Lebanon’s property market remains depressed, amidst regional political turmoil
Last Updated: September 29, 2015
Property prices are falling. Sales transactions continue to decline. And while there's more construction, it remains far below pre-crisis levels.
During the year to end-Q2 2015, nationwide property prices fell by 6% (-2.74 inflation-adjusted), to an average of LBP188.71 million (US$125,000), according to Bank Audi. This was the fourth consecutive quarter of y-o-y property price falls.
During the latest quarter property prices were nominally unchanged, thought they actually increased by 1.13% when adjusted for inflation.
The Lebanese property market has experienced strong house price rises in recent years:
- In 2009, average property sales prices rose by about 48.4% y-o-y (43.5% inflation-adjusted)
- In 2010, average property sales prices increased by 7.37% y-o-y (2.7% inflation-adjusted)
- In 2011, average property prices rose by 9.8% y-o-y (6.5% inflation-adjusted)
- In 2012, average property prices rose by 6.25% y-o-y (-3.51% inflation-adjusted)
- In 2013, average property sales prices rose by 16% y-o-y (14.7% inflation-adjusted)
- In 2014, average property sales prices dropped 1.61% (-3.87 inflation-adjusted).
House prices in several areas of Lebanon doubled from 2008 to 2012, mainly due to increased demand from GCC investors after the oil price surge in 2008.
Buyers are looking outside Beirut
Because prices remain high, homebuyers have been moving out from Beirut, the capital, to look for cheaper housing. During the first seven months of 2015, Beirut accounted for just about 26.2% of the total value of property transactions, down from about 37.2% in 2007, based on figures from the Real Estate Registry.
Less expensive nearby areas, such as Baabda, Metn, and Kesrouan accounted for almost 54% of the total property sales in the first seven months of 2015, up from 47.3% in 2007.
Property prices and sales transactions in Lebanon are expected to continue falling in the coming months, according to local property experts.
The economy is expected to grow by a modest 2.5% this year, after annual GDP growth rates of 2% in 2014, 2.5% in 2013, 2.8% in 2012 and 0.9% in 2011, based on figures from the International Monetary Fund (IMF).
Lebanon's residential price rises have continued
It is really amazing how much things have changed. Six years ago, when we first set out to look at rental returns in Lebanon, gross rental yields averaged 10% to 11%.
In 2013, you would be lucky to receive a return of 4.5% on your property, and larger properties will yields less, at 3.5%.
Central Beirut apartments are now, in 2013, priced at around US$3,700 to US$4,700 per square metre.
When we did our first survey in 2004, prices averaged around US$1,200! So prices have risen a lot, which explains the much lower yields.
Round trip transaction costs are low in Lebanon. See our residential transaction costs analysis for Lebanon and Residential property transaction costs in Lebanon compared to the continent.
Rental income tax is moderate in Lebanon
Rental Income: Net rental tax is taxed at progressive rates, from 4% to 14%.
Capital Gains: There are no capital gains taxes.
Inheritance: Inheritance taxes are levied at progressive rates from 3% to 45%.
Residents: Residents are taxed on Lebanese-sourced income and foreign-sourced income from movable income at progressive rates. Ddifferent set of tax bands and tax rates apply to business income and employment income.
Buying costs are moderate in Lebanon
Round-trip costs, i.e., the total costs of buying and selling a property, amount to around 5.90%. This includes the 5% transfer tax. Some fees can be avoided, for instance, if a lawyer is not hired, and/or if the property is registered directly with the Land Registry, without going through a notary public.
Rental law is neutral in Lebanon, but courts are slow
Lebanese rental law is neutral between landlord & tenant.
Rent: Rents can be freely agreed between landlord and tenant for contracts signed after 23 July 1992.
Tenant Security: The tenant who signs a one-year contract has the right to hold on to the property for three consecutive years. Thereafter, the landlord is entitled to end the contract, or to renegotiate.
Conflict-stricken economyLebanon (pop. 4.1 million; GDP/cap US$11,067) is one of the most complex and divided countries in the Middle East.
Lebanon's religious communities maintain a watchful equilibrium. To maintain the balance of power between religious groups, the president must be a Maronite Catholic Christian, the prime minister a Sunni Muslim, the deputy prime minister an Orthodox Christian and the speaker of parliament a Shi’a Muslim. The 128 parliamentary seats are equally divided between Christian and Muslims.
The country’s economy and populace were ravaged during the Lebanese Civil War from 1975 to 1990. From the 1990s to the early-2000s, there was an uneasy calm, with external forces and militant groups occupying different parts of the country.
In 2005, former Prime Minister Rafik Hariri was assassinated. Then in July 2006, the Israel-Hezbollah War erupted, which caused large-scale damage to Beirut, undoing much of the good work done in the post-Civil War reconstruction programme. In May 2007, the violent Nahr al-Bared conflict, the most severe internal fighting in almost two decades, exploded and ravaged some parts of the country.
Finally in May 2008, the Doha Accord marked the end of an 18-month long political crisis. Local political and security conditions improved considerably, with the Lebanese government determined to pursue reforms focused on achieving economic revival, sustainable growth and political stability.
The political stability in the country helped the economy grow strongly, with an average annual GDP growth rate of 9.2% from 2007 to 2010.
However political tensions brought down the government of Prime Minister Saad al-Hariri in January 2011. He was succeeded by Najib Mikati, whose cabinet is dominated by Hezbollah and its allies.
In June 2011, the UN issued arrest warrants for four members of Hezbollah in the murder of former PM Rafik Hariri. Hezbollah was uncooperative and refused to allow any suspects to be arrested. Tensions have been exacerbated by the Arab Spring since December 2010.
By mid-2012, the Syrian conflict which began in March 2011 had spilled over into Lebanon in deadly clashes between Sunni Muslims and Alawites in Tripoli and Beirut. This raised fears that Lebanon’s already fragile political truce could collapse again into a sectarian strife. The number of Syrian refugees in Lebanon rose to over one million in April 2014 from about 700,000 people in September 2013. This has placed a severe strain on the country's resources.
Then in March 2013, Najib Mikati’s government resigned amidst political tensions over upcoming elections. General elections, due last November 2014, were put on hold until 2017 due to security concerns over the conflict in Syria.
Economic growth has slowed sharply in the past four years, with annual GDP growth rates of just 2% in 2014, 2.5% in 2013, 2.8% in 2012 and 0.9% in 2011, based on figures from the International Monetary Fund (IMF). The economy is expected to grow by 2.5% this year.
The number of tourist arrivals dropped by an average of 16% per year from 2011 to 2013. But surprisingly in 2014, tourist arrivals increased by 6.4% y-o-y to 1,355,000 persons. In the first half of 2015, tourist arrivals rose again by 14.7% to 671,000 persons compared to the same period last year.