Real Estate Price Lull Awaits Tourism Summer Invasion
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A recent real estate price stabilization is just the calm before the storm when 2.5 million visitors to Lebanon are expected to drive property prices by as much as 20% and spur economic growth.
Construction Activity is Peaking
Lebanon looks like a huge construction work site with cranes, excavations, and construction workers filling every nook and cranny in Beirut, the suburbs, Mount Lebanon, and the country’s North and South. These job sites are a result of a record number of real estate transactions so far this year, which stem from an irresistible demand for quality and affordable housing spurred on by unprecedented bank housing facilities. Minister of State Adnan Kassar told the media that real estate investments in Lebanon reached $7 billion in 2009, reflecting the resilience of the local economy amid the global recession. “The sales volume of real estate properties in Lebanon increased by the end of 2009 and the number of registered square meters reached 7.5 million, while construction permits rose remarkably as well,” he said. Property transactions increased by 33.8% year-on-year in 2008 and another 21.76% in 2009 for a total of 55.56% in just two years. Meanwhile, real estate transactions in Lebanon in the first quarter of 2010 jumped by 41% to reach 22,059 transactions, a record high compared to previous years, amounting to more than $2 billion, figures released by the Directorate of Real Estate showed.
“Lebanon’s property sector flourished in the first quarter of 2010, benefiting from strong economic growth, continued large remittances from Lebanese working abroad, large inflows of foreign capital, population growth, and robust tourism,” said a Bank Audi Weekly Monitor report. The report added that a surge of 19% in sales transactions to foreigners showed a continued upward trend, proving the ongoing interest by foreigners, mostly Gulf Arabs, in purchasing properties in Lebanon. It’s hard to imagine that with such demand, real estate prices would witness a period of respite. The truth is there is no need to. With more than 2 million visitors arriving, many of whom are foraging for a stamping ground, home and land owners are drooling over the prospects of quickly offloading their properties at better prices.
Tourism to Grow and Spur More Real Estate Activity
Tourism Minister Fadi Abboud expects tourism activity in the country to grow by 10 to 20% in 2010 but on average by 10% to 15% until 2013. “By some estimates, tourism will bring in $4 billion to $5 billion directly into the economy and another $7 billion to $8 billion indirectly,” Abboud is quoted as saying in the media. In fact tourism activity in Lebanon as of June was already on the up and up. A Bank Audi report quotes Ministry of Tourism released figures as showing tourism activity up 29.5% in the first 4 months of 2010 to reach 562,623 compared to 434,418 last year. The majority of tourists are from Arab countries or 43.2%, followed by Europe 24%, Asia 20%, Americas 9%, Oceana 2%, and Africa 2.1%. By country, Jordan had 80,170 followed by Iran 73,577, then Saudi Arabia 49,027 and France 34,558.
“We are expecting a 150% increase in the sales volume of our projects in Lebanon in 2010 especially with the expected best tourism season ever this summer,” said Dr. Sobhi Agha the Chief Marketing Officer of Noor International Holding, a company specialized in real estate development. Expecting many visitors from the Gulf region to have a great impact on demand for properties is part and parcel of what Agha also believes is a booming real estate sector thanks to banks creating special packages to meet this expansion and a more stable Lebanon. “Arabs and expats used to rent on their visits, now they see the real estate as a permanent destination. Uncertainty about Lebanon used to cost then about $6,000 for a season’s rent but now this figure doesn’t make economic sense,” Agha explained.
The Economy Looks Good
There are reasons to be jubilant about Lebanon’s real estate and economic prospects. Rana Helou, economic analyst at Audi Saradar Bank, said that 2.5 million tourists are expected in 2010 in comparison to 1.9 million last year. “In 2009, tourists spent $7 billion or 20% of the GDP. We are expecting a spending growth of 27%, which is comparable to the 30% growth in tourism,” Helou said. Inflation, which reached 2% in May, is not expected to exceed 4% by the end of summer, especially when worldwide prices are not increasing, and this will not choke buying and consumption. Recently, the IMF forecasted a growth of 8% for Lebanon''s real GDP in 2010 and 2011, following a growth of 9% in 2009 and 8.5% in 2008.
Looking at how foreigners and expats are contributing to Lebanon’s economy, we see that they do it through capital inflows, money transfers, and foreign direct investments, which in 2009 reached $4.3 billion in addition to remittances reaching $7 billion in 2009 as in 2008. Moody’s investors service ranks Lebanon as B-, which is a sub investment grade but mostly due to political instability and a high government debt reaching a net of $44.3 billion. “Foreigners and expats also acquire property, usually apartments, and the trend will continue into 2010. The problem however remains that Lebanon’s spending on infrastructure like roads, power, and bridges is not being implemented or is being implemented at a very slow pace,” Helou noted.
Infrastructure is Lacking
Ahmad Khatib, GM of Century 21 1st Global Real Estate Co., an international American franchise of the worldwide Century 21 chain, agrees. “We are not prepared in terms of infrastructure for the arrival of our tourists. There is no planning at the government administrative levels. The government claims to have 60 infrastructure jobs, just for show, but there is no planning. We have way too many cars on the roads. Are we providing essential things to please the tourist? I think not,” Khatib said. As of June, there were an estimated 200,000 foreign license plates on Lebanese streets with an expected 100,000 to arrive by land. “Lebanon is doing what it can to make me leave with chaotic management and sporadic complicated laws all made to be broken. What we need is to decentralize the decision making process, understand what a tourist is or what a probable one is,” Khatib added.
Walid Moussa, CEO of Property Brokerage & Management and Secretary of the Board for Real Estate Association of Lebanon (REAL), which represents players and entities in the Lebanese real estate market, couldn’t agree more. “We have demand for real estate but no infrastructure to support it. We hope the government and particularly municipalities are aware of the problems that expats and foreigners are facing,” Moussa said.
On the other hand, others perceive Lebanon’s identity as having these elements of unruliness associated with it. Raja Makarem, CEO of Ramco Real Estate Advisors, agreed that Lebanon needs to make several adjustments to prepare itself for the tourism season. “But let’s face it. People come here to see some chaos and the Lebanese way of doing things,” Makarem said. Even Khatib admits that visitors with a vision to invest in Lebanon “are those who accept Lebanon as it is with its imperfections and complexities as well as volatility.”
Ongoing Tourism Infrastructure Works
The fact is there are about 135,000 people working in tourism in Lebanon with the figure increasing to about half a million during peak season, with 80% of tourism activity concentrated in Beirut. Abboud claims that $15 billion worth of infrastructure projects have been planned across the country and is asking for a spent of $7 million in advertising for 2010 to promote Lebanon. Egypt in comparison spends around $160 million a year. On top of large-scale infrastructure works, developers are building a number of new hotels in the capital, Abboud said. There are more than 20 international hotels under construction in Beirut, which will add 1,000 additional rooms.
Who’s Investing and in What?
Agha believes Gulfians are buyers who come without any specific budget in mind, and that they concentrate on Bhamdoon, Aley, and Sawfar – all mountainous areas. “Today there is a definite shift from the city to the suburbs and mountains,” Agha said. Locals and expats can also benefit from 200 million LP in loans from banks, provided they put 30-40% down on the price of the property. “Lebanese properties are still less expensive than neighboring countries. They are four times less expensive than Syria and Jordan and 15 times less than Saudi Arabia,” Agha said adding, “And that despite a figure released by the Central Bank showing land prices have increased by 550% in the last 5 years.” He said that the slowdown in prices in April, May, and June of 2010 was because people are waiting for prices to jump in the summer when the tourists come. “I expect 15%-20% increase and once that figure is reached, prices won’t go down. Visitors are looking for a family house or villa as a trend. A living space with 4-5 bedrooms at no less than $1500/m²,” he said adding that Lebanon has a 100,000 housing unit shortage in the mid-to-low price range of about $200,000.
A Byblos Bank June report estimated that 350 buildings are under construction in the Greater Beirut area amounting to about 2 million m² of residential space, ranging between $3,500/m² and $7,000/m². RAMCO estimated that about 40-45% buyers are expatriates with 20% speculation in a mostly end user market. Residents represent more than 50% of market buying with budgets of $250,000 per unit.
“I don’t see a negative impact on real estate in the near future with demand on the up and up. I am worried about the rapid increase in prices, whereas a year ago you saw ranges in the $1000/m² to 1500/m² and today they are in the $1500/m² to $5,000/m²,” Makarem said. He said that investors are looking for land and apartment investments with the conviction that they will make a net profit of 20-30% in one year, which is better than bank interest of 4%-5%. “Because of this belief, prices are driven up when investors make the purchase at higher than market values whereas developers look at the plot of land more carefully and study the potential investment over a period of five years,” Makarem clarified.
Moussa divides tourist in three groups, the first of which is foreigners who like to tour the country and represent 5%-10% of buyers who may eventually want to live or have a place here. Gulfians and Arab expats working in the gulf represent the main source of tourism, about 60%, and are interested in buying in the residential market. The third group is the expats coming from Canada, the US, and Brazil, and represent 10-15%. “The latter are a limited market but a growing one. These like to have an anchor in Lebanon and are looking for either a home or a land to build on,” Moussa said. He adds that the price of high end and apartments over 230 m² is rigid, whereas for apartments up to 230 m² with high specs are moving.
But whereas five years ago, foreigners represented 30% of buyers, according to Makarem, today they only account for 10%. About 80%-90% of buyers are either Lebanese or of Lebanese origins. “In fact, Arabs were selling properties in Beirut because these properties were the only ones that appreciated during the economic crisis, compared to other properties around the world where real estate investments proved very damaging. Khatib said that 75% of buyers are either Lebanese or with Lebanese roots, while only 5-6% are foreigners who probably have a Lebanese partner.
Real Estate Price Appreciation
But is the expected hike in summer housing prices a natural one? “I expect a natural appreciation of real estate prices because we have an end-user market, although I am a firm believer that we have had a crazy price increase over the last 2 years,” Khatib stated. He explained that although Lebanese properties are comparably lower in prices compared to other countries in the region, Lebanon levies high taxes, enjoys no permanent security or political stability, and has no proper infrastructure. “People are scared of a bubble, but it won’t happen because we don’t have the type of land abundance that can promote that kind of bubble atmosphere,” Khatib said. He did say that a worrisome factor is the incredible amount of facilities coming from banks which he considers dangerous because banks are overestimating the price of an apartment or house in order to give out the largest loan amount possible. “While trying to get rid of their plentiful liquidity, banks are dangerously loaning potential homeowners amounts that they may not be able to pay back, and that’s not healthy,” Khatib explain.
Green Development
Finally, tourists coming in will be looking favorably at green developments taking place in Lebanon. Agha said that “going green” is happening even in Arab countries, just as the ISO trend swept the area once before. “Potential home owners are looking at recycling, efficient irrigation practices, natural ways of heating and cooling, eco friendly solutions with 30%-40% energy savings, pesticide control, etc.,” he said. Makarem said that green developments interest those enjoying a higher sense for living, because eco-friendly construction come with budget considerations representing 10%-15% increase in cost but which carry long-term savings. Khatib and Moussa say tourists and especially Arabs are interested in green development and healthy living.
If healthy living is what they ask for, then healthy living is what Lebanon should provide, not only for visitors, but also for those who live here most, i.e. local residents. Wasn’t “Green Lebanon” the logo and motto of all Lebanese at one distant point in time? Whatever happened to that? Maybe our tourists are the ones who will give us the real answers.
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| Read full story in REAL's September issue |
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