Lebanese property market remains depressed

The Lebanese property market remains depressed. There are too many new builds on the market, depressing values; Beirut seems overpriced; yields are low; demand is falling sharply; economic growth is anaemic, and construction is weak.

The truth is, the stimulus of the influx of Gulf money in 2008-2010 still haunts the market. House prices in several areas of Lebanon doubled from 2008 to 2012, after the oil price surge. Now those high prices seem at risk.

During the year to Q1 2019, the average value of property transaction in Lebanon fell by 5.05% to LBP 202.84 billion (US$134,676) from a year earlier, according to the Directorate of Real Estate and Cadastre. When adjusted for inflation, property prices actually declined by 8.78%. Quarter-on-quarter, property prices rose by 2.8% (1.6% inflation-adjusted) during the latest quarter.

By region:

• In Beirut, which has the most expensive housing in Lebanon, property prices fell by 1.32% (-6.97% inflation-adjusted) to an average of LBP 768.5 million (US$ 509,659) during 2018.
• In Metn, property prices fell by 6.01% y-o-y (-11.38% inflation-adjusted) to LBP 306.61 million (US$ 203,345) in 2018.
• In Baabda, property prices fell by 1.35% y-o-y (-6.99% inflation-adjusted) to LBP 203.93 million (US$ 135,245) in 2018.
• In Kesserwan, property prices rose by 4.21% y-o-y (10.53% inflation-adjusted) to LBP 228.27 million (US$ 151,388) in 2018.

Demand is falling sharply. During 2018, the number and value of property sales in Lebanon fell by 17.4% and 18.3%, respectively. In fact, sales to foreigners also dropped 11% in 2018 from a year earlier – an indication of declining interest from foreign homebuyers.

“Lebanon’s real estate market has witnessed a further slump this year in all its components, with overall demand decelerating in recent months in the currently prevailing regional and domestic environment,” said Bank Audi.

Construction activity remains down. During the first two months of 2019, the area of construction permits issued plummeted by 24.4% from a year earlier, following declines of 23.11% in 2018, 4.12% in 2017, 0.86% in 2016, and 8.92% in 2015.

The housing market is expected to continue to struggle during the remainder of the year. “The most likely scenario in the near term is the continuation of the current market status quo,” said Bank Audi.

“The formation of a government might ameliorate sentiment but not trigger a massive unwinding of the sluggishness in the market. For that to occur, the investment climate would have to ameliorate tangibly in a way that encourages non-residents (especially Lebanese expatriates) to make a comeback on the local scene and residents to resume their buys. Otherwise, price discounts are likely to continue being obtained, but not necessarily increase.”

The economy expanded by a minuscule 0.25% in 2018, from y-o-y growth of 0.55% in 2017, 1.6% in 2016 and 0.4% in 2015, according to the International Monetary Fund (IMF). The Lebanese economy is projected to expand by 1.3% this year and by another 1.95% in 2020. In May 2018, Lebanon voted in their first parliamentary elections in nearly a decade.