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In a country where state institutions are almost paralyzed and the specter of war is looming, recommendations for breaking out of the stagnation in the real estate sector are nothing short of hypothetical.
Panelists at the second Annual Real Estate Forum in Lebanon, that took place on Tuesday, highlighted the plethora of challenges facing the real estate sector in Lebanon as well as potential solutions, which, given the current circumstances, remain hypothetical.
The forum, organized by the Syndicate of Real Estate Brokers and Consultants in Lebanon (REAL), indicates that the real estate sector is worthy of the full attention of policymakers given that the tax revenues it generates represent more than 30% of the Treasury’s income, while its share of the GDP ranges between 15% and 17%.
200,000 Unregistered Transactions
Real estate transactions have declined by 82% in the first eleven months of 2023 compared to the same period the previous year. “While the figures are approximate, with around 200,000 transactions recorded by notaries due to the closure of land registry offices, the downward trend is significant and unprecedented in Lebanon’s real estate history,” says Walid Moussa.
Moussa straightforwardly advocated for “the urgent creation of a Ministry of Housing to replace the current Ministry of Displaced Persons, which no longer serves its purpose since the issue of Lebanese displaced people has been fully resolved.” This new ministry would oversee the development of housing policies and the organization of all procedures related to property transactions, leasing, and real estate promotion.
Cash Shortage
That said, the sustainable development of the housing and real estate sector hinges on the availability of market funds to finance housing and real estate promotion. However, Lebanon faces significant liquidity challenges. According to Wassim Mansouri, Acting Governor of the Central Bank of Lebanon (BDL), the liquidity shortage is not exclusive to Lebanon; it has affected the entire Arab world long before the multidimensional crisis that erupted in 2019. Mansouri suggests that resolving Lebanon’s funding shortage requires revitalizing the banking sector, addressing the deposit crisis, and restoring trust between creditors and debtors.
The banks’ restructuring will be ineffective without its integration into a comprehensive recovery plan,” asserts Riyad Obegi, CEO of Bemo Bank, who further explained that currently, the BDL does not allow banks to issue loans using their deposits in Lebanese pounds and fresh US dollars, requiring a 100% provision for new deposits.
Building on an idea put forth by the IMF in one of its reports on the Lebanese crisis, Nassib Ghobril, Director of Research at Byblos Bank, suggested that repaying bank loans denominated in dollars at the rate of 1,507 Lebanese pounds per dollar has resulted in a redistribution of wealth favoring real estate buyers. It’s important to mention that outstanding real estate loans still amount to approximately seven billion dollars in this context.
An Opaque and Dysfunctional Legal Framework
The representative of the Beirut Bar Association, lawyer Abdo Ghossoub, denounced a deficient legal framework, pitting buyers against sellers on one hand, and tenants against landlords on the other. He thus urged officials to swiftly establish a unified exchange rate for the Lebanese pound against the US dollar. “To date, the Court of Cassation has not adjudicated any real estate disputes to establish legal precedent,” he pointed out, noting that judges often resort to mediation or conciliation to settle disputes.
Unified Set of Criteria
Furthermore, Rony Lahoud, Director of the Public Housing Establishment (EPH), stressed the crucial necessity of standardizing technical criteria for real estate valuation. He criticized the current practice, where approximately fifteen state and semi-state entities grant housing loans based on their standards. Lahoud strongly condemned the practice of providing subsidized housing loans to the most affluent, allowing each beneficiary to receive an advance of one and a half million dollars. He emphasized that such practices are uncommon in the wealthiest Arab countries or in European nations.
Automated Procedures
Furthermore, Georges Maarawi, Acting Director General of the Ministry of Finance, stressed the urgency of automating all land-related procedures to reduce administrative burdens and mitigate the impact of potential strikes within public administrations. In practice, the ad hoc work of civil servants in land registry offices over the past two years has resulted in an estimated loss of around two hundred million dollars to the Treasury. In this context, Maarawi disclosed that the World Bank has withdrawn a loan commitment made to Lebanon in 2018 aimed at modernizing administrative processes.
The Parliament’s Apathy
Projects and proposed laws that aim to address the systemic issues in the real estate sector are bountiful. However, Parliament is notably absent and inactive.
The latest bill aims to connect notaries with land registry offices and relevant tax authorities. Its goal is to streamline the registration process for real estate transactions, safeguarding the rights of contract parties and those of the Treasury. This bill has undergone two sessions of discussion by the relevant parliamentary committees and awaits further action.
In this context, relevant examples include the leasing law bill, which has remained dormant in the Chamber since 2012, and the national housing strategy bill dating back to 2018.
