Alexander Patterson
Last updated: 17 September, 2012

War and construction in Lebanon

Since 1976, Lebanon has seen some of the most violent confrontations of recent history, with sectarian clashes, land grabs and kidnappings becoming the norm. Civil war and subsequent successive Israeli invasions saw the country become littered with unexploded ordnance, warring militias and the burnt-out shells of buildings. Central Beirut was divided, destroyed and became a wasteland reminiscent of wartime Stalingrad. But despite these upheavals, today the construction and real estate sector has boomed into one of its most lucrative sources of income.

Up till 1975, construction in Lebanon was subject to official regulation regarding dimensions and quality. When war started in 1975 regulation lessened as governmental control, both political and sovereign, gradually became non existent, and illegal buildings began to spring up all over the country. In the early 90s, after a ceasefire had been negotiated between warring factions, the Government was faced with the huge problem of what to do with buildings with illegal extra floors. An enterprising compromise was reached whereby an extra floor was allowed to remain provided the owner paid a fee calculated by taking into account the location, size of the extra floor and price of land. This was named “The Murr Floor”, after Elias Murr, the minister who came up with the solution to this problem. Murr floor fees became an extra allowance which developers incorporated in their budget. When the central Government finally became strong enough to enforce some basic building regulations in the late 90s, the Murr floor was abandoned. However, a large number of illegal buildings still litter the coast line, many empty due to their inferior quality.

Taking advantage of political weakness in order to illegally build is by no means confined to Lebanon, however. One would assume that in Syria, with its recent turmoil, construction rates would drop, due to the risk of investing any money in real estate there. The contrary happened recently when an engineer on a building site in the Hamra district of Beirut found there was a shortage of cement holding up construction. On inquiring about the reason, he was told that cement was being transported in bulk to Syria, as the building industry – “illegal mostly,” he says, was booming, taking advantage of the current lack of governmental regulation. This draws parallels with the illegal construction industry in Lebanon in the 70s and 80s.

Construction is the main continuously profitable investment venue in Lebanon. Risk in many sectors, for example the stock market, export and import, are dependent upon bank status which in turn depends upon the political situation of the area – the economy and politics of Lebanon are often reliant upon its neighbours. Real estate in Lebanon has been shown to be very resilient to outside factors. During the Israel-Hezbollah war in 2006, figures show real estate devalued by only 2.3%.

In 2008 the state of recession in the US and EU lead to a crash in property prices, leading to destabilisation of Western economies and much uncertainty in the market. Meanwhile property boomed in Lebanon. This is largely due to the fact that while construction in other countries is financed through bank mortgages, the Central Bank in Lebanon does not issue mortgages or lending in order to build. Instead, the Lebanese and their outside investors use direct equity to pay for construction, self-financing projects with pre-sale schemes – an example scheme requires a down payment to secure the property, followed by monthly instalments. This negates the necessity for bank repayments and minimises debt, so timetables for completion can be extremely loose. If the right amount of square footage is not pre-sold, then indefinite delays can be placed upon construction, at relatively little cost to the owner and contractor since there is no pressure to sell and repay the debt.

The positive performance of the Lebanese real estate market is dependent upon other factors, too. The population has increased by 25 percent in the last three years and taxes have remained relatively low. There is a much higher demand from the large and wealthy Lebanese diaspora, spurred by improved laws for property transfer and the pullout of Syrian troops in 2005.

Lifestyles have also changed in certain areas around Lebanon. Where previously men and women would live at home until marriage, the modern trend is to live alone.

Figures published by the Order of Engineers in Beirut and Tripoli show that over the first half of 2011, newly issued construction permits reached 8,811,256, up by 4.6% relative to the same period of last year. This growth compares to a much higher 34.1% expansion over the first half of 2010 relative to the corresponding period of 2009. An excessive boom following years of uncertainty coupled with anxiety over current political upheavals in the area and Lebanon’s lack of Government between January and June 2011 combined to flatten the market considerably, highlighting such unsustainable growth.

An example of the reconstruction effort in Lebanon is the Joint Stock Company known as Solidere, which was set up by then-Prime Minister Rafik Hariri. Its intent was to plan and reconstruct the Beirut Central District from its state of devastation following the civil war, and it occupies a special public-private entity from the Lebanese Government. Solidere completed its redevelopment of the Beirut Souks area of Downtown in 2009, and has many projects ongoing, including developing land reclaimed from the sea. Solidere is reportedly worth close to $2 billion, and is the most actively traded company on the Beirut Stock Exchange.

Today, Beirut is a city vibrant and alive with the sounds of progress – car horns and pneumatic drills. Its economy has entered recession this year because of the unrest of the Arab Spring in surrounding countries, but its future is bright, and it owns the second highest gold reserves in the Middle East, after Saudi Arabia. But the scars of life without even a semblance of order can still be seen everywhere. Old but sturdy bullet-pocked period architecture stands next to half-built cheap concrete apartment blocks, facing gargantuan glass and steel edifices of the modern world. This has become modern Lebanon’s trademark: the ability to combine the old with the new, using innovation in every possible dimension to propel itself into the future.