For Lebanon's residents, real estate and not gold is safe haven in this economic crisis

Real estate has become a haven of sorts in Lebanon amid the dire economic crisis, with a number of investors having shifted their funds to the sector.

Fear of a “haircut” on bank deposits, the official devaluation of the Lebanese pound and reinforced by the introduction of informal capital controls, is what drove residents into property to safeguard their life.

According to a report by Bank Audi, residential developments have been highly sought after by people looking for a long-term investment. Following a double-digit contraction in recent years, such transactions increased in 2020 by 110 per cent to $14.4 billion, according to Byblos Bank.

Stick with property

Analysts agree that properties are not likely to witness a drop in value this year after an increase of at least 30 per cent through 2020 driven by the demand. A senior spokesperson from Solidere, the developer behind the reconstruction of Beirut’s city centre after the Civil War, stressed that, for obvious reasons, people want to secure and preserve their lifetime savings. They would rather invest in real estate than risk any other option available locally.

Amidst all the turmoil Lebanon and its people had to contend with, Solidere recorded a significant number of transactions, totaling $393 million (unaudited 2020 results) to both existing and new investors who still perceive real estate in the city center as highly attractive in term of value retention.

Sold off overnight

According to Nassib Ghobril, Chief Economist at Byblos Bank, developers sold in a few months most their residential stock that had no demand for the last four years, which helped them repay loans to banks and dues to subcontractors.

It is worth mentioning that foreigners largely stayed out of the market in view of the deteriorating conditions, as evidenced by the continued contraction in sales to foreigners by more than 30 per cent during the ongoing crisis, according to the Bank Audi report.

While the residential market witnessing renewed interest after years of prolonged sluggishness, commercial property is stuck in a downturn in the context of weak economic activity exacerbated by the pandemic.

No let up in crisis

The current situation in real estate is likely to prevail throughout 2021, albeit at a slower pace, because most developers covered their loans. They are expected to sell any remaining stock in US dollars, with a “fresh” payment - a term used for transfers from abroad and where the owner can repatriate the amount freely - required due to the unofficial devaluation of the Lebanese pound as well as because of US dollars stuck with Lebanese banks.

This would cover their construction costs, which doubled in 2020, according to Mireille Korab Abi Nasr, Vice-President of the Real Estate Developers Association in Lebanon (REDAL).

The country still waits on the resumption of negotiations with the International Monetary Fund as it is the only way out of the crisis. While more delays are bad news for Lebanon, this is certainly good for those developers who may still have unsold stock.