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Sep. 23, 2019

Following the resumption of housing loans from the central bank, demand is once again growing in the real estate market, though an oversupply of housing continues to weigh on the sector.

After nearly a year-long freeze in subsidized housing loans, Lebanon's Central Bank reinstated the program in January of 2019, bringing much-needed support to the nation's troubled real estate sector. The move has helped boost demand in the housing market, but analysts fear an oversupply in new property units, a startling number of which remain vacant, will continue to slow recovery in the sector.

Earlier in 2019, the Central Bank reintroduced a real estate assistance program that will provide USD200 million for housing loans of as much as USD300,000, with an additional stimulus package for the developers valued at USD500 million. As a result, the Byblos Bank Lebanese real estate index posted a monthly average of 56.1 points in the first quarter of 2019, a nearly 10% increase on the final quarter of 2018, showing positive movement in the market, which will have to make sustained gains to recover after nearly a decade of slow growth.

The greater economy and housing sector have been deeply impacted by the protracted conflict in neighboring Syria, which has closed key trade routes and sparked an influx of more than 1.5 million refugees into Lebanon since it began in 2011. At the same time, ongoing political instability in Beirut has put further stress on the nation's economy as public debt payments continue to divert state funds to accumulated fiscal burdens. The International Monetary Fund projects Lebanon's public debt to rise to near 180% of the GDP by 2023.

State officials hope to reverse such trends as the Banque du Liban launched a USD1.1 billion economic stimulus package earlier this year that includes about USD524 million in subsidies for the revived housing loans program. According to Nassib Ghobril, chief economist and head of the Economic Research and Analysis Department at the Byblos Bank Group, the housing package will support mortgages in 2019 that commercial banks subsidized from their own funds in 2018, as well as new mortgages issued in the coming year. Subsidized mortgages for expatriates will also receive a boost from the program, but initial reactions to the positive news have remained fixed on long-term problems stemming from chronic oversupply.

“The housing market requires additional measures to stimulate demand, as the Index's average monthly score in the first quarter of 2019 came 57.2% lower than the peak of 131 points registered in the second quarter of 2010 and remained 49% below the annual peak of 109.8 points posted in 2010," Ghobril told An-Nahar News. “It was also 5.8% lower than the index's monthly trend average score of 59.5 points since the Index's inception in July 2007."

For years, the property market stagnated as new apartments remained vacant. Homebuyers expressed fears they would be unable to continue monthly payments without loan assistance, and therefore, abstained from making downpayments, at times even delaying plans to marry. Developers also were unable to completed construction projects to cash flow shortages.
According to a study by Bank Audi, property sales plunged 17% in the first nine months of 2018 while the number of construction permits granted fell 23%. Such developments made for a dire economic scenario as the real estate market contributes to an estimated 15% of economic output in Lebanon.

“Real estate drives the economy because we're talking about an important chunk of the GDP, because we're not talking only about contractors and developers, but we're talking about a host of service providers," Sami Nader, director of the Levant Institute for Strategic Affairs, economist, and a lecturer at Université Saint Joseph in Beirut, told Al Jazeera. “When real estate goes, everything goes."

Despite the political and economic turmoil, real estate prices remain high in Beirut, where a typical apartment can cost between USD2,000-7,000 per sqm, depending on the district. While citizens have shown more confidence with the recent Central Bank initiative, helping revive the real estate sector once again, Ghobril said, “it remains the responsibility of the executive branch to not only cover interest subsidies on housing loans for limited-income citizens, but also to take the lead in developing a comprehensive housing policy that stimulates demand for all segments of the residential market in Lebanon."