Alarm raised on Beirut property bubble

Sunday, 3 October 2010 22:26 - - {{hitsCtrl.values.hits}}

Fuelled by artificially high prices, the Beirut property bubble is in danger of bursting, leading experts in the Middle East have warned.

“In Beirut there is a real estate bubble... I think the real estate prices are lofty,” Paolo Moscovici, managing director of JP Morgan private bank in the Middle East, told Arabian Business in an interview published this week. “It is too much too fast,” he said, adding that investors in the Lebanese capital needed to be “cautious”.

This sentiment was echoed by Nick MacLean, managing director of global real estate consultancy CB Richard Ellis in Dubai, who observed that a lot of money from the Gulf states has flowed into Beirut in recent years.

“As a result of the difficulties seen in the GCC there has been an artificial flow of money into Lebanon and therefore prices have been inflated.

“The economy is interesting but perhaps doesn’t justify the quantity of money that has flown into that market place,” he said.

Maclean said the concern was not that prices would tumble, but that the flow of money would dry up when the more mature Gulf markets recover.

“The issue is not that a bubble will burst in terms of pricing, but that once there is a recovery seen in the GCC quite a lot of that money will flow out again,” he predicted.

In May, a report by Lebanon’s Directorate of Real Estate revealed that the number of property transactions in Beirut rose 27.7 percent year-on-year in the first quarter of 2010.

However, the total value of the transactions rose 87 percent and the average value of each transaction was up 46.5 percent, compared to the first quarter of 2009.

The Beirut property bubble and the rise in rental and sales prices has resulted in the Lebanese capital securing the dubious title of the most expensive city in the Middle East - and the tenth most expensive in the world - for expatriates to rent accommodation, according to a recent report by Byblos Bank.

Beirut’s ascent to number ten on the global list compares to a ranking of 28 last year, placing it above cities such as Paris, Abu Dhabi, Amsterdam, Geneva and Rio de Janeiro and just behind Singapore, Osaka, New York City, Moscow, Hong Kong and London.

A banking report in June on the Lebanese property market by Bank Audi warned that real estate prices in the country faced a “downside risk if the political or security situation deteriorates.” –Arabianbusiness.com