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Jhony A.'s picture
5 years 2 months ago
Jhony A. - Few new comments: The price of land is just a lagging amplified indicator of the prices of house as land itself cannot generate money returns usually except by holding and buying at a profit, or by construction on the property and selling of houses or other. Owners of land still price in a yearly appreciation of 25% in the price of constructed property, which is neither logical nor possible. Since land doesn't have maintenance cost, and value of a land doesn't depreciate contrary to built property and since money deposited in the banks still barely yields any interest, their prices will be sticky for a while but will follow at some point if house prices depreciate. The land scarcity problem is actually only an illusion created by the lack of decent infrastructure, and the special treatment that Beirut is getting comparing to any other part of Lebanon (in Electricity specially). This lack of infrastructure is also another reason why prices here in Lebanon are ridiculously high. Furthermore, the price of the square meter in all of Lebanon cannot be compared with the real estate of Lisbon for example. It will need to be compared with the price of real estate in Portugal as a whole. We can only but compare oranges to oranges. that's why we also need to take into consideration, that what developers market as a 120m2 place in lebanon is in fact smaller than a 100m2 in any other part of the world. As for Expats, we have two kinds. The first kind: Some actually went abroad to get a decent salary to afford a place in Lebanon. Many of them will never afford returning to Lebanon and continue to pay the mortgages they contracted, and as such will want to sell their property at some point. A few will be able to return after having set aside enough money to get rid of their mortgage, but might never regain their purchasing power they got used working outside of Lebanon. So all in all, only a few of those, will ever get back to Lebanon and stay. That's the way it was, that's the way it will always be. The second kind: They just invested in the real estate sector while it was booming. Some made a decent profit, some will sleep it over to the next round. GCC citizens real estate purchases have also different facets: There are the ones who purchase a summer house here. Except for the very rich of them, I think lots now consider lebanon a very expensive destination. Most of the Rich already have their multi-million place anyway. There is also the "investment" part of their involvement that is so similar to what happened in Dubai. They came in at low prices and got out at high prices. However, contrary to what happened in Dubai, Lebanese are stubborn and prefer to hold their houses waiting for the inflated prices they ask rather then sell at the price point where demand exists and is real. Furthermore, the influx of Syrians to Lebanon helped many developers by providing many purchase and rent opportunities that would have never existed anyway. And last, the Lebanese Central Bank is extending a seemingly easy monetary policy which allows people to overextend themselves to purchase property, policy that might bite both consumers and the local banks once interest rates start increasing. ( Loan Payments will increase for the all who are paying off their mortgage, but that increase will also impact local banks and the central bank who will still bear 60% of that interest rate increase.) Last but not least, while some developers are focusing on small real estate and realizing good sales, this is not a very sustainable as the purchasing power of the lower middle class and of the poor is rapidly deteriorating, with salaries constant and inflation very high. The only question they ask themselves before buying the house is: can i get the loan ? and yes they can because of the super easy lending policy. They don't ask the right question that is: Can I afford the load ? and no they can't because they are barely affording to pay it, because interest rates and their mortgate payment can only go up, and because there is no chance they will earn substantially more in the near future. Conclusion: Will the real estate market prices in Lebanon drop ? Only time will tell. What I can tell is that a 20 to 30% global drop in prices will give second wind to all the Lebanese economy. If that doesn't happen soon, the Lebanese economy will continue to suffer and might even experience excruciating pain until normal inflation catches up with the real estate prices or until everything crashes down spiralling out of control.