real estate Lebanon, beirutplus real estate

Despite Lebanon’s troubled history, property prices are now rising strongly, fueled by firm demand and a very strong economy. The housing market seems to benefit from its Arab neighbors’ troubles.  Despite the crisis engulfing Dubai and other GCC countries, Arab investors and wealthy Lebanese expatriates have been moving money into Lebanon’s property market. It doesn’t hurt that Lebanon’s climate is fantastic, the food wonderful, and Beirut society can be liberal – the heartland of pleasure and relaxation for the region. In the second quarter of 2009, the averageresidential property price in the Beirut Central District (BCD) soared 40.7% to LBP 8.85 million (US$ 6,000) per square meter from the same period last year. Lebanon has showed impressive results in the construction and real estate sectors during the first half of 2009. “These positive developments underline the country’s resiliency amid an ongoing global recession, and have further enhanced Lebanon’s reputation as a very attractive investment destination.”BeirutCentral District (BCD) has the most expensive properties in the country, with prices around 33% higher thanBeirut’s outer districts. Residential property prices in the BCD have risen by about 24% annually in recent years.

High-end properties located in Beirut’s posh neighborhoods are still in demand with asking sales prices ranging from LBP1.2 million (US$ 3,500) per sqm to LBP5.9 million (US$ 4,000) per sqm.
On the other hand, prices have dropped by about 10% to 15% in the mid- to low-income segment since the onset of the global crisis, partly due to the sharp decline in construction costs and the developers’ willingness to accept lower profit margins to secure a sale.

Demand for Lebanese real estate come from three main groups.

Local residents, whose appetite grows apace
Wealthy Lebanese expatriates
Foreign investors, mainly Arab nationals. UAE investors made up 41.9% of total Arab investments inLebanon in 2008, at LBP1.65 trillion (US$ 1.1 billion).

Small-sized to medium-sized properties in Beirut and Mount Lebanon are in demand. Sales are dominated byproperties with areas between 150 sqm to 300 sqm. Beirut accounted for about 52.4% of Lebanon’s 2009 transactions by value, followed by Metn (19.2%), Kesrouan (12.3%), North Lebanon (6.8%) and South Lebanon (5.8%). Property sales are expected to rise further, as demand continues strong, and the economic outlook is bullish. Most buyers pay cash, or benefit from pre-selling schemes. Homebuyers buy anapartment unit during the construction phase, place a down payment and make monthly installments until theproject is completed.
Housing loans have traditionally only been available to the developers of new properties. Yet today, several banks have begun offering mortgage loans directly to homebuyers. In 2008, the Lebanese mortgage market grew to 6% of GDP, from an average of 4.9% from 2004 to 2007. Outstanding housing loans totaled LBP2.66 trillion (US$ 1.77 billion) in 2008, up 34% from a year earlier. Interest rates for housing loans are usually tied to the US prime rate or LIBOR, with a fixed percentage added, and currently 5.9%. The loan-to-value (LTV) ratio ranges from 50% to 85% of the appraised value or actual buy price of the property (whichever is lower). The term period is usually from 20 to 30 years. Lebanese banks require both life and house insurance from loan applicants.

Yucky rental yields in residential housing have fallen from over 11% five years ago, to under 4% in 2009.  Larger apartments are on especially unattractive valuations, with rental yields lower than 3%. In Beirut, the average monthly rent ranges from LBP2.23 million (US$ 1,488) for a 150 sqm apartment to LBP13.75 million (US$ 9,158) for a 750 sqm apartment. Average rents for the market as a whole are lowered by the survival of many pre-1992 contracts, making a class of sitting tenants paying low rents, who cannot be evicted except at fantastic cost (see Lebanon’s Landlord and Tenant Law).  But this law does not affect post-1992 contracts, which are equally balanced between landlord and tenant. (The Global Property Guide’s research only covers current offers for sale and offers to rent, not existing contracts).While many countries slipped into recession in 2008, the Lebanese economy grew by a spectacular 8.5%, the highest rate for 15 years. In 2009 growth of 6% is predicted to be reported, up from an earlier projection of 3%. Inflation is expected to be 2.5% in 2009, down from 10.8% in 2008, based on the latest forecast from the IMF. In August 2009, the balance of payments (BOP) recorded a surplus of LBP1.53 trillion (US$ 1.02 billion). For the first 8 months of 2009, Lebanon accumulated a surplus of about LBP6.56 trillion (US$ 4.37 billion), more than double the same period last year (US$ 2.0 billion). Total construction permits, an indicator of future activity, rose 23% to 6.27 million sq. m. in the first half of 2009 from 5.1 million sq. m. from the same period last year, according to the Order of Engineers of Beirut and Tripoli. The surge in construction permits was a response to increasing housing demand. In 2008, constructionpermits (measured in terms of area) rose by an astonishing 79% to 16.1 million sq. m., from an average of 4.1% for the past two years. Cement deliveries, also a gauge of the state of the construction sector, increased 7.7% to 4.2 million tons in 2008. About 70% of the country’s total population owns their homes.