Lebanon properties facing up to global crisis

Real estate prices had a sharp decline globally, while Lebanon enjoyed price increase in properties within the same period, anew rport from  Hayek Group has revealed.

Lebanon witnessed the launch of several mega-construction projects in 2009 worth US$1.9 billion despite the global economic crisis.

Foreign investors consider the country a regional development centre due to its strategic geographic location; free market economy; project-friendly regulatory environment; moderate tax rates; expanding infrastructure; and highly skilled human capital.

In a simple monitoring overlook of the real estate market in the last decade (1999-2009), Local dramatic events took place in forms of repeated wars, assassinations, explosions, Nahr El Bared add to all the Global Financial Crisis , the political stagnation and corruption accompanied by no major positive economical indications from most sectors of the national economy except the banking sector.

Despite all the negative events and against all odds and expectations, the real estate market and property prices were on the uptrend and never stopped heading north.

The question must be asked; in 2010 are we still on the safe side?

In 2009, Lebanon witnessed a 6% increase in construction permits to reach more than 11.42 million square meters of granted projects.

Price per square meter during the first half of the year rose a phenomenal 50%, a trend that is expected to be sustained in the next five years.

Price increase in properties reached multiple digits per year for the past 4 years, land prices in Beirut exceeded most optimistic expectations by far, and prices of land in Achrafieh, Saifi, Gemmayzeh, Ras Beirut, Verdan and Ain Al Mreiseh increased nearly 45% per year.

While price ranges for residential units reached $4000 up to $12,000 /m2 marking an average increase of nearly 35%. Will this continue in 2010?

The decline in bank interest rates encouraged investors to inject liquidity in the only secured real estate sector, local banks reached almost US$90 billion of liquidity.

These encouraged investors to apply for credits to purchase properties expecting the rise in the price will cover all their obligations to the banks and a descent R.O.I not less than 25-30% in worst cases.

The chasing for purchasing plots in Beirut never stopped for the past 2 years, investors were eager to buy even shares in some properties, properties that has legal problems were also subject to high demand. This is also reflected on the suburbs, Mount Lebanon and touristic resorts.

What is next? Are we expecting a decline in property prices? Can the market hold this trend for long?

The first half of 2010 will be flooded with ongoing construction projects; units will be available for the local and overseas markets at high prices following the current trend. Lebanese expatriates are expected to consume up to 50% of the available units, while other nationalities are expected to purchase up to 20% of the rest.

The market will continue to deliver new units in the second half at a lower pace, but the purchase power is expected to decline smoothly due to the current status in the Gulf countries and its direct financial effect on the Lebanese and Gulf citizens.

Beirut has a first-class record in property development, In order to avoid any real estate crisis, the government should provide actual statistical figure related to this sector, the figures should include statistical data from the real estate directorate and concerned ministries (finance, justice and public works), while tightening measures should be adopted by real estate developers and promoters to comply with actual market demand, new incentives and lower profit margins.

The real estate market represent a major sector in the national economy of Lebanon, any major crisis or sharp decline in prices will have a direct effect on the national economy. In order to avoid such crisis officials are urged to coordinate with real estate professional and implement  a long term plan for monitoring and data processing of real estate figures to provide a leading passage for all parties involved.

- BI-ME