Lebanon's real estate sector: A resilient market or a bubble about to burst

Developers were of the belief that consumer confidence would kickstart again, while buyers laid their hopes in the political stability flourishing Lebanon's investment landscape.
by Georgi Azar

13 July 2018 | 16:12

Source: by Annahar

  • by Georgi Azar
  • Source: Annahar
  • Last update: 13 July 2018 | 16:12

On Thursday, Annahar hosted a discussion between two experts from opposite sides of the spectrum, Daniel Azzi, former CEO of Standard Chartered Lebanon, and Abdallah Hayek, CEO of Hayek Engineering and Construction Group. (Annahar Photo)

BEIRUT: Lebanon's real estate market has witnessed a period of stagnation in recent years, with developer prices and buyer purchasing power yet to reconcile. 

Developers were of the belief that consumer confidence would kickstart again, while buyers laid their hopes in the political stability flourishing Lebanon's investment landscape.

On Thursday, Annahar hosted a discussion between two experts from opposite sides of the spectrum, Daniel Azzi, former CEO of Standard Chartered Lebanon, and Abdallah Hayek, CEO of Hayek Engineering and Construction Group. 

The discussion revolved around the factors behind the stagnation, the fiscal and monetary measures targeting the real estate sector, and the current state of the market. 

"The stagnation we are facing is a reaction to what happened in 2017, it reflects the state of the economy which has its own troubles," Hayek said, before maintaining that the slump "has nothing to do with properties or prices."

The real estate tycoon is adamant that Lebanon faced similar situations in the past and that the sector can bounce back if reforms are properly implemented, highlighting the CEDRE IV investment program which should overhaul the country's infrastructure. 

With demand shrinking and supply still growing, real estate transactions decreased by 21 percent in the first five months of 2018, with 22,707 properties exchanging hands compared to 28,768 during the same period of 2017.

Given that interest rates increased to around 15 percent on Lebanese Lira deposits, Azzi was quick to explain that this represents a "problem for developers" because depositing funds in a bank becomes more attractive. 

"If I have $100,000, I can either buy a property or put it in the bank and turn it into $2 million in 20 years," he says. 

Touching on the average price of credit default swaps (CDS), which is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default or other credit event, both experts are in agreement that there is a low risk of the Eurobond market defaulting. 

Regarding the suspension of the central bank's subsidized housing program, which stirred confusion among prospective home-buyers, Abdallah maintained that Banque Du Liban has the capabilities of reinitiating the program given its "foreign reserves of $44 billion."

Yet Azzi was quick to argue that the suspension of the program was "the right decision after BDL chose to protect the Lebanese currency rather than the real estate market."

The surplus in the market was further aggravated by "non-professional developers who entered the market" during the peak years of 2010, Abdallah says, arguing that they played a role in impacting consumer's confidence in the market as a whole. 

"We are faced with a correction, the professionals will survive and the intruders have to figure a way out with minimum losses."

Both experts agreed on this notion as well, with Azzi alluding to these "amateur professionals who entered the market at the peak of the bubble" with no prior experience in the real estate sector. 

"There is excess supply competing with Mr. Abdallah's excess supply," he says.

"The problem can only be solved with major price reductions."

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