Rising input costs put Lebanese real estate beyond reach of Lebanese customers

BEIRUT: Roger and Liliane Rizk, like many Lebanese newlyweds, were looking forward to purchasing a new apartment soon after their wedding. But the prices of new homes have risen dramatically since the couple first started shopping for an apartment about six months ago, when they were able to find suitable apartments for around $50,000. "We cannot afford a new apartment right now because the price has gone up to $65,000," said Roger.

"We currently have two choices," Roger added, "either to buy a second-hand apartment or rent a small new apartment."

The Rizks are not alone. Many Lebanese have been forced to put off plans to buy new homes due to the skyrocketing price of real estate. During the past six months alone, the asking prices for many properties have risen by an estimated 30 percent.

This sharp rise, along with the unstable political situation in the country, has contributed to a recent slowdown in the real-estate market.

The increase in property prices is tied to a number of factors, including the rising costs of construction, the surge in demand in the wake of the summer 2006 war with Israel, the appreciation of the euro, and the rise in the prices of building materials such as cement, steel and diesel oil.

"Home prices have steadily risen as building-material cost have become more expensive. Local buyers hoping to buy low in the unstable situation have been let down," said Patrick Gemmal, chairman and managing director of Ascot Brokers.

The increasing costs of materials have taken a heavy toll on the construction sector.

"Conditions in the construction sector have become more difficult due to several reasons, mainly the fluctuation of building-material prices, such as steel, fuel, asphalt, cement and the materials imported from Europe," said Fuad al-Khazen, the head of the Contractors Syndicate. "In addition, the delay of the public sector in paying ... [its debts to private contractors] makes the contractors suffer from a lack of liquidity as well as the heavy interest rates of loans taken from banks," he added.

The price for a ton of cement averaged $75 in 2006, but can currently exceed $110. Lebanon's three cement producers agreed after last summer's war to set a price cap of $65 per ton, but middlemen charge much higher rates.

The price of steel has also risen, from about $200 per ton five years ago to approximately $800 in the retail market today.

The surge in prices for some materials is fueled by growing demand for building materials worldwide.

The development boom in the Middle East - especially the Gulf Cooperation Council countries - is another factor that accounts for the rising cost of steel and cement.

Alex Demerjian, a steel importer, said local rates were related to worldwide prices that have increased by 25 percent in the past year alone.

"Many emerging countries like China, India, Russia and some others have been recently experiencing a construction boom," Demerjian said, adding that this trend contributes to increasing global demand.

In addition, he said, "the value of the dollar is not what is used to be."

In the past, Lebanon imported steel mainly from Europe, but currently many local importers look to Egypt, which exports at a lower price, to meet local demand. The export price of a ton of Egyptian steel is estimated to be around $680 per ton, about $20 lower than European imports. According to Lebanese Customs statistics, steel and iron imports from Egypt increased from $91,024 in 2005 to $167,076 in 2006.

Energy costs are also having a pronounced impact. The price of 20 liters of diesel oil, for instance, has tripled to LL18,000 in the last few years.

As though all of this were not enough, "gravel and sand prices have been fluctuating according to the government's decisions on whether to open or close the quarries," said Khazen, noting that the vast majority of rock and sand quarried in rural Lebanon is destined for the construction sites in Be