My late grandfather used to repeat to me the famous Lebanese proverb: “Give your condolences to the seller & congratulate the buyer”; He was of course referring to the buying and selling of real estate. In his simple logic, one should always invest in real estate. Any surplus of Cash out of any business you make is best invested in real estate. Accumulating real estate has been his motto in life and the motto of many big businessmen across the globe.
Real Estate has always been considered as a safe investment whether it is land or built-up units. The famous saying “The best investment on earth is earth” is simply advocating the soundness of investing in Land. Franklin Roosevelt once said “Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.
Lebanon has witnessed a speedy boom in real estate market for many years starting 2006 until almost 2012; the high demand was reflected by an increase in real estate prices and expansion in real estate projects across the country and mainly in Beirut & Mount Lebanon. Add to that, the ability to get subsidized housing loans at relatively low interest rate meant that real estate became more affordable to a bigger sector of Lebanese people by entering loans for periods up to 30 years.
The demand of real estate in Lebanon is a real demand; it comes mainly from Lebanese people whether residing in Lebanon or expatriates; it is well-known that one of the targets of the majority of Lebanese is to own a home in Lebanon. Lebanese people tend to favor buying homes over renting and it is still a common logic for majority of people. As such, we do not fear in general a “bubble” in Lebanon as demand is real and the majority of buyers are not looking at real estate as merely an investment (as it can be the case in many Gulf countries).
The real estate market as a matter of fact was one of the last sectors that were hit by the slow economy in Lebanon. Prices have stagnated for a while and then dropped by an average of 30% vs. its peak prices (even though those peak prices were not maintained except for a short period of time; yet people tend to compare vs. the highest prices). The continuous increase in interest rate in the past few years had its negative impact on end-users investing in real estate as well as on developers who both preferred to invest their money in the banks at a high-interest rate with relatively low risk vs. buying real estate in a decreasing price model (if you are a buyer) or building real estate projects (if you are a developer). Bank offers reached a 15% interest rate on LBP if you open a savings account for 5 years – which practically means doubling your investment in 5 years. Finally, the complete and abrupt stop of subsidized housing loans in early 2018 has rendered real estate investment affordable only for people with bulk of cash money & hence with big negotiation power. Many Scandals of prominent figures in Lebanon illegally using the low-interest subsidized housing loans originally intended for first home buyers with relatively low income have surfaced.
Today, the scene has shifted completely 180 degree. We have moved from a buyer market (where the buyer has the upper hand) into a seller market (where the seller has the upper hand). The latest incidents in Lebanon have put liquidity and hence the banks in a critical situation and people suddenly fear the loss of their capitals deposited at the banks. Rumors about “haircuts” and “capital control” are escalating despite the trials of the central bank to confirm that this will not be the case. The devaluation of the Lebanese Pound has always been a taboo and yet we are witnessing two exchange rates in the market (the official central bank rate vs. the black market rate). Investors have realized all of a sudden that holding large amounts of cash in Lebanese banks – whether in LBP which has a risk or devaluation or in USD which is facing capital control/haircut rumors is not sound. What we mentioned earlier as preference of investors to invest their money in banks with a high-interest rate yet relatively low risk – turned out not to be a low-risk investment after all.
We are still in the eye of the storm at the moment and yet we are starting to feel an increase in real estate transactions – even though the stop of bank activity for the majority of the past month has made those transactions painful & slow. While we do not expect to see new real estate projects in the near future due to many reasons, we do expect to see an increased move in the real estate transactions of available stock (whether vacant in new projects or used units). Majority of real estate transactions in Lebanon have always been historically conducted in USD; despite the fear of LBP devaluation, real estate transactions in LBP may even surface as long as the official exchange rate is maintained.
