Welcome to Hayek Group LLC (HG), leaders in civil engineering, procurement and construction (EPC) for buildings and infrastructure projects. HG has a history of almost 60 years in executing prestigious projects in Lebanon
Demand for construction of residential projects will continue to rise. Around the world 200,000 people a day are migrating to Urban areas, requiring significantly more shelter and business accommodations. A report by Report Linker states that the construction industry in the MENA region is expected to reach USD 822.1 Billion by 2024.
The real estate market in Lebanon is challenged with a reduced purchasing power of buyers and a lack of financing for developers as part of a drawback in the global markets and state economies.
Hayek Group believes the new trend in construction is simply “Wealth equals Health” and no more fast-cash projects. Appealing architectural design is not the only interest for buyers, contamination free residence is the new demand where all building services and materials must comply with the most up to date technologies to maintain a healthy atmosphere.
We are developing new building standards and incentives for clients to preserve comfort and convenience. Our current under construction projects are considered to be the first touchless and anti-contamination projects in the country where residents will enjoy reaching their apartments through a touchless protocol system using voice recognition and optical prints and live in a hygienic atmosphere.
The new design criteria represent an evolution in the building industry. Digital transformation is the only option; It calls for a shift in mindset and requires project team to collaborate and perform professional R&D for each project. This includes specific considerations for common areas, services and operations.
By embedding digital technology into design, construction and occupancy of built infrastructure, Hayek Group can ensure that customers get value for money and be willing to pay for it. Both closer vision and implementation are needed, these must be led by developers who understand both disciplines, the technology and the industry.
The new design not only reduces large indoor spaces and circulation zones to comply with the decline in group gatherings and social distancing measures, but also requires the selection of construction materials for contact surfaces to be contamination free especially those exposed to children.
The new design standards will consider the Covid-19 virus control in addition to provisions for possible future air, water and environmental contaminations. The new advanced technology in detecting suspended particles and air quality control system is crucial both inside the units and in the common zones. Water purification and anti-bacterial system is not a luxury operation any more, projects must apply all needed requirements to provide clean potable water supply.
Healthy environment, renewable energy and green building standards are not satisfactory anymore for buyers in this new era; instead developers should consider offering new technologies for a touchless design which seems acceptable and cost affordable. Asian and Western manufacturers are competing to provide innovative systems and reliable applications at a convenient cost which does not hinder the construction cost of the project.
Sanitation is mandatory on a daily basis, this includes personal hygiene for tenants, staff and visitors. It also includes sterility of hallways, corridors, elevators, drop zones, all common areas and parking facilities. Residents also must abide with pets’ cleanliness control plan provided by the facility managers.
To compensate with a minimal extra construction cost, the new design contemplates less security personnel substituted by smugglers detectors and CCTV on 24/7 basis. Residents can also enjoy remote control of their premises through home automation systems and cloud communication network as an extra option.
The real estate market in Lebanon consumes more than 20,000 residential units per year, out of which around 70% are in urban areas. By adapting our new standards, Hayek Group will attract new buyers and will be able to convince them that they will be fully satisfied and will be rewarded their money worth while living in a healthy environment.
October 17, 2019 is known as the starting date of the WhatsApp revolution in Lebanon, where the minister of communication issued a mind-blowing tax on FREE WhatsApp chatting services.
Most Lebanese joined massive demonstrations all over the country and in major cities of the world, where the Lebanese flag conquered the international media.
The state was paralyzed since then and the economy entered into a dramatic trauma. Lebanon must urgently decide on how to deal with fast-approaching debt payments on March 9, including a $1.2 billion Eurobond.
Lebanon’s public debt is equivalent to a record close to 160% of its GDP. Lebanon CDs reached a record unprecedented highs, indicating how alarming the credit default risk is.
After the formation of the new government, a modest decline in the default risk occurred, which is the beginning of some hope being spread out in the midst of this political turmoil. Hopefully, in the next few months, this will start retracing the gains previously made as the new government tackles the upcoming obstacles with serious decision making process, integrity and honesty.
The demonstration’s outcome was beyond expectations, the agony of state corruption by the rulers since 1982 was undoubtedly vibrant, the banking system proved to be dishonored as well, the central bank had its share of criticism due to the massive violations in the absence of any transparent budget and state financial facts. Add to this, all political parties admit their fiasco to resolve the state economic difficulties.
Banks are imposing capital controls on access to cash and blocking transfers abroad, the Lebanese pound has slumped, prices are rising and firms are shedding jobs or cutting wages. Lebanon needed crucial and major structural reforms, Prime Minister Dr. Hassan Diab and his government accepted to undertake the challenge and tackle all duties to overcome the current crisis.
Lebanon is being known as a great survivor, the Lebanese private sector and the Diaspora are two major parameters in the formation of the new Lebanon.
The banking sector needs a complete renovation of its miscarried business model of lending to the government for unreasonable rates, hence updated financial practices and banking regulations are inevitable. The Central Bank must implement a new framework to regain trust from the international community by issuing a periodical transparent regulatory reporting system.
Old political generation and war time parties will become history, and will be replaced by new political leaders from outside the war Lords group.
On the other side of the coin, in maximum 5 years’ period, and due to the tight limitation of imports, the industry will enjoy a golden age, especially food and medical manufacturing.
Agriculture will be a major player on the stage if the government bans imports of competing agricultural products into the market and support the local crops through all seasons.
The devaluation of the local currency will accelerate exports especially to Iraq, GCC, EU and other countries.
Local banks provided $49.8 Billion commercial and mortgage loans to the private sector by end of 2019. The most convenient process for the borrowers to settle their loans is to exchange real estate assets with certified local transfers. This will help consuming a large number of stagnant properties in the real estate market and will open new opportunities for new develo pments.
Clearly, Solidere Shares appreciated 70% of the lows while major Banks lost more than 80% of its value as investors rally up to transition from banking into more tangible assets such as real estate. This could lead to investors paying a premium to acquire real estate assets compared to money in the banks.
If we look at the bond price of Lebanon, given the rise in the bond prices, it will be hard to keep yields and interest rates at those levels which forecasts a cut in interest rates as (hopefully) the market starts to stabilize within the next few months.
Add to all the above, Oil & Gas exploration in block 4 will start by the end of February 2020, the reserves are expected to exceed expectation as per the main contractor’s preliminary analysis.
The reconstruction of Syria will accelerate the transit activities thru Sea, Land and Air Transport. Not to mention the involvement of the Lebanese technical labor force and managerial experts.
Local and international investors are excited to participate in Infrastructure projects on a B.O.T basis, while private and public partnership program (PPP) is expected to cover major transportation, telecom and environmental projects.
Finally, keeping an eye on March 2020’s payment, it is a real financial crisis done by most governments since 1982, but let’s work hard side by side, just the way we did during the Israeli aggression in 2006 and after every tragic event for the past 5 decades, our country will overcome this corruption turbulence as usual.
Thanks to our young generations who joined hands and gave the radical Middle East and the world, a lesson in civilized and peaceful protests like never been before in the area and most advanced countries, quoting from Scorpions band and their classic: “Wind of Change”
“The future’s in the air I can feel it everywhere Blowing with the wind of change”
Lebanon experienced hard times since the mid-’70s, 17 years of civil war, foreign occupations for 23 years, 29 assassinations, an Israeli invasion of the capital in 1982, a long political stagnation and a high scale corruption in the public sector, yet the real estate market potential strength of recovery is still there.
This is a solid proof that the real estate system has an immunity to survive. The new government must save this system by adapting a real estate engineering plan similar to the Central Bank’s financial engineering plan in 2016 and should take necessary measures similar to an international crisis such as the great depression after the US stock market crash in 1929 and the mortgage crisis in 2008.
Central Bank Financial Engineering Plan
The financial engineering plan was carried out between Lebanon’s Central Bank (BDL) and commercial banks in September 2016 with the aim of strengthening banks’ balance sheet and to bring in new $-funds to BDL through banks. The Financial Engineering Operations improved BDL’s balance sheet as well as Lebanon’s credit profile. Some of the main objectives achieved by the financial engineering operations are:
• Strengthening BDL’s foreign currency assets which have reached around $41 billion.
• Banks would be able to constitute additional general reserves and to reach the BDL targeted capital adequacy ratio of 15% (end 2018), which is above the international capitalization requirements (Basel III).
• Liquidity in local currency (LBP) has increased which enabled banks to expand their credit portfolio, especially to SMEs.
• Interest rates have decreased leading to the improvement of the government debt profile by reducing the cost of borrowing and as a result of this improvement, international financial institutions have encouraged their clients (pension funds and asset managers) to invest in Lebanese Eurobonds.
• The financial engineering mechanism improved the balance of payments by turning a cumulative shortage of $1.7 billion in May 2016 into a cumulative surplus of $555 million in September 2016.
• Lebanon’s rating and outlook have changed from negative to stable.
US Housing Catastrophe Plans
State interference in saving the system is vital during any crisis, probably the best-known economic catastrophe in recent history which is the Great Depression, that followed in the wake of the stock market crash of 1929. The national unemployment rate was nearing 25%. Eventually, countless Americans who had lost their jobs lost their homes as well. To solve this growing problem, The Home Owners’ Loan Corporation (HOLC) was created by the government, one of the principal government bailouts of the Depression-era. This federal agency’s main task was to refinance home mortgages that were in default or at risk of foreclosure. The HOLC’s final year in 1936 had provided just over a million new mortgages and lent out approximately $350 billion ($750 billion today). President Roosevelt’s basic philosophy became known as the three “R’s” of Relief, Recovery and Reform.
After house prices crashed in 2008, the Federal Reserve owned $1.8 trillion of mortgage-backed securities (MBS), Buying all those MBS from Fannie Mae, Freddie Mac and Ginnie Mae, The Fed could have bought all 7 million completed foreclosures from 2006 to 2013 for that $1.8 trillion. This operation may have helped Wall Street System but it didn’t help homeowners. The bailouts of 2008 were also politically unpopular, with many critics insisting that government should not intercede in the dynamics of a free market.
Lebanon’s Real Estate Engineering Plan
The real estate system in Lebanon needs an emergency survival plan, this challenge is added to the set of tasks that the new government has to tackle. Such a plan should improve the appetite of the private sector to invest in the real estate market and help new homeowners to finance their homes for 15-30-year period.
The proposed Real Estate Engineering Plan is a necessity to save the long-time healthy real estate sector in Lebanon that survived for the past 60 years. Without such a plan, the real estate sector will consume the remaining market strength until the private sector, once again takes the initiative accordingly.
In order to discuss any plan, facts and data-driven analysis must be performed and priority selection must be implemented based on the figures provided by the market.
Housing Industry Facts
The Central Bank has to lay down clear rules for home loans and should provide an attractive bouquet for expats to inject fresh money.
The Public Corporation for Housing (PCH) is a good example to carry on such loan programs knowing that the default rate was less than 1% in 2018.
In 2016 – 2017 and 2018, construction and real estate activities recorded an average of $8.1B and $2.1B respectively representing 19% of the average GDP for the same period. While Dubai Real estate contributed to 13.6 percent of emirate’s GDP, in the Kingdom of Saudi Arabia the National Transformation Plan aims to raise real estate’s contribution to GDP from 5% in 2016 to 10% in 2020.
Fraction real estate ownership is a promising mechanism to provide investors and homeowners a safe platform which will help increase investment spending into the real estate sector by offering up to 20% of home ownership at discounted rate.
Dispute Resolution Reforms
Real estate disputes in the Lebanese courts take long time before ruling, this matter has an adverse impact on the building industry. The plan must involve a number of possible legal remedies to help Investors overcome this time-consuming matter.
Normally, housing industry disputes end up with negotiation for solutions. If negotiation fails, litigation is often initiated. Mediation is another option which involves the professional intervention of a third-party to help resolve disputes that arise between two or more parties.
Most real estate contracts (such as the C.A.R. or FIDIC form) have an arbitration provision providing for optional binding arbitration. If the parties all initial it, it becomes a requirement of the contract. In arbitration the parties agree to have a supposedly unbiased third person whose decision they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.
Market Demand
Lebanon is a small country (10,452 km2), the real estate and housing activities are mainly in Beirut and surrounding Mount Lebanon District. The market demand is attracted by the business district and the proximity to the job location. Local industries are unlikely to contribute in a large scale to the market trend. In contrast, let’s look at Las Vegas, it has one main industry which is entertainment. If Vegas’s entertainment industry crashes (2008) and the general demand for the city goes down, wouldn’t it be more likely that the real estate market decreases may start occurring?
Another example are Michigan cities that crashed alongside Detroit when the automobile industry tanked. Real estate went down in those cities. Not only did people stop moving there because of it, but people had to move out of those cities! That is where the criticality of the market comes into play.
Finite Analysis of the Plan
Establish a Ministry of Building and Housing
Provisional reduction of all taxes related to property registration including inheritance
A reduction of 50% for Building permit fees and rental values
Update the administrative process of building permits thru an E government system
New regulations to protect buyers of under construction projects
Set a framework to promote affordable housing units in metropolitan areas.
Review all income taxes rates for building industry
Ease of clearance from the social security
A new mechanism to refinancing loans at lower interest rates
Unification of the property evaluation process
Private sector prequalification for building inspection and appraisal
Regulate state agents and real estate brokers activities
Promote Rent with an option to buy mechanism
Allow non-citizen’s property ownership for a limited period
Release official building and housing data for public
Finalize national cadastral plans
Establish a new juridical system for building and housing disputes
Develop an anti-corruption control
Initialize a national city planning and zoning program
Provide incentives for Green technology and energy efficiency measures
Conclusion
The current protests in Lebanon for the past two months injected a new dynamism to the Lebanese and Lebanese living abroad, the call for public reforms and anti-corruption process is demanded strongly beyond expectations for the first time in four decades. Lebanon is a small economy; the country’s GDP is less than the revenues of Pepsi Co ($64.6B in 2018) therefore the international community can easily overcome the small scale current crisis compared to other countries.
The process of oil exploration will start on February 2020, when the expected fields are confirmed by Total, the country’s rating will regain a positive position, Local banks will recover from the cash shortage using their extensive experience in this sector and the country’s economy will certainly recover by adapting a new successful economic model.
Lebanon is expecting a formation of a new government headed by Dr. Hassan Diab an AUB scholar, along with the president General Michel Aoun. For the first time in the modern history of the republic, the selection of the ministers is done as per their high qualifications without the influence of the current corrupted political parties, the newly cabinet will have a chance to uplift the country’s economy and earn the trust of the international donors and creditors and adapt an engineering plan to support the housing and the real estate sector among other sectors, similar to the financial engineering plan of the Central Bank in 2016. If this plan is not implemented it may play a key role in contributing to the downturn and acts as a drag on recovery of the economy.
The free-falling economy, price hikes, and a severe dollar liquidity crunch, 50% devaluation of the national currency and the deteriorating economy, the drain of foreign currency and the banking worries all add up to affect the real estate market which is still holding at the narrowest edge of a downturn correction but for how long?
The ruling
government, was shocked last week by extensive civil demonstrations, leading to
new government regulations which will help the real estate sector.
Lebanese
president General Michel Aoun was elected in Oct. 2016, the government was trembling
in a political stagnation, the real estate sector was hammered by a sever investment
shortage and sales reduction, and the ‘Housing Loans’ restrictions added to the
decline in the purchase power.
Followed by
October 2019 peaceful civil demonstrations across the country the government
released new reforms, the real estate market is expected to reflect a positive disposition
which will drive the building industry into a new era.
The sector
has new challenges in attracting Lebanese expats and non-citizens to invest in
the outcome of the proposed Mackenzie plan and the Cedre’s $11 Billion financing
for infrastructure. The government is challenged in implementing the provisions
of these reforms at the national level in an effective manner. The new
political status will enable the current majority of the council of ministers
to take decisions without any impact from the political dispute in the country.
A New
Momentum
Such an act
of massive civil protests, and the freedom of speech next to none in the region,
we expect a new uptrend in the real estate sector reflecting the freedom spirit
of the people which is highly respected by overseas investors, and a new
building culture which was never been used before, this include the living
style in small units and the balance between the cost and asking price of
developers and the new community expansion into rural areas.
Reforms should
contribute to the prosperity of the sector and the process should expand to
promote new product to the market with green energy incentives to boost
homebuyers’ confidence.
Authorities
should reconsider the complicated process of the building permits and must ease
the procedures of all pre construction process. The government already decided
to have an inventory of public properties which will be an excellent merchandise
for the PPP initiative to provide housing for low income families. Interest
rates hike added to the troubling housing sector, the Central Bank is facing a
serious challenge to monitor the global rates and provide a new mechanism to
provide liquidity to the market.
Parallel to
this, new real estate ventures are expected to reflect the momentum of the Lebanese
market leaders and inject liquidity to the market, CHO by Obegi and Fraction
Real Estate Ownership by Hayek Group and many other initiatives by the Order of
Engineers which is in the process to provide credible field data of the
building licenses along with a national House Price Index.
The easement
of the housing loans pre-qualification process, Insolvency regulations and
property juridical dispute resolution, and bringing clarity to transfer overseas
funds are few among the main tasks of the government.
There are
many economical and monetary challenges for the government to overcome the
current critical conditions of the market. The private sector is in a do
nothing state in view of the higher interest rates offered by local banks
compared to the high risk of investment environment, yet the real estate
tracking history still represents a safe haven for investors.
The inflow
of funds from abroad is a major factor which will affect the market, many Lebanese
regions will benefit from their expats who are well educated and act as highly
paid officials and entrepreneurs, Beirut, Mount Lebanon and the North are
expected to host many investments by its residents. While in other regions local
authorities have to provide investment incentives to attract funds.
The challenges for the next three years of president Aoun’s term could reveal the immunity of the Lebanese resilient market which proved to overcome market crash due to severe political instability and dramatic local, regional and global crises.
The economic bubble that took place in 2007 has left Lebanon
as a major hub for real estate investment in the region, after years of
uncontrolled real estate activity and unsustainable legislations that caused an
excessive housing development and changes in the social structure. The economic
slowdown that started in 2014 is recognizable in the vacant units, concrete
skeletons scattered in Beirut and Mount Lebanon. Current real estate vehicles
and regulations should be altered to tackle the difficulties of financing due
to high interest rates and the absence of housing loans, one of such vehicles
is the Antiparochi System.
The Antiparochi system is a housing system used in Greece, it was empowered back in 1929 by the law of horizontal ownership, according to it a landowner could turn over the plot to a contractor, in order to build a project receiving in exchange an agreed number of apartments and an added 50%-80% of the actual market value of his land after project completion. It is a kind of a social welfare policy of the government, which couldn’t afford to finance directly a social housing program so it invested in this type of semi-informal urbanism, creating favorable conditions and incentives for developers and land owners. This was also a State directive to provide incentives and promote the construction sector as its basic productive activity in the Greek economy.
The mechanisms of exploiting on land were studied
on a case by case analysis without any zoning restrictions. There were special
tax incentives for antiparochi projects that enabled its wide spread
out – it was almost free of tax for the landowners. It can be assumed
that antiparochi was the only funding mechanism of the construction
sector, which outgrew almost independently of the banking credit system.
The Lebanese government is requested to promote
ample vehicles such as the Public Corporation for Housing(PCH) to monitor the
system by which land owners should be given public assurance to protect their
interests, the same was organized by the government of Dubai following the
crash in 2008, this is done by allocating special courts to deal with any legal
dispute among parties in a short period of time. Investors and developers will enjoy
less financing challenges for the entire project if they didn’t pay for the
cost of Land also the government must reduce the bureaucratic administrative
regulations to be less complicated and time consuming.
Is the Antiparochi System the right choice for
investors, amid the current interest rates climb and the in the absence of
subsidized housing loans?
Challenged with a housing culture breaking point, the newly formed government encounters a serious task to reconstitute the real estate and housing sectors based on rules-and-regulations set by the United Nations in 1992 known as Agenda 21 or preserve the old time Lebanese traditions of housing culture and land ownership. Real Estate Culture in Lebanon – 2019
Despite the Lebanese economy’s current market stagnation, reviving the real estate sector is an achievable and necessary task if each of the Lebanese citizens, property developers, banks, investors, and government help to achieve that goal.
انهيار تبعه آخر أحاط القطاع العقاري في لبنان، خصوصا بعد وقف منح قروض الاسكان وتفجر أزمة بعض الشركات العقارية الخاصة التي أعلنت افلاسها وخسارات كبيرة أصابت شركات أخرى. مشاكل هذا القطاع ألقت ظلالها على أكثر من قطاع، وزادت أعباء المواطن الاقتصادية والاجتماعية بأزمة سكنية زرعت في نفسه الخوف من تطور الأزمة وحرمانه من الحصول على مسكن في موطنه.
.jpg)
.jpg)
The new design criteria represent an evolution in the building industry. Digital transformation is the only option; It calls for a shift in mindset and requires project team to collaborate and perform professional R&D for each project. This includes specific considerations for common areas, services and operations..jpg)
.jpg)
.jpg)
.jpg)
To compensate with a minimal extra construction cost, the new design contemplates less security personnel substituted by smugglers detectors and CCTV on 24/7 basis. Residents can also enjoy remote control of their premises through home automation systems and cloud communication network as an extra option..jpg)
Hayek Group 