Lebanon Real Estate Newsletter Vol. 3, Issue 10 - October, 2007

It is expected that there will be some positive economic growth in the second half of the year following a recessionary mode in the first half. The meager growth in budgetary revenues, coupled with the demands of reconstruction, has exacerbated the public sector's fiscal imbalance. In the private sector, the real estate and banking sectors have demonstrate their traditional resiliency in the face of adversity. If the political situation permits the implementation of the government's economic reform program, 2007 could prove to be a year of transition to solid economic growth.

Full year 2007: Limited growth expected

         According to Bank Audi's Lebanon Economic Report, the year 2007 has been conceded as a "lost year", although it forecasts that the economy will experience positive but low growth over the full year 2007.

         The International Monetary Fund (IFM) has said that it considers this year to be a transitional phase for the country. It has forecast a growth rate of form 1.5 percent to two percent in 2007. Business Monitor International (BMI), in this latest report for the fourth quarter of this year, forecasts real GDP growth to two percent in 2007. It said that this anticipated growth would be driven by post-war reconstruction activity, rather than an overall vibrant economy.

         BMI said that the economy was in a state of "just getting by", as a result of the weakness in consumer and investor confidence. The Economist Intelligence Unit (EIU), in its updated country outlook report, forecasts that economic growth in 2007 will be less than one percent. It said that the positive mood that prevailed at the beginning of the year had dissipated by September, since the economic reform program was still on hold as a result of the political situation.

         The delay in implementing the reforms has delayed the release of many of the funds that were pledged at Paris III, since most of the pledges were linked to the government's reform program.

Construction slows down

         Construction activity was not very dynamic during the first half. There was a significant decline in construction activity, and the number of construction permits. This signals a significant decrease in the scope of forthcoming projects.
The rising prices of construction material contributed to the slowdown in construction activity.

         The Construction Cost Index increased by almost ten percent in the 12 months ending in June 2007. The inflation of construction materials is largely a result of the construction booms in the Gulf and China, Which are pushing up the prices of these materials. Steel, for example, costs around $800 per ton today, whereas five years ago it cost less than $200 per ton. Cement costs around $110 per ton today, whereas before July 2006 it cost around $75 per ton. Cement deliveries increased during the first semester, due mainly to reconstruction works, as opposed to new projects. The construction sector should experience growth, in view of the large amount of infrastructure work that still remains to be done to repair the war damages.

Real Estate: Resilience in the face of recession

         Real Estate prices increased in the first half of the year. Demand for high-end real estate decreases on the part of Gulf investors, but there was an increased demand for small and medium sized apartments from local buyers, which led to a rise in the prices of prime apartment space in urban centers.

         The average value of property transactions decreased by 18 percent in the first half of this year, in comparison to the same period of last year, which indicates that the increased demand was for less expensive properties. The sector showed resilience in the face of an overall weak economy. "Once the political situation is cleared, the real estate sector can easily witness a boom again." Said the Bank Audi Report.