The real state of real estate Prices are holding up. There is demand for older units

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1 The real state of real estate Prices are holding up. There is demand for older units is the best time to buy, said Massaad Fares, Chairman of Now the Real Estate Association for Lebanon (REAL). Payment plans are flexible. Prices are lower than last year. Apartment sizes are suitable for local demand. There are opportunities for old units as well. Developers have been responsive to local clients. They are offering more added value than before. They have shifted most of their attention on how to satisfy them. GENERAL INDICATORS A survey by InfoPro Research was conducted to study the evolution of the real estate sector in terms of supply, demand, and pricing. It covers Beirut and its suburbs. The study sheds light on the number of property sales, which has dropped by 20 percent during the first nine months of the year compared to the same period in This comes after a two-year period of stability, when the number of transactions reached 77,000. This consequently affected the value of the sales deals, which dropped by 13 percent to reach $5.8 billion. These numbers show that the sector s current situation looks sluggish, said Jennifer Abumrad, InfoPro Research Manager. The average value per transaction continues to rise by three percent to $120,000 year on year. The area of construction permits has also plunged in the first seven months of the year to reach 6.9 million square meters. Just five years ago, it was double this year s LEBANON OPPORTUNITIES, DECEMBER

2 AVERAGE PRICES IN BEIRUT ($/M 2 ) figure. This is partially due to the fact that developers are moving towards smaller apartments, according to Mireille Korab Abi Nasr, FFA Real Estate Business Development Manager. She said: The cycle is about to end and a new one is about to start. SUPPLY ASSESSMENT The InfoPro study showed that the last two years have witnessed a remarkable change in the average size of an apartment across Beirut. Developers used to create medium units of 180 square meters. Sizes have shrunk by an average 30 m 2. Around 46 percent of the projects have offered units ranging between 100 m 2 and 150 m 2 since then. Abumrad said: Developers are moving towards small sized units because they are depending on local buyers who have a smaller budget. The amenities added to the project are diverse but mainly include a generator, water tanks, an intercom, videophone, and security systems. The number of apartments currently on the market in Beirut is around 10,000. With only this stock available, there is no oversupply in the market, said Fares. Ashrafieh and Mazraa have the largest repertoire and similar unit sizes. They are followed by Mousseitbeh, Ras Beirut, and the Beirut Central District (BCD). The first two areas supply a size range of 100 m 2 to 150 m 2. The number of units rose by 12 percent in Ashrafieh compared to The activity of developers in Mazraa is a bit slower. Although they have the same stock size, developers have constructed a lower number of units than in Ashrafieh in the same period. The number of new projects dropped this year in Mousseitbeh compared to last year, according to the study. EYE ON RAS BEIRUT The area has witnessed improved property activity this year. Mustapha Ahmad, Chairman of Trillium Holding, said: Homebuyers are returning to the area because the type of supply has changed and developers are making smaller units. Around 300 new units were released this year. The area hosted the lowest number of units compared to other areas. This is due to the scarcity of land as fewer and fewer plots are remaining for development, he said. Ras Beirut saw the highest number of sold apartments (around 60 percent). Trillium sold all the units in its project, V Verdun, within a span of six months only. WHAT THE CLIENTS WANT Around 5,600 housing units were snatched so far this year. The InfoPro study said that after Ras Beirut, demand was the second highest in Ashrafieh and Mousseitbeh. More than half of the apartments on offer in these two areas were sold this year. Demand is the lowest in Mazraa and BCD. During the past five years, the highest number of units sold in Ashrafieh was medium sized. In the past two years alone, demand was focused DEMAND IN BEIRUT Area Number of available units Units sold (%) Ashrafieh 2, Mousseitbeh 1, Mazraa 2, Ras Beirut 1, Total 9,044 Ashrafieh Sursock 5,000 Furn El Hayek 4,600 Gemmayze 4,150 Nazareth 3,875 Sodeco 3,600 Sassine 3,400 Sioufi 3,275 Rmeil 3,250 Hôtel Dieu 3,200 BCD Marfaa 6,700 Nejmeh 6,700 Wadi Abou Jmil 6,200 Bab Idriss 6,175 Minet el Hosn 6,100 Saifi 5,000 Mousseitbeh Ramlet el Baida 5,500 Unesco 4,850 Verdun 4,650 Koraytem 4,450 Ain el Tineh 4,100 Tallet el Khayat 3,800 Mar Elias 2,925 Zarif 2,950 Karakol Druze 2,850 Aisha Bakkar 2,700 Mazraa Horch Beirut 3,000 Barbir 2,700 Barbour 2,600 Bourj Abi Haidar 2,300 Tarik el Jdide 2,250 Noueiri 2,200 Ras Beirut Raouche 6,365 Manara 5,000 Ain el Mreisseh 5,000 Hamra 4,400 Clemenceau 4,000 Kantari 4,300 Sanayeh 3,800 LEBANON OPPORTUNITIES, DECEMBER

3 on units with sizes between 100 m 2 and 150 m 2. This shows that demand is slowly shifting towards smaller apartments. This is also the case in Mousseitbeh. Clients used to ask for units of up to 250 m 2, but in the past two years, there is more demand for 150 m 2 to 200 m 2 units. Developers in Mazraa have been focused on 100 m 2 to 150 m 2 units since Although demand was the highest for 200 m 2 to 250 m 2 in the past five years in Ras Beirut, it has been higher for 100 m 2 to 150 m 2 units in the last two years. Homebuyers have been going to Mousseitbeh and Ras Beirut to buy large apartments, in the period of In the past two years, only Mousseitbeh witnessed sales for apartments between 150 m 2 and 200 m 2. The rest of the areas saw the highest sales for 100 m 2 to 150 m 2 houses. Ahmad said: Expatriate demand represents about 15 to 20 percent of the buyers of the total demand. They helped stabilize the market and prevent it from crashing. Homebuyers are returning to Ras Beirut PRICE EVOLUTION Prices have been stable for the past three years, according to the InfoPro study. There was a slight drop in prices in all areas, last year, especially in the BCD. We have to wait for the results of next year to see if there is an actual drop because we cannot infer much from only one year, Abumrad said. The price growth since 2003 has however been notable. Prices slumped by 7.5 percent last year in the BCD, but a growth was recorded at nine percent since The Nejmeh and Marfaa areas are the most expensive and the least expensive area is Minet el Hosn. In Ashrafieh, prices rose by nine percent. Furn el Hayek and Gemmayze are the most expensive areas, with prices exceeding 4,000/m 2. Prices rose by eight percent in Mousseitbeh in 12 years. They were negatively affected in the past five years. Ramlet el Baida remains the highest priced location at $5,500/m 2, while Aisha Bakkar is the least expensive area. Ras Beirut, which is geographically close AVERAGE PRICES IN THE SUBURBS IN 2015 ($/M 2 ) Ain el Roummaneh 1,700 Bir Hassan 3,200 Bourj El Brajneh 1,250 Chiah 1,950 Hadath 1,600 Haret Hrek 1,600 Jnah 3,500 Baushrieh 1,650 Fanar 1,850 Hazmieh 2,350 Mansourieh 1,750 Sin El Fil 2,150 Baabda 2,700 Yarzeh 3,400 Antelias 1,950 Dbayeh 1,750 Deek El Mehdi 1,725 Naccache 1,880 Rabieh 3,125 Rabweh 1,900 Zalka 2,050 LEBANON OPPORTUNITIES, DECEMBER

4 to Mousseitbeh also performed negatively during the same period. Prices have been stable for a while but started to drop year on year, Abumrad said. Sanayeh is the least expensive location in this district. Mazraa saw the highest Compounded Annual Grow Rate of 11 percent. Barbir is the most expensive area, where the average price is $2,700 versus Noueiri, the least expensive area. Ahmad Khatib, Partner at Century 21, a property consultancy firm said: The evolution of prices is significant because the area has witnessed many developments since 2003, he said. The study also inspected apartment prices in the northern, eastern, and southern suburbs. The southern Jnah area is the most expensive among all suburbs. It is followed by Yarze. PRICE EVOLUTION OF OLD AND NEW APARTMENTS ( ) Area CAGR of old units (%) CAGR of new units (%) Ashrafieh Mousseitbeh Mazraa Ras Beirut CAGR: Compound Annual Growth Rate OLD BUT GOLD The market for old units is vast and strong. Apartments are being sold for high prices. In some areas, they compete against new apartments. Khatib said: The history of the old building in this case is good, the location prestigious and the size of the unit larger. The developer of the new apartments would have installed medium quality products. The prices of old units in Ashrafieh in the past five years have been stable. The current average price of an apartment is $3,300/m 2. Prices in this area went up by 11 percent in 12 years. In Mousseitbeh, prices started decreasing after a three-year stability phase. The progression of prices recorded a growth of nine percent since Mazraa witnessed the highest Cumulated Annual Growth Rate among all areas (13 percent). The price growth in Ras Beirut reached ten percent. Old units there are being sold for the same price of new units. CHALLENGES Changing the mentality of homebuyers is duly needed. But what is more important is the state of infrastructure. A lot of PERCENTAGE OF UNITS SOLD ACCORDING TO SIZE FROM (%) < 100 m m m m m m m 2 > 400 m 2 Ashrafieh Mousseitbeh Mazraa Ras Beirut Apartment sizes shrank by an average of 30 m 2 LEBANON OPPORTUNITIES, DECEMBER

5 investments should be poured to improve roads and encourage public transport, said Fares. Competition from foreign property markets has also affected demand. Local clients and expatriates have started to show a growing interest in buying property outside the country. Buyers in Europe, for example, receive many benefits such as visas and better services in total. Developers should work on their payment plans. Ahmad said: It s true that some developers have varied their offerings and payment is becoming more flexible. But expats in the US, Europe, and Australia do not know anything about them. REDAL and REAL were preparing a roadshow in several countries to promote local property. It was delayed due to the garbage crisis, according to Fares. Another challenge facing developers is the high cost of launching a new project. Fares said STUDY SCOPE The InfoPro study covered the residential market in Beirut and its suburbs. It is based on several InfoPro databases. Surveys and desk research were also used to obtain results. The study covers developments over the period between 2003 and 2015, with a focus on the past five years. There is no oversupply in the market that the developer pays up to 35 percent of the project s total costs as taxes and permits. The real estate sector employs 70 trades. Developers are buying most of the materials and services from the local market. The quality of supplies is good and the designers and engineers are very creative. But they have to step up their work in order to compete with foreign brands and companies, said Ahmad. REDAL and REAL are also trying to produce market research that can be officially adopted and dispersed. This would help regulate the market, said Abi Nasr. THE SUPER MARKET The property market has proven to be resilient over the years. The scarcity of land has kept prices high despite dwindling demand. Abi Nasr: The market is very small, offering in the future not more than 300,000 new units. Some parts of the southern and northern regions are not accessible for development due to security reasons. This exerts pressure even more on land. The law of scarcity governs above the law of supply and demand, she said. A quick look at the transactions versus prices shows that prices respond directly to the rise in transactions. They do not respond negatively to a weak transactional activity. Ahmad said: This shows us how strong the market is and how flexible the demand is. Developers are able to sustain their prices and homebuyers are willing to pay. If we follow the prices of land, which went drastically up since 2006, our apartments would be sold for much higher rates, he said. Developers were relatively able to offer stable prices although their land cost is rising. Abi Nasr said: No one is trying to hide that the market is undergoing a correction. If this does not happen, we would be facing a crash. History shows that the property market is on an upward trend. It has now plateaued but it is expected to rise again. This is a good time to invest in the market. According to Khatib, we are not approaching a property crisis and we find the horizon very bright. A lower number of construction permits helps developers compete better. As a developer, this gives me a better opportunity because I will continue to launch new projects in the future, said Ahmad. The overall industry successfully walked the first of the thousandmile journey. A lot still needs to be done. But it will get there, soon. Reported by Yassmine Alieh ON OUR WEBSITE More information is available by typing the numbers below into the Reference Finder on our home page L InfoPro Study L Contact information 94 LEBANON OPPORTUNITIES, DECEMBER 2015