While the Lebanese economy has been steadily crumbling since the beginning of the year, the real estate sector continues to establish itself as a safe haven for depositors trapped between a Lebanese pound in freefall and restrictions imposed illegally by the banks since last autumn on the majority of foreign currency accounts.
This is in any case what emerges from a Bank Audi report published in early July, which also cites the fear of a possible "haircut" on deposits (a chop) as one of the main drivers of demand in the first five months of the year. This scenario is one of many put forward in recent months as the country, which defaulted on its foreign currency bonds in March, negotiates financial as-sistance from the International Monetary Fund (IMF). The authors of the report point out that this real estate rush has been going on for about 10 months, or roughly since the banks began to gradually put restrictions in place.
Analysts believe that this trend is likely to continue for some time, but they fear that it may stop abruptly once sellers refrain from getting paid in "Lebanese dollars" - or at least as long as the reforms to redress the country's ills are not launched. "Lebanese dollars" are dollar deposits in banks that are subject to restrictions (withdrawals, transfers abroad) but whose conversion to Lebanese pounds is authorized by the Central Bank at a rate above the official parity of 1,507.5 pounds (3,850 pounds per dollar this week). This is the case while the pound has recently reached a record low on the black market. The fact that it became hard to transfer Lebanese dollars has encouraged some depositors to spend them on real estate. On the other hand, "those who sold were in their majority owners who had debts to repay; those who do not have debts do not sell," Guillaume Boudisseau, a consultant with the real estate agency and consul-tancy Ramco, told L'Orient-Le Jour.
In contrast, the banks' clients can freely dispose of "fresh money;" that is, foreign currencies deposited in special accounts established last autumn by the Association of Banks in Lebanon (ABL) when it summarily aligned the restrictions put in place. According to a banking source contacted by L'Orient-Le Jour, some cash-strapped businesses have in recent months offered some of their clients to convert fresh foreign currencies into "Lebanese dollars" by applying a multiplier of more than 2 or even 3 (100 fresh dollars becomes 200 or even 300 Lebanese dol-lars). This type of transactions has benefited some depositors with foreign currency accounts abroad who have been able to acquire real estate at a lower dollar price in cash and has thus helped to boost activity in this market. Others took the opportunity to repay loans.
Average Value per Transaction
The report points out that, in terms of numbers, savers have strongly boosted the land sector, which grew by 52.5% between January and May this year compared to the same period in 2019, reaching $3.7 billion. This thus represents an increase of $1.2 billion over the same peri-od. On the other hand, the number of transactions decreased slightly, by 0.8% according to Fi-nance Ministry figures, to 18,877 transactions, contributing to a jump in the average value per transaction over the same period (up by 53.7% to $196,994). While the largest number of transactions was recorded in the District of Baabda in the first five months of 2020 (3,636, or 19.3% of the total), Beirut led the way in terms of value breakdown, recording almost 38% of the total, or $1.4 billion. This increases the average value of transactions in Beirut to more than $822,500 (1,702 transactions were registered in the capital).
"In Beirut, about a third of unsold apartments have found buyers. But not all apartments left are necessarily for sale," said Boudisseau, who told Le Commerce du Levant in May that the leverage effect on sales was caused by fears of a "haircut." The consultant also pointed out a particularity that does not show up in the figures. The increase in the number of real estate sales contrasts with a decline in construction activity, caused by the country's volatile political situation, which is a considerable obstacle to the promotion of new land projects, and by the rising construction costs.
Indeed, Bank Audi notes a 32.6% decline in building permits in 2019 and a 61% year-on-year fall over the first five months of 2020. It also notes that 38.9% of construction projects were devel-oped in Mount Lebanon in January and February of this year (according to the latest figures available); followed by southern Lebanon (26.9%) , northern Lebanon (23.5%), the Bekaa region (6.3%) and Beirut (4.4%). These regional data also mark a historic turning point with the capital being in last place in the ranking: the area of new construction sites in Beirut decreased by 82.4% last January, year-on-year. As a result of this general drop in building permits, the report also notes a 31.9% decrease in cement deliveries in 2019, reaching 3.2 million tons compared to 4.7 million tons in 2018, and a 55.7% contraction in the first quarter of 2020.
(This article was originally published in French in L'Orient-Le Jour on the 13th of July)
While the Lebanese economy has been steadily crumbling since the beginning of the year, the real estate sector continues to establish itself as a safe haven for depositors trapped between a Lebanese pound in freefall and restrictions imposed illegally by the banks since last autumn on the majority of foreign currency accounts.This is in any case what emerges from a Bank Audi report published in...