Real Estate Challenges for the new Lebanese Government, July 2018

Real Estate Challenges for the new Lebanese Government

Is Lebanon Ready for CEDRE Conference?

Is Lebanon Ready for CEDRE Conference?

  On April 6, 2018 while elections will be underway on the ground, Lebanon will be seeking $17 Billion at the Paris IV conference (CEDRE).

A National Infrastructure Investment Program was prepared for this international event, which covers the next 12 years – from 2018 until 2030. The document, which consists of 165 pages, is divided into three phases of 4 years each, phases 1 and 2 target a total of $17.25 Billion, while phase 3 targets an amount of $5.7 Billion, bringing the total amount around $23 billion. The transportation sector represents 33% of phases 1 & 2, while electricity, water projects and wastewater treatment and distribution networks will account for 21%, 18% and 14% respectively. In the third phase, 35% of the funds will go towards electricity (generation and distribution), and 30% will go towards all remaining sectors and land expropriation.

Since 1993, the government has been asking for loans, which were subsidized by international donors. Most of the lending was made to improve infrastructure. Yet, the improvements were evident until recently, 25 years later; the quality of roads has deteriorated and public transit is still out of reach.

If the current government is asking for more loans ($17.25B) for 250 projects from CEDRE and other conventions yielding similar past results, then the economy will be under serious default status in the near future.

Methodology

The report did not emphasize on the important role of municipalities and local authorities in maintaining and funding the infrastructure facilities used by their residents every day.

The ideal way to avoid any economic pressure is to let the private sector play a role in running infrastructure projects.

To achieve that, local companies must participate in build-operate-transfer (BOT) and public-private partnership (PPP) projects using subsidized loans from donor countries, yet the state retains the ownership of these projects.

It is too risky to ask the current administration to manage any large-scale infrastructure and public projects, due to the under-qualified staff and the bureaucracy of the system. If this reality doesn’t change, and corruption remains widespread, then the debt will accelerate and the economy will suffer in the nearest future.

The lack of strategic thinking in the report is reflected by the same approach that was used in the official programs that were done in the past 25 years. There are no noticeable improvements, only the same ideas and recommendations that were said before.

If we invest in building a strong and modern infrastructure system, we can create prosperous cities, towns and suburbs where businesses thrive and people of all incomes and ages can become productive members of society.

Supporting Data

The National Infrastructure Investment Program was based on data and analysis prepared by relevant ministries, which usually employs unqualified staff. The findings were marred by the lack of transparency and biased data.

An example of lack of transparency and biased data is the exclusion of the new expected building licenses from the transportation analysis.

Politics played a major role in this program. One example that highlights this, are the periphery roads around the capital. Such projects were proposed over 30 years ago, with most of the expropriations completed since then. However, these projects never saw the light. If they were executed, then the price of land and residential units in Beirut would be lower and affordable for its businesses and residents.

It is clear that the government lacks the required data and skills for proper design and strategy implementation for infrastructure planning.

The absence of national credible data related to infrastructure and community expansion is simply not a valid excuse for the government.

 Technical Assessment

The report admits that most of the listed small and medium term projects need more feasibility and technical assessments.

Yet, this still hasn’t been done.

The layout and content is not up to the standard, as some tables contain unclear and confusing comments, as well as figures lacking supporting data.

In other cases, design jobs for several projects were completed, but the execution was not planned to be done in the short term, which begs the question: why pay for such designs now if the projects weren’t executed immediately after?

This is one example of corruption and incompetence in money management.

The report also admits that the administrative capabilities of the local authorities “are not qualified to the scope of such a national task”; this seems an odd confession to make at the CEDRE conference among international donors.

The only way to convince the donors is if the financing will go to the private sector, which is highly qualified in the BOT for most of the proposed projects. (Page 87)

The report also states that many wastewater treatment plants were executed but it were inactive due to the lack of experience of the concerned authorities to run such projects. (Page 93)

The report also mentions that the authorities refused to pay the electricity bills, which resulted in the shutdown of these plants. This should simply not be mentioned at a donor conference that will significantly shape Lebanon’s economy for the next decade. (Page 122)

The power generation section was well presented and the data was logical, however I suggest focusing on the PPP option.

The use of Syriatel network and services in North and East Lebanon should be completely blocked, no reason to mention our deficiencies in an international report, this is a simple obligation on the government. (Page 149)

In the telecom section, most of the technical terms were translated into Arabic in a confusing mater (broadband, IMS/LTEA etc.)

Solid Waste management section was not fully covered.

International Experience

An infrastructure report prepared by a state to raise an amount of $17.25B from international donors must be organized and well prepared with supporting data. This report includes general ideas, with unclear figures and confusing costs. It would be extremely beneficial for Lebanon to look at the experiences of other countries and learn from them.

Australia’s National Ports and National Freight strategies provide a useful blueprint for an effective model of public-sector leadership and investment in infrastructure. Launched in 2010 and 2011, these programs aim to coordinate planning and funding across all levels of government for key transportation infrastructure systems, improve quality, and attract additional private-sector investment.

Other countries — including the United Kingdom, Denmark, Sweden and France, have also launched similar infrastructure programs, demonstrating that strong public investment and strategic leadership is a prerequisite for modernizing and strengthening national transportation infrastructure in the context of the highly competitive global economy. The success of these and other countries in making infrastructure investment a national priority can provide several lessons for the Lebanese government.

The report did not cover the economic benefits in clear statistical figures, where reinvesting in infrastructure presents a unique opportunity for the Lebanese economy. While the challenges are great, the economic benefits associated with infrastructure investment can be powerful and sustainable.

Such benefits are:

Employment: $1B investment in infrastructure will provide as much as 25,000 potential new job opportunities in Lebanon. In the first three years following an $83 billion infrastructure investment package in the US, 1.7M job opportunities were created. (ASCE- University of Mass)

Productivity: The positive impact of infrastructure spending on growth has been well documented. A recent study from the University of Maryland, USA, found that every dollar spent generates as much as three dollars in new economic activity. A similar figure could be included in the report if based on a credible analysis of the Lebanese economy.

Competitiveness: The estimated impact of underperforming infrastructure on U.S. households is an average annual loss of $3,100 in disposable personal income, which is associated with a roughly $2.4 trillion reduction in aggregate consumer spending. (US Congressional Budget Office)

Conclusion:

Infrastructure is the backbone of a modern, competitive and productive economy. Although the challenges of maintaining such a complex and expansive system are significant, strengthening the infrastructure presents a crucial opportunity for policymakers to prioritize and reinvest in the critical drivers of future economic growth and competitiveness. The benefits of doing so are substantial: infrastructure creates and sustains middle-class jobs, boosts productivity, and helps attract and retain business investment. I believe that strategic public-sector leadership is indispensable to reversing the underperformance and deterioration of the Lebanese infrastructure, which provides a critical foundation for economic growth and sustained competitiveness.

There is a very limited time to update the report by an Ad-hoc committee of professionals and it would not be an easy task. But it is feasible if the government succeeded in selecting the right personnel to access data from all authorities. The report can be subject to major revision in order to improve the content in line with international standards.

The report is targeting $17B and represents a briefing of 250 projects. However, this amount is in excess of what we expect to generate, in the exception of the $5B for the projects that will benefit the Syrian refugee population.  It must be noted that this emphasis on the Syrian refugee crisis will further incentivize them to remain in Lebanon.

The question now is: will this program convince the donors?

Abdallah Hayek PE

CEO, Hayek Group

Beirut, April 2018

Is Syria’s instability an opportunity for Lebanon?

Is Syria’s instability an opportunity for Lebanon?

قطاع البناء “بخير” رغم تهديدات دول الخليج

http://www.lebanondebate.com/news/359870?utm_source=Joy&utm_campaign=43ec3a945f-EMAIL_CAMPAIGN_2017_11_30&utm_medium=email&utm_term=0_98c8478bd2-43ec3a945f-197731129

يخشى لبنان في ظل هشيمٍ اقتصادي متربّص بقطاعاته من شرارة العقوبات الخليجية، لا سيما بعد الأزمة الحكومية التي تُرخي ظلالها على لبنان منذ أكثر من ثلاثة أسابيع، وترتفع نسبة التخوف اللبناني كلما علَت نبرة التهديدات الخليجية، ومن هذه القطاعات التي يضعها متابعون في دائرة الخطر قطاع البناء في لبنان. ولكن على عكس التوقعات والأحكام المسبقة لا يرى أهل الاختصاص أي واقعية في احتمال تدّني أسعار العقارات في لبنان، لا بل يجدون فرصة متاحة للنهوض بقطاع البناء.

وعن تأثير أي حظر اقتصادي خليجي على قطاع البناء يتحدث الخبير في اقتصاد البناء وصاحب شركة (Hayek Group) المهندس عبداللّه حايك، مشيراً في حديث لـ”ليبانون ديبايت” إلى أنه “بحسب المؤسسة العامة للاستثمار، تبيّن لنا أن حصة المستثمرين العرب في تملك العقارات في لبنان العام 2016 بلغت 16% من جميع الاستثمارات الأجنبية. فقد استثمر السوريون 17,14% من مجموع العقارات والسعوديون 7.4% والكويتيون 5%. وبهذه النسب المتدنية لا يمكن للحكومة السعودية الضغط على لبنان بسحب استثماراتها في القطاع العقاري”.

ويضيف أنه “إلى جانب ذلك هناك المشاريع التي انسحبت منها الشركات الخليجية منذ 2012 ولغاية 2017 ومنها صندوق استثمارات أبو ظبي وغيرها، وقد تم إعادة استثمار هذه المشاريع من قبل مستثمرين لبنانيين، ومن أهم هذه المشاريع بوابة بيروت في الوسط التجاري. أما المستثمرون الخليجيون الذين قاموا باستثمارات عقارية وخاصة في الوسط التجاري وساحل المتن فقد اعتمدوا على تمويل محلّي، وهناك أيضاً المشاريع التي تم تمويلها من عمليات البيع قيد الإنشاء من خلال حملات دعائية قبل البدء بتنفيذ المشروع”.

ويؤكد حايك انطلاقا مما سبق على أن “تأثير أي حظر من قبل دول مجلس التعاون على قطاع البناء في لبنان لا يعدو أكثر من تأثير سياسي وإعلامي ولا يمكن أن يؤدي بأي حال لأزمة في تدهور الأسعار. ويرى بذلك فرصة للدولة اللبنانية للنهوض بقطاع البناء بعد هذه الثقة بالقيادة اللبنانية للأزمات، وبعد إثبات الغطاء الدولي على سلامة الوضع الداخلي”.

ولذلك يقترح حايك على المعنيين القيام ببعض الخطوات التي لا غنى عنها، وهي:

1 – محاربة الفساد في الدوائر والمؤسسات الرسمية المعنية بحركة البناء والعمران.
2 – تحديث البنية التحتية بحسب التطور السكاني والعمراني.
3 – إصدار مؤشر إسكان ومعلومات إحصائية عن حركة البناء.
4 – دعم المؤسسة العامة للإسكان ومصرف الإسكان لتحسين شروط التسليف.
5 – إنشاء المجلس الوطني لقطاع البناء.
6 – تقديم حوافز للمغتربين لشراء عقارات في لبنان عبر قروض ميسّرة.

ويشدد على أن هذه الخطوات “قابلة للتنفيذ في ظل إدارة رئيس الجمهورية ميشال عون والغطاءين الأمني والسياسي الدولي اللذين أثبتا أنهما يحميان لبنان من التجاذبات الإقليمية ويشكلان ضمانة دولية، على اعتبار أن هذا هو المطلب الوحيد للبنان من أجل النهوض باقتصاده العمراني وإعادة ثقة الرساميل وخاصة الطاقة الاغترابية. وهذا بطبيعة الحال سينعش القطاع العقاري وحركة البناء”.

وما يؤكد استعداد لبنان للنهوض من كَبْوته الاقتصادية فهو، بحسب حايك، عودة المغتربين لشراء شقق، “وقد سجلّت نسبة القروض السكنية للمغتربين 34 % في العام 2016، ويُتوقع أن تزيد عن 50 % في العام 2017″، متفائلاً بأجواء استقبال أعياد الميلاد ورأس السنة، التي “قد بدأت في معظم المدن اللبنانية، وهذه الأجواء المميزة لا تتمتع بها أي دولة عربية أخرى وهذا ما يميّز لبنان عن باقي الدول ويجعل منه قبلة لشراء مسكن والاستثمار في الأرض”.

إذاً، لا خوف على قطاع البناء في لبنان، بل خطواتٌ عملية جدية لها أن تنهض بهذا القطاع، وتعيد له أمجاده. فهل ستأخذ الدولة اللبنانية باقتراح أهل الاختصاص، وتتبع بالتالي سياسة جادة لتفعيل هذا القطاع؟

نهلا ناصر الدين | ليبانون ديبايت

2017 –

تشرين الثاني –

30

Gulf Real Estate Investment in Lebanon

Since the beginning of the current year and specifically in the summer season, the Gulf real estate investment in Lebanon has been activated after the issuance of several decrees allowing the Gulf citizens to own properties in several Lebanese regions and particularly in Baabda, Aley, Metn and Beirut regions.

Gulf citizens and the Lebanese immigrants were behind this activity, which superseded all other economic sectors.

These activities are due to the following factors:

–  Gulf citizens invested more than US$ 700 million in all

Lebanese territories and mostly in the Mount Lebanon region by the end

of the first trimester of the current year.

–  The Real Estate activity expanded to cover the regions of Northern

Metn, Bhamdoun, Faraya, Ajaltoun, Faitroun, Baabdat outskirt,

Fakra and Kfarzebian… the investments were concentrated in those regions on villas, private large apartments and some touristic projects. Land purchasing represents more than 20% of the total real estate investment, where 89% were spread as follows: Aley 18%; Metn 18%; Baabda 38%; South 6%; Kesrouan 4%; Zahle 3%; Chouf 1% and Beirut 1%.

–    Beirut Central District (Solidere) has witnessed a Gulf investment

activity on the front coastline, where the price of an apartment

(1000m2 area) is more than US$4.0 million.

–    Last year, the real estate market in Lebanon has witnessed a high level

of Arab activity in purchasing land. 85% of the transactions have

been concluded for more than 900,000m2 of land in Lebanon.

The non-Lebanese buyers of land in Lebanon represent a major factor for the real estate activity… it reflects to a large extent, the direction of the foreign investment. The Real Estate inflows constitute a major source of foreign exchange incoming funds.

As to the nationalities of the Arab new investors, the Saudis recorded an increase of 70% in 2004 and more than 400,000m2 of land purchased up to last June. Most Saudi investment is oriented towards residential and partly on commercial and touristic projects. The UAE acquired about 320,000m2 in Beirut and Mount Lebanon with an annual increase that reached 155,000m2 and the concentration was mainly on touristic projects. The Kuwaiti came on the third rank by purchasing about 235,000m2 of land, which represents 30% increase.

Abdallah Hayek P.E
CEO

Hayek Group s.a.r.l

Beirut – Nov 2004

New Lebanese Real Estate Law

The new Lebanese Real Estate Law authorizes the non-Lebanese to own properties in Lebanon without any restriction or prior or permission up to 3000m2 of land or its equivalence in building surface area depending upon the land zoning and its exploitation coefficients.

This new Law treated the non-Lebanese investor exactly as the Lebanese citizen in respect to registration fee, which has been dropped from 17% to 6 %.
This act is meant to encourage non-Lebanese investors to purchase properties and invest in the Real Estate Market in Lebanon.

Registration of land area.
The non-Lebanese investor can immediately register a plot of land if it is within the 3000m2 area limit.
For any purchase of land, exceeding the 3000m2, the non-Lebanese investor is required to get a special permission from the Council of Ministers upon the directives of the Ministry of Finance.

Ownership of residential apartments within multistory buildings.
The equation that would relate the transfer of the apartment area into land area (maximum 3000m2) is applied as follows; once we know the zoning and the total exploitation coefficient of the plot.
For example:
1) If the area of the apartment is 300m2 and the total exploitation coefficient of its plot is 3.0 then the correspondence of the apartment area would be: 300m2 / 3.0 = 100m2 of land.
2) If the exploitation coefficient is 0.75, then the same apartment area would correspond to 300m2/0.75 = 400m2 of land.
The new law has also specified certain percentages that the non-Lebanese landlords and investors cannot exceed. For this purpose the “Directorate of Real Estate” which is related to the Ministry of Finance has developed a computerized program that allows them to verify that the percentages of land properties purchased by non-Lebanese in the whole Lebanese territory do not exceed the following percentages:
– 3% of the total Lebanese territory.
– 3% of the total area of each Caza.
– But particularly in Beirut, the percentage of land ownership for non-Lebanese has been doubled according to the new law from 5% to 10% of its total land.

It is also worth mentioning that the land ownership to non-Lebanese
family (husband, wife and under age children) is limited to one person only.
As a result of this modern law for Real Estate investment, which has
authorized the non-Lebanese to own property in Lebanon but within rules and
conditions that should be abided to and respected – in order not to abuse, threaten or jeopardize the internal social structure of the country.

In this context, the law has stressed on the non-Lebanese investor who purchased a land to start the construction on it within 5 years and the license will be subject to extension once only by a decree issued by the Council of ministers.

Since the issuance of this new law on May 2001, it has been noticed a significant incoming of Arab and foreign investors and particularly in Real Estate – which had a positive impact on the Real Estate market by bringing it back almost to its normal status of the years between 1992 and 1995. After the September11, 2001 event, despite of the uneasy political conditions, which are still prevailing in the region – the Real Estate and many other economical sectors have gradually regained back some of their previous roles in the region and on the international map.

From the airline and hotel reservations, Lebanon is expecting to welcome more than one million visitors (Lebanese living abroad, Arab and foreign tourists) who are seeking to spend an enjoyable Summer Vacation in Lebanon and to bring back Lebanon to its old days “AS A JEWEL” where the East & West meet – and the cultural sequence and civilizations through history still interact and hopefully Lebanon would remain a “MISSION” and a “LIVING EXAMPLE” of coexistence among different minorities, sects, and religions.

Abdallah Hayek P.E.
CEO
Hayek Group s.a.r.l
Beirut – July 2002

Investing in Lebanon

Optimism is the difficult key word that anybody who is living in Lebanon could accept in the current Economical & Political conditions, but fortunately we in Hayek Group extend our optimism in this country to all our clients in Lebanon, the Arab World & the rest of the world. Things are moving towards stability & promising future especially in the Real Estate market, why is this? 1) Geographically, Lebanon enjoys the most attractive natural terrain in the region from Morocco to Turkey.

2) Politically, this country has the only democratic system in the region. Currently the recent Israeli withdrawal and the implementation of the 425 U.N. resolution and the deployment of U.N. and Lebanese security forces in the South only the blue UN line plus the coming parliamentary elections and the convention of the Donor Countries for the reconstruction of the South, all are SOLID facts and signs for a brighter future.

3) The Real Estate market was never as attractive as it is now, with a wide variety of choices in many region with different areas, specifications & budgets.

4) In the near future, we expect to lose the chance of this opportunity due to the limited number of vacant apartments & the limited area of the exposed land for sale.

Based on these facts, we confirm our optimism in the Real Estate investment in this part of the world as a major non-risky and safe investment. And we strongly urge our clients to involve safely and securely in this market as a mid-term investment.

Abdallah Hayek P.E.
CEO
Hayek Group s.a.r.l
Beirut – Aug 2001

Lebanese Real Estate market still growing despite all

 Lebanese Real Estate market still growing despite all

 I- July War: The Aftermath                                                                   

            

Israel’s bombardment has dealt a devastating blow to Lebanon’s fragile economy, just as it was recovering from a years-long slump.

Israeli warplanes pounded bridges, roads, power plants, ports and grain silos as well as TV and cell phone transmission towers.

Lebanon’s Finance Minister Jihad Azur has said that the damage incurred due to Israeli military strikes on its territory had cost his already-fragile economy half a billion dollars. “The direct losses due to the destruction, particularly the destruction of infrastructure, have reached US$400 to US$500 million,” he said.

Ex-Minister of Finance Dr. Demianous Kattar at a lecture held in Antelias on November 2006 estimated the last war’s damages to be more than $6 billion including both direct and indirect losses. Lebanon without this war he added, was already falling behind evolving regional countries which where once dependent on Lebanon and the Lebanese as middlemen and strategic pioneers.

Also in a preliminary assessment the UN’s FAO organization estimated the damages and losses incurred by sectors of the agriculture and marine life in Lebanon due to the last Israeli war, at about $280 million in addition to the indirect losses of retail markets and job opportunities.

Many shops and businesses, including some major factories in eastern Lebanon that were bombed, have temporarily closed as many employees stayed home.

Even garbage collectors fled the country.

But while the economic and humanitarian impacts of the war were severe Hayek Group as well as many experts; believes that the effects on the country’s real estate sector seem limited.

II- Lebanon’s Real Estate sector stands unaffected

While most economic sectors were striving, the real estate sector in Lebanon preserved an uptrend as the Israeli war had little effects on its market. Instead the market is expected to grow and expand in the near future.

Some brokers insist investor confidence in the market is unshaken while prices remain static.

Most Lebanese and Arab investors preserved their investments in Beirut Central District despite the 34-day war that left 1,200 dead and caused over $3.6 billion in material damages.

With thousands of destroyed houses in the South and the Suburb, construction is expected to increase trickling the development of more affordable housing options outside the BCD.

 

Cairo based EFG-Hermes expressed confidence that the giant real-estate company Solidere will be able to override the negative effects of the war on Lebanon and maintain its steady profits.

It added that there are several reasons for a positive assessment: a very low probability of a resumption of hostilities due to the high costs incurred on both sides; the likely return of Arab tourists, Lebanon’s strong financial position and a

continuous demand exceeding supply. But it warned that such positive outlook is dependent upon domestic political stability.

Such dilemma of unaffected growth in the real estate sector in Lebanon can be attributed to the land restriction or the law of diminishing returns.

Land area in Lebanon is small about 10,452 km² (4,035 mi²), making it the 178th largest country in the world. Most of that area is mountainous terrain, except for the narrow coastline and the BeqaaValley (an integral part of Lebanon’s agriculture).

Moreover Beirut’s area of 19.8 km² compared to Egypt’s Cairo (210 km2) or that of KSA’s Riyadh (1,554 km2) seems very small and signals limited and diminishing investment opportunities.

Add to that the Lebanese Population of about 3,826,018 (July 2005 est.) is constituted of an Age structure of the following pattern:

Compare to USA , Germany and UK

Therefore the majority being middle aged makes them potential customers for lands and housing. Whereas the construction rate although high, does not match the prevailing need; which brings us to an internal growing demand for construction and housing without mentioning commercial and foreign investment inflows.

Consequently as demand increases so do price and as supply shortens you’ll have to delegate more. Presently, the occupancy rate for retail and commercial

space in Beirut’s central district is running at approximately 98%, giving little leeway for business to grow without further construction to ease demand. Added to this is the overheated demand for residential properties in the inner part of the city, where there is almost no supply.

Moreover the inflow of donations, in particular from the Arab Gulf countries, especially the $1.5 billion deposited the central bank by Saudi Arabia and Kuwait strengthened the banking sector such that the ministry of finance rescheduled some taxes and created an SME support fund. Already home owners whose homes where damaged in the war have been granted a 24-month grace period from paying monthly installments on their housing loans.

Therefore rebounding from the devastation of the last war, land sales and construction are expected to become the driving forces in the Lebanese economy.

Finally an early recovery for the real estate market hinges on an improved political situation which will win back investor confidence.

Abdallah Hayek P.E.
CEO

Hayek Group s.a.r.l.

Beirut – July 2006