Lebanon – Salameh: Real estate boom can’t continue at same pace

(The Daily Star, October 7, 2010)

Central Bank governor Riad Salameh said the real estate boom which Lebanon experienced over the past two years cannot continue in the same pace.

Speaking to Al-Iktissad Wal Aamal monthly magazine, Salameh said the rise in the prices of properties was due to a real demand that coincided with an increase in population and the relative calm in the country.

“I am not an expert in real estate but surely this real estate boom cannot continue in the same pace as we witnessed before over the past two years. But irrespective of the level of prices, there are no immediate risks that will threaten properties in Lebanon because there are no huge bank loans to finance large real estate projects,” Salameh said.

He added that there is no need for real estate liquidation operations because the housing loans which now total $3 billion are less than three percent of the total bank deposits.

Salameh stressed that banks loans earmarked for commercial real estate projects in Lebanon are estimated at $5 billion but this is less than five percent of the total bank deposits.

A leading expert at JP Moran recently expressed fears that Lebanon may see a real estate bubble because the prices are artificially high.

“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 same 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.”

Salameh emphasized that the tense political debate in Lebanon had no effect on the banking and monetary situation.

He noted a sustained flow of funds and capital to Lebanon despite the delicate condition.

However, the chairman of Byblos Bank Francois Bassil warned earlier that banks’ deposits and assists may be gravely affected if the tension escalates out of control, noting that that the flow of deposits is slower than 2009.

But bankers assured The Daily Star that their institutions are in strong position to cope with any situation that may develop in the future. They gave the example of Israel’s 2006 war on Lebanon, adding that deposits returned to the country the moment the war stopped.

Salameh denied that the Central Bank has adopted extra measures to contain any worse case scenario. He said that banks achieved a 20 percent growth in lending to the private sector this year while bank lending to the private sector in the rest of the world has diminished.

Salameh did not deny that there may be consequences if the flow of cash to Lebanon continued at the same pace.

“There may be consequences for this policy [cash flow] and that’s why central banks around the world must try to absorb the excess cash to avoid hyper inflation which could hit consumers,” he said.

Economists believe that Lebanese banks cannot afford to hold more cash because the interest rates have dropped dramatically in Lebanon and all international markets. Interest rates on dollar deposits in Lebanon have not exceeded 3.5 percent and this rate is only given to big depositors.

Interest rates on the Lebanese pound have also dropped but still attract many investors who are gradually switching to the local currency.