In numbers

5-10 per cent: The percentage growth of property prices in Lebanon for the first half of 2010

$2.1bn: Value of property sales in Lebanon for the first quarter of 2010

Sources: Banque Audi; Directorate of Real Estate

Time was when Beirut residents could only dream of making it out of the city within an hour. Traffic-clogged the roads of the capital and made commuting an impossibility for all but the most patient.

Times are changing. The rolling out of new four-lane highways from downtown Beirut to the outskirts of the capital has slashed journey times to less than half an hour in many cases. This is opening up much of the outer suburbs to real estate developers that are aggressively targeting the low-to-middle income segment, where demand for living space is strongest.

We’ve [seen] significant increases over the past three years, [but now] it’s unlikely we’ll witness similar growth rates

Marwan Barakat, Banque Audi

More and more Lebanese want to buy properties in the suburbs, focused on the Metn area from Mansourieh onwards, with a trend towards smaller apartments. This robust demand has been one of the key factors that has enabled Lebanon’s real estate market to avoid the speculation-fuelled boom and bust of Dubai.

The Lebanese property market shows impressive growth

The Lebanese property market has shown impressive growth in recent years. Between 2005 and 2009, prices appreciated at double-digit rates, though from a low base amid the political paralysis and Israeli bombardments of the 2005-07 period.

Prices for 2010 are rising at a lower rate of 5-10 per cent in the first half of the year, but real estate sales – which grew by an annual 19.6 per cent average between 2004 and 2009 – more than doubled in the first five months of 2010, according to Banque Audi’s real estate report released in June 2010. 

The number of transactions grew by 39.5 per cent in the first five months of 2010, translating into a 47 per cent surge in average sales value since the start of the year. These are the kind of growth rates Gulf developers can only dream of. 

Lebanese property sales (US$m)
Amount Year
2,884 2004
3,303 2005
3,139 2006
4,198 2007
6,481 2008
7,016 2009
Source: Banque Audi

Other figures back up the healthy outlook. In the first quarter of 2010, property sales grew 41 per cent to £Leb 3.2 trillion ($2.1bn), on the back of 22,000 transactions, according to Lebanon’s Directorate of Real Estate. The hike in the value of property sales transactions resulted in a rise of 49.3 per cent in the average value per property sale, reaching £Leb 144.5m in the first quarter,

Prices are generally still high, particularly in Beirut’s golden triangle, hemmed in by Ras Beirut, Ashrafieh and the Beirut central district (BCD) where prices start at $3,000 a square metre. In the BCD, where Gulf investors and wealthy Lebanese expatriates dominate, the average price fluctuates between $6,000 and $9,000 a sq m.

The high-end has seen some of the sharpest price increases, but generally, housing demand is driven by end-users with real housing needs. Speculation accounts for a relatively small proportion of the market and regulations set by monetary authorities have been engineered to insulate the sector against global turbulence.

To keep pace with demand, developers have been ploughing funds into new projects. Construction activity has held up strongly, with construction permits increasing by 9.4 per cent a year over the past five years. According to Banque Audi, the first five months of the year saw a surge in construction permits with a rise of more than 53 per cent, reflecting developers’ increased acquisition of plots for new projects. About 80 per cent of the construction permits are for the residential market.

Stable demand for property in Lebanon

Demand, meanwhile, looks robust across the main sectors, though agents note a cooling off since the March-April period. The market’s growth is grounded in solid foundations, with the price spurt of recent years reflecting the undervaluation of the market after a period of political instability following the 2005 assassination of former prime minister Rafik Hariri. 

Growth in future may be slower, but could prove more stable, say experts.

“We’ve witnessed significant increases over the past three years, but from now on it’s unlikely we’ll witness similar growth rates,” says Marwan Barakat, head of research at Banque Audi. “Prices now are more in line with regional and emerging market averages. We had undervaluation three years ago, but we’ve bridged the gap, so now we’re talking about normal prices compared with regional and global averages.”

But prices could be depressed by the large amount of real estate stock coming on to the market in 2011, says Roy Saker, head of the Lebanese unit of global estate agents Ray White International. “There were a lot of permits issued and in 2011-2012 a lot of high-end properties will be coming onto the market. In terms of low-income housing, we’re still doing extremely well. All the permits that have been given will be sold and will be consumed easily as at the end of day Lebanon is an end-user market – we don’t have the speculation of other Middle Eastern markets,” he says.   

The authorities have clamped down on speculation, with the Banque du Liban capping bank loans funding construction projects at 60 per cent of their value. This limits the scope for speculative investments in real estate as developers are obliged to self-finance the remaining 40 per cent of the project’s value. Speculators are estimated to account for less than 20 per cent of Lebanese buyers, yet while speculation has been discouraged, this 60 per cent cap has not had a significant impact on overall housing demand.  

Compared with other regional markets, buyers can also tap housing loan products with relative ease. Commercial banks provide their customers with a wide range of housing loans with growing maturities that reach 30 years and improving conditions for both residents and expatriates. 

The government also subsidises housing loans through the National Housing Institute (NHI) in partnership with commercial banks. Meanwhile, the central bank is encouraging housing loans by granting banks a 60 per cent reduction in reserve requirements on deposits equivalent to the amounts of housing loans.

Diversified investments in Lebanese real estate

Expatriate and Arab investment in Lebanese real estate has been catalysed by the pursuit of high-yield investments that diversify their portfolios away from troubled property markets like Dubai. Lebanon’s relative immunity from the 2008 downturn spurred a 17.6 per cent rise in housing purchases by non-residents in 2009, while 40 per cent of loans granted by Housing Bank were distributed to non-residents. 

Lebanese banks’ moves to extend mortgages to Lebanese working in the Gulf and other foreign locations has also helped to support their purchase of second homes in Lebanon.

“We have a lot of Lebanese expats buying in Lebanon, who may be living abroad but spend typically 3-4 months of year here. However, while the locals are still buying without any problems, we notice that Arabs have stopped purchasing and some are selling,” says Saker.

Locals are driving the market, with about 15,000 new housing units a year demanded by Lebanese residents, says Barakat. But non-residents still constitute about 40-45 per cent of total demand in Lebanon. Many are seeking a toehold in Lebanon, while younger Lebanese expatriates are attracted by a booming economy, which provides job opportunities. 

Though the high-end has dominated real estate sales in recent years, the next few years should witness a shift to the lower-end, underpinned by Gulf Arab investors’ increased caution.

The BCD has felt the impact of the financial downturn more than other residential areas. Dominated by residences which boast prices of $6,000 a square metre, estate agents have found it harder to shift properties to the wealthy Arab owners.

Demand for premium space in the BCD has waned, a trend that coincided with a rebalancing of the lower-end market. Local buyers are now looking to pick up smaller residential units of 150-200 sq m. According to Banque Audi, newly granted construction permits in excess of 300 sq m account for just 15 per cent of total issued residential permits.

Price inflation in the BCD has seeped into the inner-city areas it borders. “They’ve done very well controlling prices in the BCD. However, in Ashrafieh, Ein Mreisse and Clemenceau, prices are going insane with a bit of speculation and strong end-user demand,” says Saker. An apartment in Ashrafieh, the heart of Christian East Beirut, will fetch a minimum $300,000, which is beyond the means of most Lebanese.

Office space is also becoming more expensive in Beirut, which ranked fourth-most expensive among 10 Middle East and North African cities in a Cushman & Wakefield survey of regional office space costs earlier this year. Lack of space remains a big issue as supply has slowed to a trickle, which combined with robust demand has applied upward pressure on prices. Office space in Beirut is priced at the $150-200 a sq m a year, while the high-end BCD area has rates at $350-400 a sq m a year.

With land prices significantly higher in the capital, developers have been casting their eyes further afield. According to Blominvest, the Mount-Lebanon area to the north of Beirut captured 80 per cent of loans granted by the National Housing Institute last year, a sign of where demand is headed.

Demand for real estate outside Beirut is also surging, as developers mark out opportunities in the suburbs with more green space. Baabda – the suburb that lies outside main Beirut – has beaten the capital in terms of real-estate sales since the start of 2010. Beirut’s eastern suburb of Bouchrieh in the Metn region is another area targeted by investors. In the south, the area between Khaldeh and Sidon is a focus as residents unable to buy nearer the capital set up home there.

Key real estate in Lebanon

“The 5-kilometre radius from Beirut has always been the key to real estate in Lebanon, but we’ve seen that developers are offering cheaper units in the mountains, stretching – from 700 to 1,000 metres above sea level. There’s lot of construction taking place there and because land prices are still selling from anywhere from $100 to $700 a metre, developers have taken advantage of that. With new freeways cutting the journey time to the new suburbs to just 20-25 minutes, they are snapping up affordable homes for people who want to buy,” says Saker.

The explosive growth rates of recent years may be over and price growth will flatten, but no-one is talking about a property bubble in Beirut. The emerging trend is the development of the outward stretch of the capital, as lower-income Lebanese seek out green-belt opportunities that reflect both budgets and changing lifestyle aspirations.

There will always be room in Beirut for the high rollers, but unlike Dubai and some other Gulf markets, it is the local middle- to low-income residents who are driving the market.