BEIRUT: Real estate developers are struggling to cope with a stagnant market in Lebanon amid a cash crunch and an uncertain future. Vacant and unsold apartments in some neighborhoods of Beirut and in many other parts of the country have become a common sight, prompting some developers to lower their prices in a bid to cut their losses.
The crisis was further exacerbated after the Central Bank announced that most banks had exhausted the cash injected by BDL to subsidize housing loans for limited-income families.
Central Bank Gov. Riad Salameh said Monday that nearly $500 million in funds provided by Banque du Liban to banks for housing loan purposes had run out in just one month due to unprecedented demand.
Salameh said BDL had provided banks with the funds, to be used by members of the public to purchase apartments, in February. The funds have already been exhausted, he said.
The Central Bank has been injecting close to $1 billion into the economy since 2009, dedicated for housing loans and the support of startups, to stimulate the economy and help middle-class families buy apartments at affordable interest rates. But commercial banks suddenly stopped providing housing loans at subsidized rates, arguing that the funds for such type of loans have run out.
These banks are now offering housing loans in dollars instead of Lebanese pounds with an interest rate of around 6-7 percent, compared to 3 percent for subsidized loans.
Banks say that the reserves they placed in the Central Bank have been totally depleted and for this reason the lenders can no longer provide loans for customers seeking to buy homes at subsidized rates.
According to Lebanese law, all commercial banks must place 15 percent of their dollar and Lebanese pound deposits in an account at the Central Bank. The Central Bank usually funds the housing loans through the Public Housing Corporation, which is under the umbrella of the Social Affairs Ministry; and the Housing Bank, which is controlled by the leading commercial banks and the state.
Joseph Sassine, the chairman of the Housing Bank, told The Daily Star that his bank is still receiving applications for housing loans.
“We are still giving loans from our own money and under the new conditions stipulated by the Central Bank. The conditions stipulate that the applicant should not own a house in any Lebanese province and have not benefited from a previous loan program in the past,” Sassine said.
The Central Bank also changed the mechanism for obtaining a subsidized loan. Now the beneficiary has to pay an interest rate of 3.75 percent instead of 3 percent, while the period for paying installments has ben reduced to 20 years from 30 years.
“At the end of 2017, the Housing Bank provided LL552 billion worth of loans. But now we cannot give any figure after the Central Bank amended the conditions for subsidized loans,” Sassine said.
He admitted that the ones who were making all the commotion were the real estate developers because they were counting on the Housing Bank to finance the purchase of apartments.
Some citizens have complained that they have made a down payment for unfinished apartments in the hope that they will finance the rest of the purchase through loans from the Housing Bank.
“We have made a $40,000 down payment for an unfinished apartment in the Fanar area. But the developer suspended work briefly on the building until the Housing Bank secures funds to finance the purchase of the houses. We are waiting until the developer completes his project before applying for loans from the Housing Bank,” Rita told The Daily Star, declining to provide her surname for this article.
Her case is one among hundreds – potentially thousands – of cases across all areas of Lebanon.
The Housing Bank said it is now processing previously approved applicants but is still waiting for further cash to handle new applicants.
Raja Makarem, the founder and director of RAMCO Real Estate company, admitted that many developers are facing an uphill struggle to sell their properties.
“We forced to cut our prices just to sell these apartments. If the potential customer told us, ‘Good morning, we have cut the price by 10 percent,’ and if he tells us, ‘Good evening, we have cut it by 20 percent,’ and if he offered to buy the apartment in cash then some of the developers sell these flats at 40 percent. It all depends on how desperate the developer is,” Makarem said.
According to RAMCO, there are more than 6,000 vacant luxury apartments in Beirut alone.
Sassine said that it should be the duty of the state, not the Central Bank, to help citizens buy houses at affordable interest rates.
“BDL’s main duty is to protect the Lebanese pound, keep inflation down and maintain a steady monetary policy. Salameh undertook this initiative to help consumers in light of the crisis engulfing the country,” he added.
But Makarem and other developers ruled out a real estate bubble in Lebanon in the near future and expressed hope that the sector would stand on its feet again once the government takes full responsibility in protecting the sector.
Nassib Ghobril, chief economist at Byblos Bank and head of the bank’s economic research, said the government should inject $500 million to help citizens buy houses at affordable interest rates.
“BDL started this program in 2009 when it allowed the banks to use their reserve requirements in Lebanese pounds to lend at low interest rates. But these reserve requirements have been used and hence banks were obliged to lend in dollars with an average interest rate of 7 percent,” Ghobril said.
He emphasized that the reason BDL subsidized the interest rates was due to the fact that interest rates in Lebanon were high.
“The root of the crisis is the wide fiscal deficit which has led to higher interest rates and lack of political will to reduce this deficit.
“The Central Bank subsidized interest rates to allow the executive branch [government] to find an economic vision for the country. The government took things for granted and they thought these loans would continue indefinitely,” he said.
Ghobril said that the government could allocate $500 million from the budget to help finance the purchase of apartments.
Osama Habib | The Daily Star