In Lebanon, empty flats raise fears of real estate collapse

This picture taken on November 26, 2018 shows a view of a halted construction site (foreground) before another building currently under construction in the Lebanese capital Beirut. (AFP)
Updated 09 December 2018
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In Lebanon, empty flats raise fears of real estate collapse

  • The small Mediterranean country’s construction sector witnessed an unprecedented boom from 2008, fueled in part by sales to wealthy Gulf Arabs

BEIRUT: Ghostly apartment blocks and half-built buildings dot Lebanon, as entrepreneurs and experts fear that the country’s key real estate sector is on the brink of collapse.
The small Mediterranean country’s construction sector witnessed an unprecedented boom from 2008, fueled in part by sales to wealthy Gulf Arabs and Lebanese expatriates.
But after civil war broke out in neighboring Syria in 2011, political insecurity caused these sales to dwindle and local demand to drop.
A slump in oil prices from 2014 compounded this slowdown, leaving thousands of apartments unsold across Beirut, and forcing some developers to freeze construction sites.
“Some 3,600 unsold apartments exist today in Beirut alone,” says Guillaume Boudisseau, an expert at the Ramco real estate consultancy firm.
In front of Beirut’s port, a building dubbed “The Coast” is one of many luxurious apartment blocks desperately looking for buyers.
The tower was completed in 2014, boasting views over the Mediterranean and moored cargo ships from its 500-square-meter apartments.
But in the four years since, just two of its 21 flats have been sold.
“When we started works in 2010, the context was very different,” said owner Hussein Abdallah, who had hoped to make lucrative sales.
Instead, the businessman had to hand over ownership of eight flats in the building to the bank to pay off his debt.
Other entrepreneurs have decided to halt building altogether.
A road back from the Beirut seafront, the construction of another tower grinded to a halt two years ago, with only the concrete outer shell completed.
“We only sold a single apartment off plan,” its owner said, asking to remain anonymous.
He reduced the price by 20 percent, “but it didn’t help,” he added.
Near the capital’s iconic Martyrs’ Square, the foundations of another high-brow project — “Beb Beirut” — stand frozen in time, concrete pillars jutting out from the ground, and rusty rebar rods protruding from them.
Still cranes loom overhead, while all around the stunted construction site sparkling new apartment blocks appear completely empty.
Owner Mireille Choufany decided to stop building two years ago.
“Demand is almost non-existent,” she said.
Outside the capital, real estate sales have also dwindled.
Sales dropped by 19 percent during the first ten months of the year in southern Lebanon, and by the same percentage in the north, according to the country’s real estate registry.
Multi-confessional Lebanon has been without a government since May, threatening to derail an already fragile economy.
The deadlock is the latest in a series of political crises that make Lebanese reluctant to invest in apartments — both luxury and smaller-scale.
To make matters worse, at the start of the year, the central bank suspended a subsidy to real estate loans for less well-off Lebanese.
Among them, 33-year-old bank employee Marwan, who signed a contract to buy a flat in January.
“The next day, I learnt that the subsidised loans had been suspended,” he said, asking that his family name be withheld.
Marwan paid 20 percent of the apartment’s cost when he signed, but “was counting on the loan to pay the rest,” he said.
“Now I risk losing the amount I already paid, without even getting a flat.”
To avoid a devaluation of the Lebanese pound — which has been trading at a fixed rate of 1,500 against the dollar since the mid-1990s — banks increased deposit rates, causing lending rates to jump more than 10 percent, which further discourages buyers from taking out loans.
A banking source said they feared any collapse of the real estate sector could have repercussions on the banking sector.
Builders and home buyers owe $24 billion to banks, which is equivalent to more than a third of credits to the private sector, the source told AFP.
To avoid disaster, bank and real estate companies launched an investment platform in October that aims to raise $250 million to purchase some of the unsold properties.
“The aim is to buy up more than 200 flats in greater Beirut and sell them on the foreign market,” focusing on Lebanese expatriates, said Massaad Fares, head of the Legacy One platform.
But Wael el-Zein, chief of Lucid Investment Bank which is taking part in the project, says that it will not even cover 10 percent of unsold dwellings.
“It’s a lifebuoy to avoid drowning, while waiting for political respite,” he said.
Jihad Hokayem, a real estate investment expert at the Lebanese American University, agreed such initiatives were only temporary fixes.
“These measures cover up existing or potential bankruptcies. It’s the beginning of a total collapse” of the real estate sector, he said.


Lebanese losing faith as politicians fumble over economy

Updated 11 min 18 sec ago
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Lebanese losing faith as politicians fumble over economy

  • As the economic crisis deepens in Lebanon, so has the public’s distrust in the ability of the old political class
  • Many fear a Greek-style bankruptcy, without the European Union to fall back on and with potentially more violent social unrest
BEIRUT: For days, Lebanese TV stations have been blanketed with live coverage as lawmakers held heated debate over a controversial austerity budget meant to salvage the flailing economy, with protests outside parliament and critics denouncing its focus on tax hikes and wage cuts. Mohammed Badran, sitting in his barber shop empty of customers, couldn’t be bothered to watch.
Those officials don’t even know how much bread costs, he scoffed. “They basically don’t know anything about us.” The 33-year-old hair stylist — his hair spiked stylishly in front — sat idle in his salon in central Beirut with the TV tuned to Qur’anic recitals.
Badran said things have gotten worse the past four years. Taxes, utility bills and prices have increased, while his income hasn’t changed. Once, he kept about three quarters of his earnings; now he pockets only about a quarter, he said.
“Things have been turned upside down,” Badran said.
As the economic crisis deepens in Lebanon, so has the public’s distrust in the ability of the old political class, widely viewed as corrupt and steeped in personal rivalries, to tackle major reform. Many fear a Greek-style bankruptcy, without the European Union to fall back on and with potentially more violent social unrest in the small country wedged between war-torn Syria and Israel.
A new budget that reduces public debts, improves governance and reforms infrastructure could unlock some $11 billion in aid promised to Lebanon last year by European countries. But after weeks of delay amid haggling among the government and lawmakers, the result is a bill that mostly taps into the pockets of average Lebanese, while critics say it does little to tackle structural issues and deeply entrenched corruption at the root of the crisis.
The final vote on the budget is expected Friday, unless more delays occur. It is expected to pass overwhelmingly.
Still, during three days of live-televised debate this week, a line of lawmakers took to the podium to rail against it — most of them members in the government that designed it. In his speech Thursday, the finance minister snapped back, saying they were treating the budget like an “abandoned baby” no one would admit to fathering.
Critics said the theatrics were designed to absorb public anger over an economic slump that has hit hard.
Growth reached an all-time low of 0.2 percent last year. It slowed further after the Central Bank halted subsidized housing loans through commercial banks, contracting the real estate market, a main engine for growth since 2012. The budget deficit reached 11 percent of GDP, up from 8.6 percent in 2017, and public debt stands at 150% of GDP, one of the highest in the world. Fuel imports have increased, further deepening a trade deficit.
The downturn has impacted the country’s trusted banking sector. The Central Bank’s foreign assets have receded by around $6 billion since last year, as it props the currency pegged to the dollar. Deposit growth has been the lowest since 2005 as some people transfer savings abroad.
Meanwhile, some businesses have liquidated and shops have closed. More apartments are up for sale, deflating prices.
The budget submitted to the parliament aims to bring the deficit for 2019 down to 7.6 percent, though the International Monetary Fund projects it will likely be at 9.75 percent.
Last year, the government hiked the value-added tax to finance a pay increase it promised to public sector workers. This year’s proposed new budget cuts pay and benefits for government workers and freezes public sector hiring for three years. The VAT hike remains in place, and other taxes are also increased.
Economist Jad Chaaban said the anxiety around a potential Greek-style bankruptcy has allowed government officials to push an emergency fix rather than enact major changes, such as progressive taxes or debt restructuring.
The real problem, he said, is the political elite, which treats the public sector as a jobs source for supporters and covers up corruption that enriches them and drives up debt. Commercial banks are largely owned by ruling politicians and profit from holdings of public debt.
Chaaban and other critics say officials have tried to divert bitterness over the economy by campaigning against the nearly 1.1 million Syrian refugees in Lebanon, calling for their return and clamping down on illegal labor.
For Badran, economic hardship has curbed even the simplest of dreams. He dropped plans to build a solarium at his salon. After 14 years of owning his shop, he still lives with his parents, unable to afford marriage.
In the last year, his profits maxed at $500 a month in the face of increasing bills, rent and costs. Like all Lebanese, he pays one electricity bill to the government and a separate one to a private generator provider to fill in during daily power cuts caused by the decrepit infrastructure.
“Ever since I can remember, there has been no electricity, no water. Now I am 33 years old, and we still complain of the water and electricity,” Badran said. “Look next door, in Syria, there is war and all that, and it has electricity and water. Here, we have charlatans.”
With mounting costs — hair gel prices have gone up by 30 percent, for example — he has cut back on supplies for the salon as well as personal spending.
Most of his young, stylish clientele have also cut back, coming to his shop once a month instead of three times.
Once the new budget passes, Badran said he’ll likely have to raise his prices for the first time in years, adding to the burden on his regulars, many of whom already work two jobs.
“I have been buttering up my clients so as not to lose them,” he said.
Along one street in the busy commercial neighborhood of Mar Elias, known for its jewelry stores, at least four shops had “For Sale” signs in the window.
Among them was emptied-out family gold shop. Maha, a 34-year-old, staffed the shop with her uncle on a recent day. The family still has its wholesale gold business but can’t keep running an idle retail shop, they said. Both refused to give their last name to protect the family’s commercial reputation and private plans.
Maha said only the middle class feels the economic pain since the wealthy and government officials stash their money abroad.
“People ask why we don’t protest. Look around us what happened when people protested?” she said. “Look at Egypt, or even worse Syria. We will end up in a worse place.”