The real estate market in Lebanon is nothing like it used to be. The sector has slowed considerably, and demand has shifted from the traditional center, Beirut. However, stimulus packages from the central bank over the years have proven beneficial for all parties involved.

Formerly known as one of the strongholds of the Lebanese economy, the real estate sector's resilience has been increasingly tested over the past four years due to the country's economic slowdown. Even though most real estate developers, contractors, and sellers have successfully rode out the wave of adversities, the industry's profitability has not matched its potential when it comes to sales and project allocation.

The supply side saw an annual decrease of around 8% between 2011 and 2015, going from 16,465 to 12,339 construction permits. The end of the flow of petrodollars coming from the Gulf to the Lebanese real estate industry and the diaspora's hesitation in acquiring property caused by Lebanon's political instability have not contributed much to revamping the sector.

The negative spiral, however, saw a reverse in 2016. The industry has seen some light, and the central bank, the Banque Du Liban, is responsible for a significant part of it. Through a series of stimulus packages that go from housing loans to easing construction permits, Banque du Liban has maintained demand, even in the midst of difficult times. In 2013, the leading financial institution in Lebanon started a stimulus program that took off with a USD1.4 billion injection to commercial banks to boost lending activity, which was consequently renewed in 2014 for USD928 million and in 2015 for USD1 billion.

After three years of keeping the sector in survival mode, real benefits are starting to be seen. Based on a research study from BLOMINVEST, the stimulus packages have directly benefited sectors as varied as tourism, agriculture, ICT, industry, and handicrafts. They have also increased the number of loans granted to the construction sector, which has reflected on sustained levels of growth and in the sustained demand of end-users that keep prices from crumbling. For the first time in four years, the Lebanese Cadastre Registry witnessed an increase in the number of real estate transactions by 4.4% during the first quarter of 2016.
It is for these reasons that in June 2016 Banque du Liban announced the release of Circular 427, an intermediate circular aimed at assisting commercial banks with capital flows to lending activity, as well as indebted real estate developers and those facing low demand.

Beyond injecting capital into the market, the effects of Circular 427 will be encouraged by two cyclical trends seen in real estate in Lebanon. The first one is the diversification of the market into areas outside of Beirut to counter the effects of high costs for land in the capital. While demand for property in Beirut has decreased around 17% on a yearly basis since 2011, it has flourished in surrounding areas such as Kesserwan, Metn, and Baabda. Secondly, the sector has experienced a shift into smaller properties prompted by sustained high costs of land and development, thus moving the transactions on the supply and demand sides into this segment. Bank Audi's 2015 report on the real estate sector states that while the average apartment size sold before 2011 was around 300-350sqm, this has gone down to under 250sqm today.

The stimulus packages also explain the unconventional effect of price stability, even through sluggish economic times. In Beirut alone average real estate prices went up by 28% in 2015, right at the time of slowdown in demand. Similar effects are being witnessed in Beirut's surrounding and traditionally affordable areas, where the migration of demand has also balanced prices in comparison to those of the capital. Housing prices also depict an uneven correlation with net income, placing Lebanon as one of the Arab states with the widest gaps between housing prices and income per capita. This is why the central bank's stimulus packages also contemplate funding schemes over 20-30 years for buyers to bridge the gap between their income and the high realty prices. According to Banque Du Liban statistics, total housing loans exceeded the total amount of construction loans for the first time in 2016, meeting the bank's target of making things even for all the parties involved in the real estate equation.

During a speech on his vision for the three flagship sectors for the economic future of Lebanon—finance, knowledge economy, and oil and gas—Banque du Liban Governor Riad Salameh left real estate out of the picture. With the ongoing efforts to put this industry back on its feet, it seems that Dr. Salameh might want to add a fourth candidate for the leading spot.