agrees, saying that he sold a lot more last summer, and when the government forms sales will surely pick up again.
Other market players disagree, arguing that the internal factors have become a usual trend and buyers are interested regardless.
“Some say that [the slowdown in demand] is due to the situation in Lebanon, but I don’t believe it that much; we had worse times,” said BREI’s Bassil.
Whether the government is formed or not, or if the financial crisis eases or not, developers have a job to do in order to satisfy current market needs and meet demand.
“It is very important going forward that whatever we develop we don’t develop haphazardly, that we begin to be more conscious and differentiate our projects in a matter that would make them more attractive,” said Sawabini.
“Those who were demanding apartments for more than $1 million have disappeared”
