Beirut rises again

After ruinous war with Israel, city’s real estate market picks up thanks to investment from U.S., Middle East

Dec.December 31, 2007 01:27 PM

International media reports frequently portray Beirut as a city on the verge of a breakdown. In the past two years the capital city of Lebanon has been at the center of a ruinous war with Israel and has suffered a slew of political assassinations.

Meanwhile, a year of massive protests has hobbled downtown, a former luxury retail hub and home to the country’s most valuable property. Looking around the city in the summer of 2006, one United Nations spokesman offered this grave assessment: “Fifteen years of reconstruction and rehabilitation – [gone] in a month.”

It would be logical to conclude that Beirut’s real estate market would be in the doldrums as a result of the violence. Yet that’s not exactly what’s happening.

Immediately after the war, high-end property sales did indeed shrink. Some high-profile projects, like the 29-story La Residence collaboration between Damac, a Middle-Eastern firm, and Ivana Trump, ex-wife of New York City’s flamboyant developer Donald, stalled. Since the official groundbreaking 18 months ago, when at least 30 percent of units were pre-sold, there’s been no activity at the building site. (However, the company has pledged the project is moving forward.)

Nonetheless, Beirut’s real estate market is picking up again. These days over 200 apartment complexes are in various stages of development, including luxury high-rises. Also, prices of prime residential property have risen steadily since the war in 2006.

It’s a turnaround sparked by investment from abroad, including the loyal Lebanese Diaspora population, estimated to number 3.7 million spread across the Middle East and U.S. But the story of the capital’s latest revival also reflects the struggle between the United States and Iran for Middle Eastern hearts and minds, which is playing itself out through the city’s latest round of post-war reconstruction.

The reconstruction

Outside of the luxury residential niche, entirely different, and political, dynamics are structuring Lebanon’s property markets.

To spur private development, a year ago the U.S. government pledged $230 million worth of rebuilding assistance. So far, 80 bridges and 94 roads have been repaired. The most high-profile U.S.-sponsored project has been the construction of the Mdeiraj Bridge on the road between Beirut and Damascus.

To bolster public support for Fouad Siniora, Lebanon’s prime minister, the U.S. is also financing infrastructure and technical assistance projects in Beirut’s Christian and Sunni suburbs.

Defending reconstruction projects in Beirut, a U.S. diplomat recently said, “Our involvement aims to undermine Hezbollah [the radical military-politcal group] influence; accordingly, the U.S. believes that the costs of not being involved in Lebanon outweigh the potential negative risks.”

Iran, meanwhile, has dispatched its own team of engineers to restore infrastructure in South Lebanon. Observers say the aim of these projects is to shore up control of the Shiite-Muslim neighborhood of Dahiyeh on the southern outskirts of the capital.

Immediately after the war, Hezbollah’s engineering wing, which was added to the U.S. terror watch list last fall, established a special branch to oversee the rebuilding of about 4 million square feet of damaged commercial and residential buildings in Dahiyeh.

According to Beirut real estate brokerages, prices have spiked nearly 50 percent in the last two years. The 2006 war slowed sales, but prices have risen between 15 and 20 percent in Christian and Muslim neighborhoods since then.

The number of property transactions throughout the country also increased, from about 29,200 in the third quarter of 2006 to 36,600 during the same period in 2007. Beirut accounted for 33 percent of total sales, according to figures from the Lebanese Order of Architects and Engineers, the body responsible for granting building permits across the country.

Still, luxury stores, nightclubs and five-star restaurants that were once packed with Gulf tourists stand vacant behind five-foot-tall coils of barbed wire and machine-gun-toting Army patrols.

For the past 15 months, thousands of Hezbollah demonstrators have camped out in protest of Siniora’s Western-backed administration, just a few blocks from the sites of La Residence and planned skyscrapers set to house global hotel chains like the Hilton and Four Seasons.

While the ranks of government opponents have dwindled, the so-called “tent city” has taken on the signs of permanence, with plain-clothes Hezbollah security guards manning the makeshift checkpoints surrounding the tent city, now fitted with temporary water pumps, bathrooms and street vendors to accommodate protestors.

A makeshift soccer league has even been established that plays weekly games in the empty plot that was to be the site of a $600 million mixed-use development. Yet land still runs between $8,000 to $10,000 per square meter, making it the most expensive real estate in the capital.

The average price of new 650 to 750 square foot units in prime locations of the capital is about $610 per square foot, according to estimates from Ramco, a Beirut-based real estate company. In practice, that means a Beirut pied-à-terre costs between $400,000 to $600,000, whether in the well-heeled, Sunni neighborhood of Verdun or across town in the more bohemian areas like Tabaris, a Christian neighborhood where residents primarily speak French.

Guillaume Boudisseau, a consultant for Ramco, estimates that the Lebanese Diaspora, including many Americans, initiated between 50 to 60 percent of all real estate transactions in Beirut in 2007.

“In the prime residential segment, especially the Beirut seafront, many projects have been suffering, as Arab would-be buyers and wealthy Lebanese customers have decided to postpone their previous plans to buy an apartment,” he said in a phone interview.

“But contrary to expectations, real estate prices have not been negatively affected by the political and security situation, and have actually increased by 15 percent to between $400 to up to $1,800 per square foot in new residential buildings.

“Nobody is selling land right now, [because] people know that no one is benefiting from the situation, so it cannot last like this. I’m receiving calls from investors in Lebanon, the Gulf and Middle East every week asking if I want to sell.”

Sustained demand for real estate in Lebanon also stems from the relative stability of residential prices compared to neighboring countries, said Central Bank governor Riad Salameh in October.

A steady influx of Iraqi refugees in Syria and Jordan has sent prices there skyrocketing, making real estate in Beirut, what was once one of the glitziest destinations in the Middle East, look surprisingly affordable.

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