Why is Lebanon’s real estate sector booming during the crisis?

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Originally Posted On: Why is Lebanon’s real estate sector booming during the crisis? | by Hamad Alwazzan | Dec, 2020 | Medium

It is true that Lebanon’s 2020 has been far from peaceful and fruitful. The country has been through political and financial instability that shook the banking sector and is still suffering from the devastating outcome of the 4th of August explosion that destroyed the port and half the capital Beirut. Add to that the Covid19 pandemic and its catastrophic economic consequences due to lockdowns and restrictions. However, to everyone’s surprise, one sector boomed, the real estate market.

Investors, myself included, now see Lebanon’s real estate sector as the safest investment as depositors try to release their deposit from banks. However, following the devaluation of the Lebanese pound, the stock of residential units remains significantly higher than the actual demand. With the current financial distress and rise in unemployment, most Lebanese citizens and especially the younger generation are either leaving the country to find better opportunities or are unable to buy an apartment as banks aren’t giving any loans and the government has stopped all support and credit facilities.

In my opinion, the increase in property prices is due to the deadlock in the construction movement and its impact on the size of supply. The implementation of many projects has been halted due to the noticeable rise in the price of building materials, especially with the scarcity of dollars needed to import them. Additionally the real estate housing projects took a step back following the lockdown restrictions and the extra need of building material that was required to rebuild hospitals and homes in Beirut post explosion.

However, I don’t think those numbers are a real reflection of the real estate situation as it is true that many have resorted to real estate as a safe investment through which they could extract their money from the banks that are withholding them. However these transactions have created a real estate bubble as developers demand cash payment only or a banker check that is almost three times the value of the apartment. It should also be noted that the purchasing trend for housing has originated mainly from a relatively limited number of buyers, amid the rapid rise in real estate prices and the complicated methods of payments that sellers are requesting. Even with that being the case, the decline suggests that the actual demand for real estate is much lower than the available stock of residential units.

So the optimistic or positive numbers from the real estate sector in 2020 don’t reflect the reality of the economic situation of the country. From an expert point of view, I expect the rise of prices to hit a wall pretty soon and time will tell if the market will crash or fend for itself.