Beirut’s real estate sector has proved remarkably resilient over the past year despite the political turmoil. Many regional onlookers assumed the assassination last February of former prime minister Rafiq Hariri and the political demonstrations and car bombings that followed would make even the most determined investors think twice, but the sector continues to defy the pessimists. Foreign investors who were supposed to flee the looming chaos have instead been biding their time. ‘Several regional and international investors have been monitoring the political transition from the Syrian tutelage era into another era of sovereignty and independence before establishing an investment strategy for Lebanon, but none refrained from going forward and executing planned projects,’ says a Beirut-based developer.

In early January, a major Gulf investor appeared to confirm this analysis. Abu Dhabi Investment House (ADIH) announced the launch of a $160 million private placement to fund the development of the first phase of its Beirut Gate project in the capital’s central district. The new site will see 120-metre high-rise towers built on seven plots near Martyrs’ Square.

But it is the fortunes of Solidere, the property development company set up by Hariri in 1994 to oversee the reconstruction of Beirut central district (BCD), that are often regarded as the key indicator of the sector’s health. ‘[It] is pretty much a litmus test of the market and the sector seems to be quite fit nowadays, with the Solidere share increasing in value from $4 by the end of 2004 to $21 today,’ says the developer. Its increased income is attributed to a $180 million rise in property sales $169 million coming from land sales and $11 million from real estate property rentals as well as the launch of its sales-for-shares programme. The company began trading on the Kuwait Stock Exchange on 8 March, the first Lebanese company to do so.

Much of the demand for property comes from the Gulf; a trend that has increased since 11 September 2001. ‘Demand for high-end apartments and villas comes mostly from outside Lebanon,’ says Karim Salameh, vice-chairman and chief executive officer (CEO) of Ahli Investment Group. ‘Internal demand for housing is mostly for low-to-medium-priced apartments, though there is a segment of the non-Lebanese Arab population that is buying small mountain summer residences at inexpensive prices.’

Finding the land

Due to the deluge of not only Gulf but also expatriate capital inflows after the positive vibes created by the Syrian pullout in 2005, the main challenge for investors is to grab some of the last pieces of potential prime real estate in the central district. The rush has inevitably led to a rise in land prices. ‘[These events] drove the price of land to a record high – prices went up by around 30 per cent in the past quarter’? says Karim Ibrahim, managing partner of the local Jamil Ibrahim Establishment. And this rise in land prices is now trickling down to buyers. ‘The increase in the price of land is the main factor in defining the price of apartments, and most developers today have increased their prices dramatically, although the demand for apartments has not risen,’ Ibrahim says.

The increasing trend of rising prices is changing the make-up of the district, and having a knock-on effect on neighbouring areas such as Ashrafieh and Ras Beirut. ‘Residential developers, faced with increased land prices and construction costs, [are looking] outside the Lebanese borders to find better-off clients who are more ready to pay the higher city apartment prices, while concentrating the lower-end developments outside the city,’ says Salameh. In a competitive market, developers are forced to raise their game and embark on thorough market studies focusing on how best to develop the land, create marketing programmes and promote their property. Given the lack of available space, some are finding it particularly hard. ‘The race for land in Beirut is still ongoing and good properties in the capital have become scarce,’ says the developer. ‘Today there are still opportunities for relatively good prices that one can take advantage of, but this may not last.’

Where some found misfortune during and after the civil war years, others have found opportunity. ‘During [those] years, most Beirut land lots suffered from the accumulation of legal problems, such as inheritance issues between the heirs of deceased owners or distressed properties inside bank portfolios. This land presents the perfect target for a land bank investor to take advantage of the rapid appreciation in land value once ownership issues are cleared up,’ says the developer.

Yet others are finding the lack of space particularly hard. ‘Mall developers cannot find 40,000-square-metre plots of land in the vicinity of Beirut,’ says Salameh. ‘[This] conflicts with the wishes of international anchor tenants to secure a large single-storey foothold in any retail scheme. These anchor tenants will have to readjust their expectations of the Lebanese market to accommodate the concept of medium-sized retail stores with remote warehouses and computerised stock replenishment.’

Attention has traditionally been focused on the capital, but Beirut is not the only part of the country to have seen a trend of rising prices. ‘People tend to confuse [foreign demand] with Beirut demand; this is not so,’ says Salameh. ‘Outside Beirut, certain summer destinations such as Aley, Abadiyeh, Dahr el-Souan, Kharhebab and the ski resort of Faraya-Mzaar have seen prices go up substantially in the past couple of years. However, other parts, mostly outside the Greater Beirut area, languish while waiting for the trickle-down effect and the economy to improve.’

Yet despite the overall resilience of the market, developers have mixed views about what the future holds. ‘The challenge we face today is unfortunately political. If all goes well, prices will keep going up in line with demand; if not, I am afraid of an economic crisis where future projects will find no demand in the market, especially at these high prices,’ says Ibrahim.

Seaside opportunities

Others believe the development of real estate, outside the narrowly focused Solidere district, may bring a few surprises. ‘Solidere has practically sold all its good location plots and is now looking to start the new phase by reclaiming land from the sea,’ says the developer. ‘The new Beirut seafront will be more interesting than the current seafront in all aspects, [while] low-income housing, which is very much in demand, could be interesting if practised on a large scale. And even the Catholic church may be persuaded to play a ‘Solidere-like’ role in the real estate market – ‘the church owns a substantial amount of land all over the country but by a Vatican decision cannot sell any of these lands; they could however, let them.’ It’s an intriguing proposition to throw into an already interesting mix.

Tom Pepper