Lebanese buy up property as government defaults
Investors seeking safe haven for cash are driving a real estate boom
With Lebanon in default for the first time in its history, banks are in crisis and the economy is in freefall. But one sector is booming: property.
Desperate for a safe haven for their cash, citizens and professional investors have been buying up real estate at levels not seen for years in Lebanon’s previously stagnant property market.
At one central Beirut real estate agent, where the five-member team has toiled for months to the sound of the protests that have engulfed the Lebanese capital since October, the clients just keep calling. “At some point I just wanted to throw my phone against the wall,” said Chantal Mille Arida of B in Beirut.
Property sales in January jumped 27 per cent year-on-year, with a total of 4,668 real estate transactions executed, according to the finance ministry. In December, there were 6,000 transactions in Lebanon totalling $1.1bn.
The boom has been driven by Lebanon’s financial and economic crises, the combination of which meant Beirut’s government defaulted on a $1.2bn Eurobond that matured on Monday.
A shortage of dollars has forced commercial banks to introduce harsh restrictions on foreign currency transfers, while account holders face dollar withdrawal limits — in some cases as low as $200 every two weeks — and are unable to transfer cash abroad.
In this unpredictable environment investors have raced to move their funds out of the banks and into property, “not even caring about the price, just wanting to spend as fast as possible,” said Michel Georr, chief executive of CGI, real estate arm of conglomerate Saradar Group.
Between mid-November and mid-January, Mr Georr said he sold more properties than he shifted in the six years between 2013 and 2018. His turnover since October has averaged $1m per day, with demand so high that he has increased prices twice.
Before October, the property market was “dead”, said Guillaume Boudisseau, consultant at Ramco real estate advisers. “Then suddenly [it] was on fire.”
As the housing market has boomed, so have shares in construction companies such as Solidere, which owns tracts of prime Beirut real estate, and like other Lebanese stocks is not subject to foreign finance restrictions.
“Many people wanted to finally invest the money they had in their bank accounts into property. This has created a great dynamic real estate market, that resulted in thousands of transactions all over Lebanon and has also helped a lot of building constructors and real estate promoters to get out of debt,” said Philippe Dagher, an entrepreneur and investor.
At the same time, the bank restrictions have prompted the creation of several inventive schemes to take money offshore.
While property owners who have debts in Lebanon are willing to accept transfers from other domestic banks, other buyers and sellers are getting “very creative” about moving funds, said Aya Haddad, another partner at B in Beirut.
So great is the demand for physical money that people are often willing to accept hefty discounts. One property owner asked to be paid with five unsigned checks, so he could exchange them for cash with brokers who would take “a fee of 31 per cent”, recalled Ms Haddad.
One common arrangement is for depositors in Lebanon to agree to pay off a Lebanese bank loan owed by a company outside the country. That firm reimburses them in bank accounts they hold overseas, at discounts of 20 per cent to 30 per cent. One executive said his small advisory firm had brokered $15m worth of deals like this since October.
Any offshoring of foreign currency by elites further exacerbates the country’s financial problems. The BdL already has net negative foreign reserves, which rating agency Fitch said reveals “deep problems in the financial sector balance sheet”.
These creative schemes do not technically remove money from the banking system — rather they shuffle it between banks or cancel out bank loans. But there are widespread accusations that the super-rich with political connections have been able to transfer money abroad, a perception that has fuelled public anger.
“Transferring dollars out of the Lebanese banking system is extremely harmful to the smaller depositors who are unable to do so,” said Joan Chaker, an economist and former money trader. It is not just that rich people are getting away in lifeboats, she said: “The lifeboats are made with material plucked out of the ship’s hull.”
There are also risks for investors. Although many hope to secure value in bricks and mortar, “it’s a bubble”, said Roya Ghossein of B in Beirut. “I think in six, seven months, for the price of today’s flat you can buy maybe two.”