1 For the past couple of years, the Lebanese upscale real estate industry has been facing a severe crisis, a situation that affected the industry as a whole. The reasons of the crisis are mainly due to factors, such as the inadequacy between supply and demand, the excess in the construction of upscale large apartments, or the high inflation in property prices. And although these reasons predate the 2011 uprisings, nevertheless, and as early as the Summer of 2011, a significant number of developers, and of economic and business experts and magazines, began to use the increasingly deteriorating situation in Syria as the cause for that crisis. And recently, this narrative began to find its way among researchers.

2 This approach is not only simplistic, but also blurs the realities behind the real estate crisis. Additionally, it contradicts the fact that the peak of the latest real-estate boom in Beirut coincided with a period of high political and security instability in Lebanon. Moreover, several indicators points that the real-estate industry appears to be benefitting from the crisis in Syria, and particularly from the flight of the Syrian bourgeoisie and Capital. The latter demand for housing, especially for rent seems to sustain high prices of real-estates, and efforts are under way to attract Syrian investments to the Lebanese real-estate industry.

3 This paper will examine the interrelations between the current situation in Syria and the Lebanese real-estate industry, be it on the level of the discourse or of investments, and with a focus on the role of well to do Syrian refugees. However and to reach this end, the paper will first proceed by putting these interrelations in the historical context of the development of the latest real-estate bubble in Beirut, whose burst occurred on the eve of the uprising in Syria.

The Boom and Burst of the latest Real-Estate Bubble in Beirut

4 Real-estate bubbles are not a recent phenomenon in Lebanon, already at the eve of the Lebanese civil war (1975-1990), a real-estate bubble resulted in around “50,000 empty luxury apartments in Beirut alone.” Post war Beirut witnessed two real-estate booms mainly based on upscale residential housing, and that in parallel to the reconstruction of its Central District. The first boom took place in the late 1990s, while the second began around 2005, and showed signs of stagnation starting 2010.

5 The commencement of the latest boom coincided with the adoption of a new Law of Construction, in 2004, that significantly increased the total exploitation of land, and allowed higher constructions. Many real-estate developers were putting their projects on hold pending the enactment of this Law, in order to benefit from these additions, therefore resulting in surge of construction beginning 2005. Additional factors has to be considered for explaining this boom, such as, in Lebanon, land value is considered the safest in time of political and security instability, or the emergence of new generation of wealthy Lebanese expats. Other factors, such as money laundering, could have boosted the boom, although it is hard to verify its impact and extent. Still, the development of the real-estate bubble is best assessed through the policies of consecutive Lebanese governments since 1990. The construction sector was considered as the engine behind economic growth, and different incentives were offered periodically to the real-estate industry, making this sector the second contributor to Lebanon’s GDP, since 2006. This State policy correlates with the fact that a vast majority of Lebanese politicians invests in real-estate  [1].

6 Beside the Law of Construction, another law played a particular role in the real-estate boom, the Law on Rent. In 1992, a new Law on Rent was adopted, totally liberalizing rents, however contracts signed prior to this date still follows the previous rent control law. Due to the sharp devaluation of the Lebanese currency in the 1980s, the latter rents are far below current market prices, and property owners seeking financial profit were left with few options, mainly to abrogate these contracts according to Article 8-c of the Law 160/1992: The upcoming demolition of the building and the reconstruction of a new one. In densely built Beirut, the real-estate industry took full advantage of this demolition-reconstruction exit strategy. The majority of real-estate operations targeted old buildings with old rent contracts. The ensuing result was the displacement of a significant number of previous residents, as well, the destruction of parts of the city’s built heritage.  [2]

7 New upscale high-rises with large apartments were erected. The starting price of apartments easily reached half a million US dollars, a sum way beyond the reach of most Lebanese. The targeted clientele were Lebanese expats, wealthy foreigners, and Lebanese higher classes, including the real-estate investors and developers themselves. A tight web of relations connects real-estate developers, investors, and a significant number of the real estate clientele, and on many instances they keep on buying from each other. [3] For a considerable number of the clientele, housing is primary a mean to circulate money or to make profit. Land and property speculations accompanied the real-estate boom from the start, and fuelled its development. For instance, in the Achrafieh neighborhood, land prices increased by more than fivefold, during the period 1998-2011, thus ruling out low budget projects, in favor of big investments. At first, this speculation provided investors with huge financial profits. But when land prices reached alarming heights, the same speculation began to reduce the margin of profit. It also brought down the number of clientele, since most “buyers’ budgets could not keep up indefinitely with the rampant price increases.”  [4] All this was accompanied by a frenzy of new constructions, and an ever increase of number of new upscale apartments released on the market.

8 By 2011, the internal dynamics of the real-estate industry have outstretched and exhausted themselves. The bubble bursted, and in 2014 it was estimated that more than 200,000 apartments in Lebanon lay vacant. [5] Nevertheless, this burst was not widely felt due to three main reasons; first, the upscale real-estate sector is nearly detached from the internal Lebanese supply and demand mechanisms, second, the excessive financial gain made out of the boom allows most investors to sustain the shock, and third, due to the continuous stimulus packages offered by the Lebanese Central Bank to this sector. [6] While the burst affected significantly real-estate operations, prices were largely maintained at their high levels, accentuating the already existing discrepancy between the demand and the supply, and giving more the impression that the industry is passing through a stagnation phase, instead of a recession. Still, these prices do not reflect economic realities, and one of the reasons behind the maintenance of high prices would be that investors are clinging on their aspired profit awaiting the anticipated next boom. [7]

9 The development of the real-estate boom, as well its subsequent burst, was mainly due to capitalistic dynamics. The political and security instabilities, be it on the local or regional level, had little effect on this economic bubble. The start of the boom, in 2005, coincided with the end of fifteen years of relative stability in Lebanon, under the Syrian tutelage. The boom grew and prospered in parallel to a series of political and security instabilities affecting Lebanon, from political assassinations, starting with Rafic Hariri’s in 2005, to the war with Israel in 2006, or the civil strife in May 2008. The recession also took place in another, albeit shorter, period of relative stability, in 2010-2011. These periods of stability and instability were short-lived, and had little impact on the boom development, especially that real-estate operations are long term projects that spans over at least five years, besides and during the boom many apartments were sold even before the start of constructions.

10 Prior to 2011, some leading experts raised the alarm on the burst of the real-estate bubble, and that purely on economic ground, as it is the case with JP Morgan’s Paolo Moscovici. Fears of a bubble, due to speculation, were also formulated by the governor of the Lebanese Central Bank, RiadSalameh, as early as 2008. Paradoxically, Salameh kept on issuing contradictory statements, sometimes ruling out the existence of a bubble, and on others warning of the way the boom is developing. [8] However, for the real-estate industry, the causes of the crisis, or of the slightest setback, were always to be found somewhere else.

The changing Discourse on the Causes of the Real-Estate Crisis

11 Lebanese real-estate developers were always reluctant to point to the fundamental deficiencies in their industry. Since the early 2000s, they have been advancing a range of external factors to explain the industry’s reverse. The advanced reasons were shifting through time, depending on the current developments, as it can be traced through examining the evolution of the real-estate industry’s discourse. A prominent and most vocal representative of that industry is ElieSawma, the head of The Building Promoters Federation of Lebanon.

12 Sawmamainly considered the boom as a normal development of the sector, a sort of an adjustment, since in his opinion property was undervalued in the previous years. He seemed not be satisfied with the state of the sector, and periodically asked the State for further facilitation. In April 2006, while he acknowledged that there is a real rush on real-estate, he added that if “the country could have surpassed the political crisis, the demand for properties would have been stronger.” [9] In the wake of the war with Israel in July 2006, and although the real-estate sector recovered immediately, he asked the State to reduce taxation to stimulate the industry. [10] In the summer of 2007, and in the midst of a political deadlock, he sent a letter to the Prime Minister, describing the real-estate sector as in crisis, calling for a political stability and a tax reduction. [11] During the civil strife in May 2008, Sawma raised the alarm of crisis again, and this time due to the flight of a considerable number of Syrian workers, since “it will cost three times to replace them with Lebanese workers.” [12] This repetitive crisis rhetoric contrasts with the exponential development of the boom, and it is best viewed as attempts to obtain further advantages from the State. Furthermore, and on some occasions, Sawma did not hesitate to contradict himself on the fallout of political instability on real-estate industry, as in his 2011 declaration to the Kuwait News Agency: “The asset of the real-estate sector is that it is not affected by the political situation. [...] As long the security situation is stable, there are no negative impacts on the sector.” [13]

13 In May 2011, as signs of the bubble burst began to appear, and with many large constructions project put on hold, Sawma continued to use the political pretext, and this time blamed the delays to form a new government. [14] One month later, he began to use the events in Syria as an additional excuse, claiming that it is reducing the number of Syrian workers in Lebanon. [15] One year later, as the security situation in Syria deteriorated further, the instability in that country was to be found constantly, along the Lebanese political turmoil, in Sawma’s explanations for the industry’s downturn. Nonetheless, and early in 2013, he considered that “others’ misfortunes had positive impact on Lebanon, [it] has become a safe haven for investors, due to the policy of the Lebanese Central Bank.” [16]

14 These declarations, and contradictions, has to be viewed as ad hoc responses for temporal fluctuation of the market, rather than expressing a wider or long term views on the sector situation. Far from depicting realities, this discourse has two aims, first, to attain further advantages or concessions from the Lebanese State, and second a promotional objective, and that through stressing on the strength of the real-estate sector, and constantly pointing to external factors that are hindering its constant growth. In this context, the precarious Lebanese political environment, and recently the war in Syria, presented the industry with the adequate excuses, which blurs and brushes the internal weaknesses of the industry.

15 The causes advanced by Sawma for the real-estate crisis, the political and security situations in Lebanon and in Syria, are widely echoed by most real-estate developers who are keen on refuting the existence of bubbles. This narrative also found its way among economic and business experts. In 2011, Ramco, a leading real-estate advisers company, was explaining the crisis through the imbalances in the sector, especially the excess in constructing upscale large apartments, and pointing that “supply is not meeting demand.” [17] Three years later, these causes disappeared from their reports and statements, to be replaced by the local and regional political instabilities. This narrative is more and more gaining ground, and recently some researchers started to adopt it as the real cause for the adversity facing the real-estate industry.

16 The situation in Syria, and how it will develop, could have in the future a negative impact on Lebanon real-estate sector, however, and as far as October 2014, it does not seem to be the case. Till now, what it looks to be the main downturn caused by the situation in Syria was politically motivated rather than security related. In 2012, Qataris and Saudis nationals were asked by their governments to pull off their investments, in a bid to pressure the Lebanese government. But it seems that this move had little impact on the real-estate sector, since most Gulf sellers insisted on asking high prices, not to mention that they already sold a good part of their “property before the real estate market took a nosedive.” [18] However, the war in Syria did impact real-estate in Lebanon, but in a different way than it is depicted by the dominant narrative.

A much Welcomed Refugee: Syrian Capital and the Lebanese real-estate industry

17 The peaceful uprising that started in Syria in March 2011 has later evolved into a full-fledged war, involving various local, regional and international actors, and resulting in many massacres, massive displacement, and social and economic hardships. This situation has had several repercussions on the neighboring countries, especially Lebanon, where more than one million Syrians sought refuge, adding further strains to the already precarious social and economic conditions of that country. The war in Syria also affected the various Lebanese economic sectors. The tourism industry was hardly hit, but other sectors flourished, such as trade or industry. [19] As for the real-estate sector, and away from the common conception, the impact can be assessed through examining three angles: rent, apartments purchase, and investments.

18 It is estimated that only 17 percent of Syrian refugees live in refugee camps, while the vast majority were pushed to the rent market, adding more pressure on rental prices. A significant number of higher classes Syrian refugees sought accommodation in Beirut, where, and prior to 2011, new-contracts rents had already been soaring in correlation with the last real-estate boom, thus making the city mainly accessible to the well to do dwellers, regardless their nationality. The first wave of Syrian refugees consisted mostly of middle class and businessmen, who opted to stay in hotels, [20] but with the prolongation of the conflict, many switched intorenting apartments. A significant number of this first wave looked for “luxury apartments from between $50,000 to $70,000 per year [...] the rest [looked] for apartments in the range for $18,000 to $30,000.”  [21] This demand raised rent prices of 40 percent during the year 2012. Later on, with the growing flow of refugees and the influx of international aid workers, rent prices kept on growing exponentially, and in April 2014, it was reported that apartment rents in Beirut have increased by 400 to 700 US dollars per month. [22] This surge in demand led some real-estate developers to divert parts of their stocks to the rent market. This was the case, for example, of several unsold newly constructed high-rises in Zouqaq el-Blat neighborhood. [23] Aside from housing rental, many Syrian businessmen began to invest in high-end restaurants in the posh areas of Beirut, contributing further in increasing retail rent prices.

19 The shift to the rent economy alleviated the real-estate industry from part of the financial losses due to the slump in sales. Moreover, a correlation exists between rent and land and apartment prices, and as the real-estate bubbles influenced earlier the upward surge of rental prices, the ongoing increase of the latter is helping to maintain land and apartment prices at their current high level.

20 As for apartments’ sale, it is on a constant decline since 2010, however the year 2012 saw a slight surge in demand by foreign nationals, mainly from wealthy Syrian businessmen purchasing high-end properties. But this tendency, although “not insignificant [it] could not “[shore] up the whole market,” [24] moreover it did not continue on the same pace in the following two years. It seems that many Syrian businessmen were offset by Lebanon’s high prices, and were “more inclined to buy in Cyprus or other European countries that offer residency permit in exchange for buying properties.” [25] However it is hard to assess the share of sales to Syrians and its effect, not only in the light of lack of comprehensive data on this issue, but also because most experts looked at it from a comparative perspective with Gulf nationals purchases during the boom years, thus significantly downplaying its impact. Nevertheless, it is apparent that, with the continuous crisis in Syria, a constant demand exists, “many Syrian businessmen [are] buying rather than renting property because they know they are not going home any time soon.” [26]

21 It will be misleading to consider that apartments purchase by wealthy Syrians will boost the real-estate sector, however this demand is aiding the sector to sustain its high prices, as it was highlighted in an August 2014 report by BankMed: “the increase in real estate demand by displaced Syrian nationals is playing an important role in compensating for reduced local demand, hence contributing to further stickiness in real estate prices.” [27]

22 The third angle, Syrian investments, is the most difficult to examine, since an opacity veils real-estate investments in Lebanon, especially that many investors prefers to operate as silent associates, i.e. to invest in an informal way and unknown to the general public. It seems that the latest real-estate boom was partly fuelled by Syrian investments, and in the past couple of years there were several attempts to attract the fleeing Syrian Capital towards the real-estate sector, as in inviting Syrian businessmen to dinner galas accompanied by real-estate projects presentations. [28] Nevertheless, and due to the secrecy surroundings investments, it is hard to evaluate the success of such endeavor. From another point, Syrian Capital in Lebanese Banks is indirectly contributing to real-estate developments. Lebanese banks invest heavily in real-estates, and many of them own real-estate companies, with the result that any deposit in these banks will have parts of it directed towards real-estate investments. In August 2014, it was estimated that the Syrian Capital in these banks has reached USD 14 billion, [29] a sum that not only benefits Lebanese banks, but that will have a profitable repercussion on the real-estate sector in Lebanon.

Conclusion

23 It is still early to draw a comprehensive picture of the impact of the war in Syria on Lebanon’s real-estate sector, not only the situation in Syria might evolve in a different way, but also with hindsight further information to comprehend the current situation will be revealed. However, and as of October 2014, the real-estate industry seems to be benefitting from the Syrian crisis. The flow of Capital and refugees, the high pressure on rent, the constant albeit modest purchase of upscale property by wealthy Syrians, all these factors are introducing some sort of stability to the real-estate sector and helping it not to plunge further in debacle. This assessment is in line with previous researches on the state of real-estates in Lebanon. Throughout this country’s modern history, real-estates and land were constantly a source of power and financial profit, especially in times of instabilities, during which speculation strives. In the Lebanese civil war, real-estates were one of the pillars of war economy, and up-scale projects abounded, from marinas to high-rise luxury hotels or gated communities. [30] And in the post-war period, real-estate booms were barely affected by political or security troubles.

24 Real-estate crisis in Lebanon is essentially the product of its internal dynamics. However, the real-estate industry keeps on depicting itself as infallible and prone to an ever perpetual growth, only to be hindered by political and security instabilities. Recently in October 2014, NamirCortas, the president of a newly formed association of developersR.E.D.A.L., and to explain the paradox that the industry previously fostered in parallel to these instabilities, had one word as an answer: Syria. [31] This increase use and emphasis on the Syrian war factor is mainly inscribed in the endeavors leading to the anticipated next real-estate-boom. In this context, Syria is providing the adequate argument for a restructuring of the narrative that is gaining ground with the passage of time, and is increasingly adopted by various actors.

25 David Harvey argues that “capital never solves its crisis tendencies, it merely moves them around,” [32] a circulation that often involved geographic or sectorial or other restructurings. What it seems to be at work in Beirut, is a Capital attempting to solve its crisis through a narrative restructuring, a repeat of the same economic bubble, in the same sector, same geography, same conditions of the previous one (s), and without taking any consideration to the previous or the existing deficiencies. ?