Lebanese real estate sector in state of anticipation

The Lebanese real estate sector is 'the backbone of the economy'.  [Nohad Topalian/Al-Shorfa]

The Lebanese real estate sector is 'the backbone of the economy'. [Nohad Topalian/Al-Shorfa]

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The Lebanese real estate market is experiencing a phase of stagnation after a boom that invigorated the sector between 2005 and 2010.

Observers are waiting to hear how recently-proposed government taxes could affect the sector, which is experiencing its lowest growth rate in more than six years. This came after the Lebanese cabinet in September began discussing a draft law geared towards raising fees on construction permits and imposing taxes on real estate profit, in order to fund public sector wage hikes.

Reasons for the decline

Lack of security and political instability in Lebanon, the impact of the Arab Spring revolutions on foreign investment and the fact some Gulf investors are selling off their Lebanese real estate all contributed to the decline in the sector, officials and experts said.

"The current slump in the real estate market is not the result of increased investment, as is rumoured, or because of taxes imposed on the sector," said Ghazi al-Aridi, minister of public works and transport. "Rather, the political situation has increased the severity of this downturn, causing a cascade of damage in the political and economic sectors, including the real estate sector."

He told Al-Shorfa the real estate market is the "backbone of the economy" and the government must safeguard it.

Instead of imposing taxes, it should better manage the sector and put an end to waste and bribes, as well as resolve outstanding issues like seaside property violations, he added.

Meanwhile, Massaad Fares, president of the Real Estate Association in Lebanon, described the real estate scene from past years.

"After the big boom that occurred between 2005 and 2009, [the real estate market] today is light," he said. "There is still land for sale, and there are still uninhabitable old buildings in need of rehabilitation or demolition."

"But the good thing about the real estate market is that there is not much speculative trading going on," Fares added. "Those who buy property treat it as a home rather than use it for trading purposes. Currently, Lebanese people at home and those living abroad are moving the market."

Imposing taxes on real estate sector

Fares also spoke to the possibility of imposing taxes on this sector.

"They cannot impose taxes because 35% of construction costs go to the state," he said. "[Rather, they need] to approach the building law with a new perspective and methodology, and a global vision, because the current law is very old."

Beirut mayor Bilal Hamad echoed Fares' sentiment.

In Beirut, property sales are almost at a standstill, therefore "it is not a good time to impose such taxes, as there is a noticeable slump because of the current situation in Lebanon and the region," he said.

Demand for big apartments has waned while demand for small apartments has increased, he said.

"Adding more fees to the real estate market will increase the price of land and residential apartments," Hamad said.

If it is absolutely necessary to impose taxes on the real estate sector, then it is best to tax transactions that involve real estate speculation or profits that are recorded in land sales, according to Elie Bsaibes, head of the Beirut Engineers Syndicate.

This is particularly needed since "certain profits are exempt from taxes the consumer must later pay", he added.

Real estate expert Raja Makarem said he hopes the government will postpone raising taxes until a new wave of prosperity hits.

"If the government were to impose taxes on the sector today, stagnation would set in, and then the sector would collapse," he said.

Makarem said it is important to differentiate between those buying property for trading purposes to make a quick profit and those who buy property to own or as an investment. He called for officials to impose taxes on repeated sales that happen over a short period of time.