lebanon: Solid foundations

Mountains of rubble are all that remains of the southern suburbs of Beirut. The clean-up operation is under way and is expected to take years to complete. Yet only a few kilometres further north the contrast could not be clearer - crowds are already thronging the Place de L'Etoile and the city centre.

The Beirut central district (BCD) - the main driver of the real estate market in the country - emerged largely unscathed from the recent conflict, as most Israeli air strikes were focused on the south of the country and the outskirts of the capital. But the city is used to adapting to the seesaw nature of regional politics. The Beirut real estate sector proved its resilience early last year after the assassination of former prime minister Rafiq Hariri and the political demonstrations and car bombings that followed. The latest conflict has proved no exception.

'The BCD is unique in that Solidere [the company set up in 1994 to reconstruct the district after the civil war] holds a quasi-monopoly there, so prices are set directly or indirectly by the company,' says Karim Salameh, vice-chairman and chief executive officer (CEO) of Ahli Investment Bank. 'So far prices have not changed since the days before the conflict started.'

However, rents and occupancy levels have been marginally affected. 'At the retail rental level, a two-month rent rebate has been given to tenants in the BCD to offset the lack of retail sales during the conflict. At the office level, one might expect a slowdown in occupancy as international companies put on hold their plans to set up or expand in Lebanon. This may affect transaction levels - though not necessarily prices - in the short term,' says Salameh.

And fears remain among others working in the market. 'Although the bombings have had virtually no effect on prices, the main worry is that investor confidence in the city will be affected,' says Michael Dunn, chairman and managing director of Michael Dunn & Company.

In the early days after the ceasefire, there were signs of a mixed response among some Gulf investors with projects in the BCD. Kuwaiti investors led by Al-Sayer Group and its subsidiary Al-Dhow Investment Company reimbursed initial investors in Levant Holding Company, which was set up to develop the $1,100 million Phoenician Village mixed-use real estate project near the Martyr's Square in the BCD.

'There is a wait-and-see policy among most investors at the moment,' says Elie Nahas, manager of the real estate department at the local Bank Audi. 'But despite the security conditions, the fundamentals are still there - interest in Beirut real estate remains.'

It is an opinion shared by Salameh. 'The supply-demand characteristics are not expected to change in the immediate short term,' he says. 'Supply is limited and is mostly held by property owners. Demand in the capital is driven by expatriate Lebanese and non-Lebanese Arabs. And their interest in buying property here is related to their wish to come to Lebanon.'

Other developers do appear determined to push ahead. Dubai-based Damac Properties has said it will proceed with its $150 million 'La Residence by Ivana Trump' 27-storey luxury residential tower project in the BCD and Abu Dhabi Investment House (ADIH) remains committed to its mixed-use Beirut Gate project, near Martyr's Square. 'I think investors in Lebanon have become more sophisticated,' says an ADIH representative. 'We have not had to reimburse investors. We purchased the land from Solidere and plan to parcel it out to other developers while keeping one plot to develop a mixed-use tower. We are in negotiations with four developers over the project.'

The factors that first drew investors to the capital remain. 'Lebanon has been, and will remain, the natural gateway destination for GCC Arabs,' says Salameh.

'None of the characteristics that matter to its visitors has changed during