The Lebanese Real Estate Market Slows amid Economic Crisis
Many countries in the Middle East and North Africa have been hit by financial crises, the culmination of conflict, the COVID-19 pandemic, and other issues. Many of these countries, from the United Arab Emirates to Oman, have turned to real estate as a new area for economic growth and a means for diversification of income. Unfortunately, the real estate market has deepened the financial crisis in some nations, including Lebanon.
As the economic situation grows direr, demand for real estate in Lebanon has fallen by more than 80 percent in the years since the start of the crisis. The decrease in demand is primarily attributed to a lack of liquidity. People are understandably hesitant to make significant purchases because they fear being unable to liquidate the asset if they require the funds for alternative investments.
A Discouraging Outlook for Lebanese Real Estate
With demand for properties dropping off, the development of the real estate sector in Lebanon has slowed significantly. Part of the problem stems from how developers initially approached potential buyers and investors. In the first couple of years of the financial crisis, developers accepted checks as payment for properties. These funded checks were a key way for developers to pay back loans they took out from the bank. However, as these loans were settled, developers began to demand cash payments, which was simply not realistic for the majority of Lebanese citizens. The situation grew even worse as the crisis deepened and bankrupt banks began freezing tens of billions of dollars in accounts. This meant that even those who had the cash no longer had access to it.
Other factors also played a role in reducing demand for properties in Lebanon, such as the devaluation of the Lebanese currency. This situation has markedly reduced the purchasing power of citizens. The currency devaluation is a direct consequence of the profound financial crisis, instilling fear in many individuals and discouraging them from engaging in substantial purchases or investments. Before the start of the crisis, the majority of properties sold in Lebanon were smaller apartments costing around $150,000. The people who bought these apartments were largely wage workers who suddenly had to contend with the fact that their salaries were worth far less. Additionally, access to loans diminished as the banking sector collapsed.
Shifting Responsibility to the Lebanese Government
To make real estate a feasible option, developers began to lower the prices of their properties. This turned out not to be the ideal solution, as currency continued to devalue and thus prices continued to drop. Currently, property prices in Lebanon are about half what they were before the economic crisis. At this point, developers cannot push any lower and instead are calling on the Lebanese government to intervene with emergency measures meant to revive real estate in the country. For example, a restructuring of the banking sector could help connect consumers to loans similar to those before the crisis.
Certainly, the government in Lebanon is feeling pressure from many different sources. Because of the financial crisis, the World Bank has reclassified Lebanon as a lower-middle-income country, down from upper-middle income. This sort of change can have an incredibly significant impact on investor interest. Should investors choose to pull out of Lebanon, the situation will only get worse.
Another major issue is unemployment, which increased to 29.6 percent in 2022 from 11.4 percent in 2018. This means that residents may start looking for opportunities elsewhere, which will drive more wealth and earnings potential from the country.
Significant Hurdles Block the Path Forward
Unfortunately, there is not a clear path for moving forward due to the political situation in Lebanon. A current political deadlock has prevented the government from responding meaningfully to the economic crisis in terms of not just real estate, but every other finance sector. Local economists remain on high alert since total economic collapse is unavoidable without decisive government intervention. For that reason, economists have stopped advocating for particular changes they think would help and are now focused on the need for a new president and cabinet. Many people see this action as the only way forward in terms of ending the deadlock and moving forward with reforms. Even then, this will not result in quick action, which is exactly what is needed at this time.
Many other countries in the Middle East and North Africa have certainly set an example for how to create policies that foster real estate market growth. These include efforts to make financing more accessible, as well as ways to promote more balance between supply and demand. Many countries have also undertaken initiatives to attract more foreign investment to the real estate market, such as citizenship incentives. While Lebanon is in a difficult position, introducing these measures could help secure a more stable future for its economy and ensure that it does not get left behind in the push to diversify revenue sources.