Are apartments in Beirut or Dubai a better buy?
Posted on 03 July 2010 with 2 comments from readers
Dubai developer Damac is teaming up with Versace to relaunch its 28-storey tower project in Beirut looking to cash in on a very different property market to post-crash Dubai.
For since the global financial crisis money has been flowing back into Lebanon despite the war in 2006. Many Lebanese expatriates clearly feel their money is safer in their own war-torn country than in the global financial system, and property is a traditional store of value.
High-end tower
Now admittedly Damac is aiming to build a top-end property in a prime location in the heart of Beirut. But you do have to wonder if its $700,000 one-bedroom apartments are a better deal than buying something similar from a ‘motivated seller’ in Dubai for say half the price.
Is not the Beirut property market close to its cyclical top, while Dubai must be closer to a cyclical bottom? And let us not forget that the commercial and financial hub of the Middle East is Dubai and not Beirut, and that Dubai is also a bigger tourism destination.
Shrewd investors would surely be better off bottom picking in Dubai than falling for a prestige asset in the heart of Beirut, a city not that known for its safety let alone geopolitical security? Of course, Beirut has better summer weather, although a lot less air-conditioning.
Now the value of a designer label like Versace is also not to be ignored. But have these fashion houses not made their billions by over-charging for clothes? Perhaps they can also get away with doing this for homes. But once the glitz wears off you are only left with four walls of a certain size and value.
Cyclical bubble
Only really if you can see the current prosperity of Lebanon continuing long-term would this prove a good buy. Is it not likely to prove more of a cyclical bubble, and highly vulnerable to whatever regional tragedy next upsets its precarious politics and economics? Few cities live under the constant risk that your property might be blown up.
Beirut is certainly well up with Dubai in terms of debts, and with far less commercial infrastructure working to pay them off. So you have to ask whether its apartments are a bargain or a bubble, and the answer must be pretty obvious.
Besides if you are buying off-plan from a foreign investor this risk is surely compounded.
2 Comments posted by readers:
Beirut is the Paris of The ME and not Dubai and will remain so now lets see who will be Monaco of the ME , well Beirut is already 1-0 lets wait and see
Comparing prices between both destinations, the Downtown Area of Dubai a one-bedroom apartment can be had for a price range of 1 million to 2 million Dirham’s or more in locations such as the Address Residences with a Burj view. Given the area of a one-bedroom in Dubai is in the range of 80 to 120 square meters this equates to a simple average of around $2,500 to $6,000 a square meter. In Beirut residential prices range from $2,500 to as high as $12,000 per square meter for very exclusive sea front apartments. The Damac/Versace project will probably have an average price of $5,000 to $10,000 a square meter depending on the floor and view. But keep in mind this is positioned to be an exclusive and unique project in Beirut and there aren’t many like this in the city. Can we compare prices between both destinations? It’s a mixed bag, but we can try to use sound financial logic and market analysis to a draw a conclusion, and mind you there is simply no right answer.
The demographics and buyer profile in both destinations is totally different. Around half of purchasers buying in Beirut are native expats who are the end-users of the apartments. In Dubai much purchasing was done on speculation and easy credit. This leads to another fact. Mortgages in Beirut against residences are very difficult to secure. The easy mortgage terms that speculators in Dubai enjoyed during the boom years are non-existent in Beirut and the majority of high-end apartments are purchased with cash. Speculation is very minimal in Beirut because there is no easy money. This leads to price stability based on sound supply & demand.
As for the argument of cyclical tops and bottoms the author of the article is clueless to some simple economic fundamentals. Easy credit and speculation caused the fantastic boom we all followed in Dubai. The unfortunate security concerns in Beirut depressed prices greatly while the rest of the world was experiencing this great boom so when the situation eased after the 2006 aggression on Lebanon prices quickly “normalized”. Prices did not appreciate in Beirut because of speculation or easy credit, they did because of sound demand that returned to the city from buyers who want to live in the city. The author is inaccurate in the use of the term “bubble” and certainly wouldn’t know how to explain how bubbles form and collapse and why they do. I suggest some reading into Austrian economic theory.
The author should have touched on rental yields in both destinations. Both have horrible yield figures. I would rather rent in Beirut than buy and the same thing goes for Dubai at the moment.
As for Dubai being a financial and tourism hub in the Middle East this is correct. Beirut has absolutely no chance here, but mind you, Beirut is not even trying to achieve this status. But the question is: How is this relevant to apartment prices? Aren’t supply/demand fundamentals and attainment of credit more important to realestate prices? Take Spain as an example. The country witnessed a fantastic boom followed by a depression in realestate recently but it’s still an economic and tourist power-house in the EU. The argument doesn’t hold very well here or at least other factors affect realestate prices more profoundly.
The same applies to the debt situation; other factors affect realestate prices more profoundly. But this is a whole different discussion requiring further careful analysis and figures. But ultimately the debt burden with both destinations is unsustainable and both will face major financial catastrophe now and in the future. I know many Lebanese are totally oblivious to this and it’s unfortunate (read “This Time is Different by Reinhart & Rogoff”).
Now, my opinion on price levels in Beirut is the following. It is very difficult to gauge the situation in Beirut simply for lack of accurate data on construction activity and demand; so knowing whether we have over-supply is very difficult. Most developers in Lebanon have developed a sixth-sense of gauging the market. But, given the boom period of the early 90’s that realestate experienced in Lebanon after the end of the Civil War and the following stagnation, if that period is to be used as an indicator then if there is any over-supply the worst that can happen is another period of stagnation. But prices won’t necessarily drop because developers mostly fund projects with equity and pre-sales and purchasers are native end-users and not speculators.
Ed Note: A lengthy ramble that completely misunderstands the argument. The influx of cash into Lebanon has had exactly the same effect as cheap credit and off-plan speculation in the Dubai boom, and sent prices to unsustainable levels. Hot money comes in and it can go out again. The supply argument is always a bogus one – the availability of cash controls property prices. Beirut prices will come down just like Dubai. It is never different this time and sounds as though you have read this book.