Thankless regional realities are capping the performance of Lebanon's real estate sector, although it still trades on its relative safe-haven card and country rating.

It may seem obvious to describe Lebanon as an enigma, but the fact remains that having emerged from the brutality of civil war, it continues to thrive while braving regional strife across its borders, and occasionally within them. This being said, in 2008 as the world hemorrhaged, Lebanon's property market—credits issued included—barely sneezed, and despite fluctuations, remains attractive to the right investor. After all, rating agency S&P earlier this year maintained its country outlook as stable, while the country itself boasts Mediterranean shores and skiing in close proximity; it is also a regional financial hub and stepping stone to further markets.

Moreover, the numbers attest to an economy fueled from without, despite declining FDI. Thus, while FDI slid 22.9% in 2013, remittance inflows to Lebanon rose $0.3 billion to $7.2 billion YoY, amounting to 16.1% of GDP.


To fuel a sagging real estate market, the Lebanese central bank (BDL) has issued support packages in both 2013 and 2014 featuring subsidized loans, albeit mainly geared towards smaller properties. The banking system, too—the financial sector mainstay—is well regulated, whereby the BDL checks real estate lending to avoid unwelcome bubbles. Meanwhile, property tax is the most competitive in the region, and the legal framework affords equal security to citizen and foreigner alike. Pre-sales of projects also make for a fiscally more secure sector, where many developers have little or no need for debt financing. Add to this cocktail a steadily growing population—and average of 1.6% per year for past two decades—and real estate is clearly an appealing investment address. Bank Audi research indicates that residential property claims the lion's share of sales, mostly by locals as the main home.


Interestingly, the percentage of foreign property purchases in 2009—post-credit crunch— actually rose to 2.53% from 2.38% a year earlier, albeit declining to 2.04% in 2011. Yet overall, foreign nationals, especially familiar former investors from the GCC, have avoided Lebanon since the Syrian war erupted, providing just 5% of real estate demand in 2013 according to Bank Audi. In 7M2014 sales transactions of foreigners slumped 20.3%. Moreover, some opportunities arising from regional turmoil have been missed as Elie A. Harb, President of Coldwell Banker explained to TBY. A prime example is the wealthy end of the refugee spectrum, first from post-Gadhafi Libya, and more recently Syria. “Each time Lebanon has missed the opportunity to capture the Syrian buying power to invest in Lebanon, both on the individual level and in business. So the real money did not come to Lebanon, it went elsewhere—to Dubai, the rest of the Gulf, and Europe.” Syrians are, however, contributing to the rental market as the protracted war back home appears to have no end in sight.


A controversial and still not wholly clear stab has been made to standardize Lebanese residential rents to reflect current market prices. Lebanon's new rent law, entering effect in December 2014 encompasses around 200,000 apartments, predominantly in Beirut, still subject to the rent law in effect prior to 1992. These rents have been safeguarded from rent hikes, and the new law provides for incremental increases over the next six years until rents hit 5% of the property value. Landlords, meanwhile, may reclaim their property after nine years without paying compensation. State subsidies are foreseen for tenants whose income falls short of three times the minimum wage.

In the retail segment, industry data points to a 20-30% drop in rents in Beirut's major retail areas in the 12 months to September 2014, excepting the prestigious Hamra area. In office space, reflecting the wider sectoral trend, space is mostly being rented by Lebanese business. Downtown Beirut has witnessed potential tenants receive up to 10% discounts, according to Ramco Real Estate Developers. And as with the housing segment, smaller office spaces have seen greater demand.


The 2014 Annual Construction Permits report of the Order of Engineers indicates a continued rising trend in demand for service-residential buildings. Indeed, the proportion of new service-residential buildings among total new residential units built in Lebanon climbed from a high 71.9% in 2013 to a higher 74.2% in 2014. Service-residential complexes' ratio to total new residential units has fluctuated in recent years, rising from a 2011 low of 10% to 13.1% in 2013 and then dipping to 11.4% last year. The report confirms that permits for residential buildings claimed the vast majority of total issued construction permits, at 84.1% for 2014. Commercial buildings claimed a 7.7% stake, while agricultural and industrial real estate sat on 3.5%.

Again a barometer of economic uncertainty, there has been a tangible shift towards more modestly proportioned residences in recent years of between 101-150sqm. This has remained the largest residential bracket, rising from 27% of housing construction permits in 2010 to the 2014 print of 48.8%. In contrast, for those two years the share of homes sized at 101-200sqm declined from 27.2% to 19.9%, while that of housing sized at 201-300sqm slid further still, from 15.3% to 6.9%. Meanwhile, the share of new high-end residential units in total new residential units has languished below 5% since 2011, while that of new-build luxury complexes slipped from 3% in 2012 to 1.1% in 2014.


Official data reveals that total real estate transactions, both local and foreign, had shrunk 18.2% YoY by March 2015 to 12,948 transactions valued at $1.6 billion. A key gauge of sector performance, the average value of real estate transactions had shed 3.4% YoY from $129,762 to $125,362 by March 2015 on weaker demand. That said, it appears that foreigners' stake in overall transactions had climbed 1.48% YoY to 2.37%, largely on the “safe haven” ticket, at a time when the other benchmark of foreign confidence, tourism, had appreciated 23.1% for the period. Foreign investors have long favored the Baabda, Aley, and Chouf regions, which fall within the scope of the Baabda real estate registry, and since 2006 these areas have represented close to a third of overall real estate sales to foreigners.

And by May of this year, again attesting to flagging buyer confidence, the construction permit number has suffered a YoY decline of 19.3%, marking a six-year low of 5,816 in stark contrast to the 7,203 a year before. Also down YoY by May (-20.6%) was the construction area authorized by permits (CAP) at 4.84 million sqm, from 6.1 million sqm by May 2014. It is worth recalling here that permits are regularly issued at least six months after applications have been filed, which means that the registered decline in construction activity may be attributed to a longer softening of demand that can be dated back to regional uncertainty in the wake of the Arab Spring of 2011 and the start of Syria's turmoil.

By May 2015, the average area/transaction had slid from 845.63sqm/permit in 2014 to 831.85sqm/permit. May's permit print of 1,195, had slumped 14%, YoY from May 2014's level, while CAP slumped 25.1% to 1.1 million sqm from 1.4 million sqm in May 2014. By distribution, Mount Lebanon led the pack on 42.85% of total permits, followed by South Lebanon and Nabatiye on respective 14.6% and 13.4% readings. In 2014, he Mount Lebanon governorate claimed the major stake of residential construction permits at 61.7%, followed by South Lebanon on 14.2% and Beirut governorate, just shy of double-digit performance, on 9.4%.


A major scheme destined to positively transform this vital and historic city's real estate market is the city center redevelopment, remarkable too, for being the first such mega-project to be appointed to a single private company, leading Lebanese property developer Solidere. The project encompasses 191ha, of which 118ha comprises the traditional city center, while 73ha is to be reclaimed from the Mediterranean. The scheme envisages total public space of 98ha comprised of a 59ha road network and 39ha of landscaped open space. An allocation of 93ha has been dedicated to development, of which 22ha comprises existing, public, and religious property. With assets of $2.9 billion in 2013, Solidere posted a net income for the year of $42 million, which while a fraction of 2011's $159 million, had risen from $17 million in 2012.


According to Credit Libanaise, out of a total 7.7 million sqm area of new buildings in 2014, commercial buildings—the second largest component—claimed 7.7% of the total on an area of 587,855sqm. Meanwhile, matching the tendency of residential developers, their corporate and retail counterparts have been investing beyond Beirut where scarce land comes at a premium.

The office segment, too, tending toward long-term investments, has been migrating to what have become permanent new conurbations to the south and north of Beirut. Chaddad is due to see the opening of Sour Mall, set for completion in 2017. Elsewhere; “Some mountain villages in the Metn region started to see development a year ago, where we had sold land for $10/sqm, 10 years ago,” Elie Wakim, the CEO of ICAR Wakim said in conversation with TBY. And today, he continued, “…prices have topped $250-300 per sqm. I believe that […] prices may even soar 80% or more; with the exception of Beirut city.”


The Lebanese Economic Outlook, a periodic survey of 17 prominent local economists, suggests that a downturn in real estate and construction momentum seems set to dampen Lebanon's economic growth over 2015. Those canvassed unanimously expected no real estate transaction or price rises, while 10 experts forecast both metrics falling for the period. Pessimism rested on Lebanon's public debt and the spillover effect of the Syrian crisis. Only five economists foresaw the potential for an end to uncertainty over electing a president this year with five saying the election of a president is possible in 2015, another five saying it is unlikely, and seven others uncertain. Finally, neither the two necessary oil decrees nor the salary scale are likely to be approved during the year, which, they argue, will be felt negatively in property and equity markets alike.

Fundamental challenges to Lebanon's broader economy naturally leave their mark on the real estate sector performance. Nonetheless, demographic trends are supportive. That said, more clouds would need to part to ensure a better investment climate where more take the plunge into bricks and mortar.