There is a much-publicized belief that the whole country is being sold off to foreigners in small and not so small parcels of land, leaving ever-declining opportunities for the domestic population to get into the property market. Although it makes for spectacular headlines and provides ammunition for a political attack on the proponents of opening up ownership to non-Lebanese, it is a charge based more on envy than reality. High profile and high priced purchases in the downtown area, such as those by singer Amr Diab and a senior adviser to King Fahd, tend to distort the picture. It is certainly true that foreigners, especially Gulf Arabs, are significant buyers in the luxury market but the fact is that fewer than half the Lebanese own their own property anyway.
Who’s buying expensive property
While stability is perpetually regarded as a major spending factor, even ranging down to consumer goods, let alone real estate, there appear to be very different notions about what constitutes ‘stable”. The appetite for middle and upper segments of the market among Gulf Arabs remains undiminished.
It appears that the turmoil in Lebanon of the past few months is considered almost naught when compared with the dire predictions often meted out for the future of the wealthy in parts of the Gulf. Those affected see themselves caught between the rock of no longer being welcome in a post 9-11 Europe and North America where they are seen as representatives of terror and the hard place of being surrounded with the potential for upheaval in their own backyards.
Add to that mix that the Gulf is an area awash with money, fuelled by high oil prices and withdrawal of Arab money from investments in the West, and there is little wonder that luxury properties in Lebanon are not lacking for buyers.
Much of the Gulf Arab-owned property is currently occupied for only two or three months of the year and this has tended to reinforce the idea that the purchases are simply holiday homes. Based mainly on anecdotal evidence, there is a growing belief that the buyers have longer-term ideas. Having a home in Lebanon is an insurance policy against future unknowns. Pure summer needs could be catered for within the rental market
One interesting aspect of the ‘foreign’ interest is that Lebanese buyers are tending to avoid new buildings that already have substantial ownership by Gulf Arabs. As one industry expert put it, “The Lebanese may share almost a common language but the cultural differences are so great that many prefer not to have Gulf Arabs as their immediate neighbors, especially the nouveaux-riches who are not seen as being “of the same quality” as their predecessors.
Another recent factor is the construction of buildings aimed solely at Gulf buyers. Although a little of this innovative practice was encouraged by the outdated belief that this group of people has more money than sense and nowhere else to go, in practice the Gulf Arabs are proving to be shrewd and demanding purchasers, who want both high quality and good value for money.
Expatriate and resident Lebanese
The other, perhaps less numerous but still significant, category of buyers for upscale property is Lebanese expatriates, many of whom round the world certainly have the money and the yearning for a place in the homeland. They are also slightly more cautious and have a keen awareness of Lebanon’s topsy-turvy history over the past 30 years.
Whatever level of caution is exercised by their expatriate cousins is magnified several times by those already resident in Lebanon, especially among those who buy property by relying on their earnings. The allegedly feeble prospects for the economy is most often cited for prudence in spending although generous doses of the political situation, either locally or regionally, may be added to the reluctance to splash out.
Where are they buying
In that same way that many Lebanese tend to stick to living in the areas of the country where they have strong family ties, so a parallel tradition has arisen among the Gulf Arab buyers. The attachment of Kuwaitis to the Sofar area, as well as to neighboring Bhamdoun and Aley, is so strong that it is perhaps no coincidence that money to upgrade the local road system also originated from Kuwait.
Although Saudi nationals were also initially attracted to these same areas; they have in the past few years been branching out to other regions, including predominantly Christian districts such as Broummana; Mansourieh, Ain Saadeh, Beit Mery and even Achrafieh. The firmly rejected application to build a mosque in Broummana put a temporary dampener on Saudi enthusiasm to spend their money in the mountain town, but the unofficial boycott was short-lived. One real estate expert reckons the number of transactions could increase by ten or 20-fold if the mosque ban were to be lifted. In any case Lebanese investors have been accumulating land parcels in the area of around 600m2-1,000m2 awaiting a price explosion.
What determines the price differences
Apart from the obvious criteria of size and quality of construction, especially the interiors of new homes, a view of the sea significantly bumps up the cost per square meter. Other factors include a tranquil and pollution-free neighborhood, which is becoming more of a requirement at all levels of purchase. The notion of providing extra facilities, such as shopping and leisure activities, is also increasingly being taken into account, thus reviving the thinking that gave rise to ‘model villages’ such as Rabieh. As the urban road system continues to be developed, so the lure of fresh air and less noise has made places like Hazmieh, Baabda and Yarze sought after areas. They have attracted a number of ambassadors, thus guaranteeing a high level of security in the district as well as adding the snob value of having distinguished neighbors.
Old is beautiful
Alongside the quest for a better environment at home, especially at the top end of the market, has been a renewal of interest in traditional Lebanese architecture. One wealthy Lebanese purchaser in the Chouf despaired of ever finding the home of his dreams and is having a new construction of very old design costed. But even money cannot buy everything. In Beirut, the owner of one very substantial traditional Lebanese house turned down an offer of $30 million for his property.
Old rent
At the other end of the scale, it is estimated that around half the population of Lebanon lives in rented property and, given the unresolved chaos of the rental laws, there is unlikely to be any dramatic and sudden change. The “old rent” sector of the market comprises people living in medium and even large apartments at prices varying between only one and two percent of true market value. A former minister occupies a 500m2 apartment in Beirut for just $300 a year.
Various compromise proposals over the past decade or so that sought to modernize the laws have failed to reach the statute book because of the fierce clash of entrenched interests. Tenants who spend twice as much on cigarettes as they do on rent are unlikely to cede easily their favored position. Equally, owners who have for years received an income that was far short of even basic maintenance costs feel reluctant to hand over sizeable percentages of the modern value simply to gain possession.
Getting rid of tenants
There is a mechanism for evicting tenants when the property is needed for use of the owner’s family but it is costly. Lebanese law stipulates, for example, that a brother and sister should not share the same bedroom after puberty and therefore having a son and a daughter is ground enough in itself to seek possession of a neighboring tenanted house to enable expansion of the family home.
The amount an owner has to pay to a departing tenant is assessed on several criteria, including the income of the owner. Thus financially successful people are required to pay more than those who have not done so well. Other factors include the tenant’s income, family size and the neighborhood of the property. A tenant living in a good area should not, the argument runs, have to move to a bad area simply because they are required to leave a particular home.
In one case, a retired senior civil servant used his end-of-service retirement payments to buy three apartments that would provide him with an income for the rest of his life.
One tenant’s family has occupied a 200m2 apartment, with a garden more than twice that size, since 1948 and in 1983, when the Lebanese lira was trading at around three to the dollar, was paying the equivalent of $400 a month. Rampant inflation and the collapse of the national currency between the late 1980s and the early 1990s reduced this to just $20.
Until the rental law problems are resolved, there is little prospect of a market developing of buying solely for rent on a long-term basis. There are a few signs of rent-controlled tenants volunteering to leave, collecting whatever payoff they can negotiate now in the belief – or fear – that one day the terms will get a lot worse.
Financing a home when money is tight
The government-backed scheme to aid home-buyers on limited incomes has one unique and highly attractive asset – and one enormous drawback. Its good point, apart from offering the chance of home-ownership to thousands of couples who would otherwise be outside the market all their lives, is that it provides the longest repayment period in the country: 20 years. It’s precisely because of the length of the loan, thus reducing the monthly installments, that it potentially opens up the market; Qualified applicants with a steady; if low-paid, job can find themselves the owner of a $65,000 apartment for as little as LL200,000 ($133) a month. Half the 20-year period is spent repaying the sum borrowed and the other half paying interest on the loan.
Perhaps the biggest drawback of the scheme is that, like many good government ideas, it suffers from a lack of funding when money is tight. The scheme requires buyers to find 20 percent of the purchase price as a deposit although under-the-table agreements between seller and buyer, when undiscovered, help to circumvent this obstacle. If the $50,000 selling price of an apartment is artificially inflated – on paper – to $65,000 for the loan paperwork, an 80 percent loan would actually cover the entire purchase price and cut out the need for a deposit. The ruse works only on private individual sales and where the genuine price is at the lower end of a valuation range anyway.
Pre-purchase checks
Though house purchase constitutes the biggest buy in most people’s lives there is at times an almost cavalier attitude at times about checking whether the home constitutes value for money, or even whether it’s in danger of falling down the day after moving in. It seems, according to real estate industry insiders, there is a reluctance to shell out a substantial fee, perhaps several thousand dollars depending on the purchase price, to have a survey carried out. Amazingly, it is not uncommon to leave this somewhat crucial task to a friend or relative “who knows about building”.
The cost of a pre-purchase survey carried out by a qualified engineer is calculated as a percentage of the purchase price that can start as low as three percent but range all the way up to 15 percent. Most new buildings carry a guarantee against faulty construction. The actual value of this depends almost entirely on the builder’s reputation.
For old property – anything constructed before 1975 – it is automatically considered that the plumbing and wiring ought to be replaced, even if the purchaser can’t afford it at the time. The rule of thumb dictates that an old apartment, whose purchase price is around $100,000, needs another $30,000-$40,000 on renovation and decoration.
Problems with build quality are less prevalent today than they were in the early 1990s, when the construction industry was infected with get-rich-quick cowboys putting up substandard buildings. Although specifications in the pre-sale publicity may have specified a particular type of tile or sanitary fitting, these were often substituted for cheaper products. Even nowadays the industry is not without its rogues.
Service charges
With so much of an apartment building falling into the category of “common usage” – such as stairwells, elevators and the roof – building maintenance expenses are a necessary evil and also a source of potential friction among the residents of a block; The inhabitants of a ground-floor apartment feel less inclined to contribute substantially to maintaining the elevator than those on the upper floors. For this reason, modern co-proprietory agreements stipulate in detail what percentage of the shared costs should be shouldered by the various apartments; In a further bid to prevent squabbles among neighbors over who should pay how much external management companies are becoming more preferred to the building committees that once comprised all the owners and were constituted to run the block. However, older and smaller buildings still depend on such gatherings – and good neighborliness.
A highway in the back garden
While the French have been blamed for many of the woes affecting the country, at least they can take credit for instituting an efficient system of land registry. Having inherited an Ottoman system that was established mainly to aid tax collection, the French authorities of the Mandate era updated and upgraded the land registration system to a level not even used in France itself. Standard inspections carried out by lawyers handling property transactions include examining the life history of a property, which is held at the Land Registry and includes a note of all relevant events, including any loans for which the property was used as a guarantee and a record of taxes. Any anticipated public works, such as road construction, or the planned erection of nearby buildings are revealed in pre-purchase checks with the municipality or other agencies. In theory, the government is compelled by law to inform the Land Registry of all planned use of land. It does but in practice the information is not always up to date. Nor does it take account of the kind of one-off, 24-hour change in the planning regulations that allowed the Cap sur Ville complex overlooking Sin El Fil to become the only multi-story development on the entire mountain.
Peter Grimsditch is ME correspondent for the London Daily Express and a former editor of The Daily Star
