BEIRUT: For Rudy Karam, looking for an apartment in Beirut was a depressing exercise. The best deal the 32-year-old sales representative found was a decrepit one-bedroom flat renting for $1,000 in the trendy neighborhood of Gemmayzeh.
“The tiles were falling down, there was no hot water and the refrigerator was in the living room,” he says.
So Karam and his girlfriend … like many young couples who work in Beirut … chose to move to the hills above the city, where they found a brand new three-bedroom apartment at half the rent and double the size. Now they can afford a vehicle for the daily half-hour commute. “Even with the car payments and the rent, it’s still cheaper than living in Beirut,” Karam says.
As real-estate prices soar in the Lebanese capital, many young professionals and middle-income earners say they have been forced out of the city, with some complaining that rents rose by up to 30 percent last year.
Indeed despite war, conflicts and political crises, the price of homes in Lebanon has continued to rise exponentially over the last five years, reaching $9.5 billion worth of transactions during the 2010 fiscal year, according to the Finance Ministry. That’s no small figure for a country with a GDP of $39 billion while many industry insiders say real estate sales could be much higher because under-reporting to avoid taxes is so commonplace.
Land is scarce in Lebanon and local buyers face a crowded market, competing both with well-to-do expatriates who return for summers and wealthy Arabs from the Persian Gulf states seeking Mediterranean vacation homes.
In the luxury market, realtors say some properties have tripled in price over the last three years.
Maher Moukaddam, a real estate consultant with the Finance Ministry, throws his hands in the air. “Is it possible that an apartment was selling for $1 million in 2007 and now it’s $3 million?” he asks from a drab government conference room. “It’s not healthy. No one can buy a house in Beirut anymore.”
He claims many new apartments in the luxury sector remain vacant: “Right now I can show you 150 apartments downtown that are empty,” he says in reference to the rows of glass and steel condominiums that have recently been erected in the Solidere area.
Some say prices are too high, and recent statistics indicate that they may finally be leveling out after years of nonstop growth. But few think prices will actually come down.
“Developers are not keen on reducing their prices,” says Karim Makarem, director of Ramco Real Estate Advisers, based in Beirut. Although there is a natural need for new apartments, with some 15,000 additional Lebanese households created every year according to estimates, “supply is not meeting demand”
According to Makarem’s figures, Beirut property values have increased up to 25 percent per year on average since 2005, slowing only recently in 2010 to a growth rate of about 10 percent. Growth has also dampened according to the Finance Ministry, which published a 12.5 percent drop in overall real estate transactions for the last quarter of 2010 when compared to the same period the previous year. Still, 2010 as a whole saw a 10 percent increase on transactions in 2009.
The fourth quarter slowdown is blamed on investor fears over political instability as debate swirled late last year over the controversial indictments expected to be issued in the case of former Prime Minister Rafik Hariri’s 2005 assassination.
“We are in period of instability,” says Marwan Barakat, head of research at Banque Audi. “I don’t foresee an increase in property prices for the time being. Prices will maintain in current levels.”
The stagnation is welcome news to Makarem: “I think what’s happening at the moment is healthy. No real estate market should be increasing more the five to ten percent per year – beyond that it becomes a little unsustainable.”
If developers expect to thrive in the current environment, they would be advised to economize the cost of construction, lower financial returns and offer smaller apartments, he says.
But others say the consistent hike in prices is not necessarily negative.
“I don’t think it’s healthy or unhealthy,” says Elie Harb, president of the American reality franchise Coldwell Banker, in Lebanon. “The market was so devalued 10 years ago,” he says from his corner office overlooking bustling Beirut. “It’s just catching up.”
Harb is not overly concerned by the slowdown in prices, claiming his business was barely affected by the collapse of Saad Hariri’s government last month. He runs his fingers along a chart showing the step-like growth of real estate transactions since 2001. There are no negative figures, only a plateau during the period covering Hariri’s 2005 assassination and the Lebanon-Israel war of 2006. All subsequent years register a steep rise despite the Nahr al-Bared conflict in 2007, the street fighting of 2008, and all the political crises in between.
Bank Audi’s Barkat agrees that declines are unlikely: “Prices in Lebanon are like stairs, they go up, then stabilize for a while and then go up again, they don’t fall.”
Hung on Harb’s office wall is a giant artist’s conception of a $100 million shopping mall project currently under way in the Beka Valley. None of its investors have considered pulling out, he says.
Even in the luxury segment, confidence among realtors remains high. “For us, it’s a good time to buy,” says Victor Najjarian, head of Care Group real estate consultants, which claims a portfolio of $2 billion worth of high-end properties. From the panoramic views at his sleek offices downtown, barely one empty plot is visible amid the fresh crop of high rises – evidence, he says, of strong demand and limited supply.
“We began buying properties the day the prime minister was chosen,” Najjarian says in reference the election of Najib Mikati two weeks ago, following violent street demonstrations.
When asked whether prices might be too high, he stresses that Lebanese banks hold deposits in excess of $100 billion while cash keeps pouring in from expatriates. “The town is rich, people can afford it.”
But with a per capita income of around $10,000, many average Lebanese struggling to find homes would beg to differ.
From his new home in the suburbs above Beirut, Rudy Karam believes more and more Lebanese are likely to follow his example and begin commuting to their jobs in the capital. “People are going to start moving back to their villages,” he says. “Normal people can’t afford Beirut.”
