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Questioning Lebanese real estate as an investment proposition

Sep 10

Questioning Lebanese real estate as an investment proposition

In the beginning, the land was empty and without borders, but then came people who settled on the land and built upon it. The people divided the land into plots large and small and invented rights of ownership to the land, all that was built on it, the water and resources beneath it, and the airspace above. They drew up title deeds, named the plots and all that was built on them real estate, called them commercial and residential, and deemed that it was a fantastic asset class.

Any thorough understanding of Lebanon recognizes that land in this country, when compared to most other countries and also considering the density of the population, is both desirable and scarce. The Lebanese link their identities to their villages, and ownership of private homes is as pronounced as the inclination to invest in domestic real estate.

But is real estate in Lebanon a good investment today? The ruling assumption for over 20 years in post-1992 Lebanon was that while investments in this asset class might not always appreciate in value, they would never be losing propositions. Property prices, so the assumption goes, might stagnate, but never drop. The investment conditions and views on real estate in 2019, meanwhile, have become more nuanced.

Nuances about the current state of property investing in Lebanon are, however, far from the message of Beirut-based real estate developer, businessman, and investor Georges Chehwane. “When it comes to any kind of investment in real estate, I, Georges Joseph Chehwane, do not advise anybody to invest a penny in Lebanon,” Chehwane tells Executive. “In terms of investment and business, [Lebanon] is the worst place on earth.”

In an outburst that appears almost calculated, the chairman of real estate developer Plus Properties and communications media venture Group Plus cites the lack of government support for property owners in Downtown Beirut, alongside persistent public corruption, slow permit processes, and increasing costs of dealing with public administration units. He further lambasts the rising interest cost of bank loans, which he says has risen to 13.5 percent per year for developers like him, and the lack of incentives that Lebanon offers to overseas investors in local real estate.

Chehwane then juxtaposes these with investment incentives for property buyers in Cyprus—specifically European residency advantages—and the reliability and transparency of permit processes for Cypriot real estate. Plus Properties currently owns and develops more than 25 apartments in Cyprus, and the country, according to Chehwane, is attracting Lebanese property investors. “I am selling many apartments in Cyprus to Lebanese who do not want to keep their money in the Lebanese banks,” he says.

On the other hand, from the vantage points of the financial and wealth management profession in Lebanon, the picture is not fundamentally grim.

Toufic Aouad, general manager of Audi Private Bank, says that MENA investors remain keen to invest in real estate assets in general, and selectively in Lebanese real estate As he explains it, peculiarities of the local market, such as the tendency for real estate prices to adhere to a stairway trajectory of hikes and stagnations “can be explained by the scarcity of land, especially in Beirut, which puts a cap on new supply, and therefore acts as a floor for prices.” He adds that more recent downside developments of property prices can bring benefits to alert investors, “The drop in real estate prices mostly concerned flats, not land, and has been a function of several factors—size, location, developer’s financial situation, etc.,” he tells Executive in an email. “Such conditions present attractive investments especially when dealing with a distressed seller. We remain open to selective opportunities in the real estate sector in Lebanon.”

Fadi Osseiran, the general manager of Blominvest, assures Executive in person that “nothing is fundamentally wrong with real estate in Lebanon.” He continues, “Within the property space, one can discuss many investment plays, but one has to differentiate as some real estate is income generating, and some is not. [Investing in real estate] is a question of timing and of the cycle, a question at which point in time to enter and when to exit. Overall, the value of real estate is preserved over time.”

When comparing Lebanon regionally in terms of attracting investment in real estate, Youssef Dib, general manager of private and investment banking at Saradar Bank, sees no alternative in the Arab world to Lebanese properties if an Arab or expatriate Lebanese investor seeks to find desirable locations with a sea view, not to mention the other numerous selling points. “In the medium- to long-term, I would definitely bet more on Lebanon than on Cyprus,” Dib says, adding that while it is impossible to give wholesale advice on how much of an investor’s total portfolio should be allocated to Lebanon, diversification is key. “Someone who is in Lebanon should, if he can afford it, look at real estate where the market today is a buyer’s market,” he says.