Lebanon crisis endangers real estate investment

Arab stock markets have taken a battering following the conflict in Lebanon, but experts are divided on whether the long term effects will be crippling.

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By  Alicia Buller Published  July 23, 2006

Arab stock markets have taken a battering following the conflict in Lebanon, but experts are divided on whether the long term effects will be crippling. After the first week of the crisis, Egyptian market trading was suspended following a 9.5% crash; Qatar experienced a historical 6% drop; while Jordan and Lebanon each suffered losses of over 3%. At one stage the Beirut stock market had plunged by 11%, forcing regulatory authorities to step in and impose a maximum 5% variation on single day trading. These setbacks have compounded previous losses totaling 26% across the Arab world throughout 2006. The Israel-Lebanon dispute could also prove nebulous for Beirut’s fledgling real estate and tourism sector. UAE investments worth around US$2 billion are currently housed in the Lebanese capital, especially in the downtown Solidere district. The most significant investments are those of the Habtoor Group ($500 million), Abu Dhabi Investment House (US$600 million), and Damac (US$150 million). The multi-billion dollar Habtoor Group confirmed that it had significant investments in the Beirut, but declined to comment further, citing concern over the humanitarian crisis. It is estimated that over US$3 billion of tourism could be affected in the long term by the crisis. As Arabian Business went to press last week, much of the city’s real estate hopes hung in the balance. However, renowned Gulf economy analyst Andrew Jeffreys from the Oxford Business Group was cautious in his evaluation of the economic crisis. “The last major intrusion into Lebanon by Israel brought the real estate boom in Beirut to a stop from 1996-1999. However, the effect on values was relatively benign. Sellers were willing to wait for the economy to right itself, and it was more a case of property values stabilising while sales volumes declined. Should a quick resolution to the crisis be found, then the effect will be relatively small,” he said. “The thing to look out for is whether the downtown area of Beirut is touched. If it is, then perhaps there will be a loss of confidence temporarily from Gulf companies that have invested in the country, though this too will be passing. The developments many of the larger Gulf construction firms have initiated in Lebanon will take years to reach completion, and in that time it is likely that the market will have returned to form.” Meanwhile, Lebanon’s Finance Minister Jihad Azur has said that the damage incurred due to Israeli military strikes on its territory had already cost his already-fragile economy half a billion dollars. “The direct losses due to the destruction, particularly the destruction of infrastructure, have reached US$400 to US$500 million,” he said. The minister added that the Israeli air strikes had dealt a blow to a booming sector of the Lebanese economy because they had effectively halted the tourist season “I think it will be difficult to reach the growth target for this year of four to five per cent that we had been counting on,” he said. Nevertheless, Azur insisted that the Lebanese economy was ‘stable’, in spite of a massive devaluation in the shares of private real estate company, Solidere − which underpins the local market. Jeffreys added that the impact of the conflict would be greatly minimised should the war be limited to Israel and Lebanon, without intervention from neighbouring states. “It may even be that increased energy prices will boost the revenues of these states, increasing liquidity and providing further support to economic growth for the Gulf region as a whole. As long as energy prices remain healthy, and the crisis remains concentrated in the Levant, it is difficult to factor in any real negatives to the surrounding GCC region economies except in terms of the current shaken levels of investor confidence,” he concluded.

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