It’s a known fact that the Central Bank gave thousands of Lebanese the possibility of benefitting from real estate credit through loans presenting relatively advantageous conditions. However, through the Central Bank’s decision to tighten the screw, Rony Lahoud – Public Corporation of Housing’s Director General (PCH) – announced the non-acceptance of housing loans applications starting July 9. The rates are going up and the housing market is now almost at a standstill. According to Byblos Bank’s Real Estate Demand Index, Lebanon’s real estate industry is in retreat, facing a lack of incentives to increase demand. It was back in February that the Central Bank decided to reinforce their banking sector’s assets in Lebanese lira deposits, increasing subsidized housing loan rates by 0.5% throughout the process.
Concerning this issue, Nassib Ghobril – Head of Group Economic Research and Analyses and Byblos Bank – said: “Demand for housing in Lebanon is primarily correlated to political stability, consumer confidence, and economic activity”. That explains the deceleration of demands on the real estate market, primarily following Prime Minister Saad Hariri’s resignation back in November of 2017, as well as the impact of the Lebanese Parliament’s ratification of a series of tax increases on consumption, income and profits in October 2017. Ghobril continues by explaining that the tax hikes will negatively impact the willingness of prospective buyers to purchase a house, since it is the most important investment decision for Lebanese people. The real estate market in the country is witnessing a lack of demand and a delay in recovering.
Following that decision, real estate developers have been struggling to cope with a stagnant market in Lebanon amid a crash crunch and an uncertain future. Vacant and unsold living spaces in Beirut, along with other regions, have become a common sight, prompting some developers to lower their prices in a bid to cut their losses.
Moreover, this decision is affecting the country’s citizens, with many finding themselves in a helpless position, having already given a down payment to buy apartments, all-the-while counting on the housing bank to finance the rest of the purchase through subsidized loans. On the other hand, some people have given down payments for unfinished apartments and real estate developers are unable to complete their projects and deliver the apartments due to a shortage in cash. Meanwhile, 30% of Lebanese couples have canceled their wedding following the Central Bank’s decision to stop housing loans, unable to afford both a wedding and a home to live in. Waleed Moussa – President of the International Real Estate Federation said: “Every threat to the real estate sector affects 70 professions related to it, including workers in construction, carpentry, builders and traders in raw materials, among others, leading to a major crisis in the Lebanese economy”.
Now what’s interesting is comparing Lebanon’s housing situation with that of a country that holds a similar GDP: Tanzania. Given that each country has its own dynamics, the important thing to note down is that Tanzania is considered an underdeveloped country, whereas Lebanon is considered to be a moderately developed country, yet both face similar issues in a way. Tanzania hosts a housing deficit as a result of the influx of people to the towns, though Lebanon has thousands of apartments per region, both countries’ homes lack important services, such as electricity and water. Moreover, what make Tanzania’s houses expensive were the additional costs that accompanied a high mortgage interest, as well as the VAT. Tanzania’s people also cannot afford to take loans, but now both countries’ real estate markets are finding it difficult to meet the public’s demands. Tanzania’s solution was designing lower-cost housing units. Lebanon, on the other hand, would have to opt for small-size housing units instead.
It was on Monday that Lebanon’s Parliament proposed a solution: the Future Movement’s parliamentary block submitted a draft law – in coordination with PCH – stipulating that commercial banks lower the costs of housing loans in exchange for a tax break, more precisely, lowering interest rates of up to 5%. However, it isn’t clear on whether or not the Parliament will adopt this decision.