Beirut, the erstwhile “pearl of the orient” and the capital of Lebanon, is the 28th most expensive city in the world. Real estate in Lebanon has been the third most successful sector after banking and tourism, and has gone through significant ups and downs. Towards the end of the previous century, real estate was significantly transfusing blood in the Lebanese economy with its overall overhauling program. But, as it chiefly addressed the upper class and the gulf investors, the demand for small and middle class construction programs remained unnoticed. As a result, Beirut observed a serious inflation and a recession that had weakened the economy considerably. Liquidity vanished from the market and the home owners had to face a serious trouble to sell their apartments at a much lower price than its original.
But from a few years, the picture has started to be reverse. As against the traditional practice of family ownership of the construction industries, a recent trend of professional holding is being noticed. The country has also started to attract international investors again. Market surveys and researches are increasingly done before starting any construction, which was not a usual practice before.
Lebanon, contrary to some its neighboring countries have two additional advantages to attract foreign investments. One, its wonderful seaside position and two, its pro Christian environment are conducive for the European and American investors. Lebanese banking laws are more close to the international banking rules and regulations than those of its neighbors. Apart from the Beirut central district, the adjoining Sodeco, Hamra, Verdun and Tabaris are also enjoying the benefits of the resurrected economy. Beirut Central District and Linord are the two chief construction projects that have been decided to be deployed at the earliest.
While the plush Dubai could not take the blow of the economic downturn, this small state has effectively passed it over. According to the General Manager of the Lebanese real estate giant Solidere, this has been possible because, the Lebanese real estate business has chiefly involved the local people in both purchase and sale. Year 2007 saw the sale of over 4.1 billion dollars of property, as the Investment Development Authority of Lebanon’s statistics suggests. And in the last year, a 40% increase was seen in the real estate price due to huge demand for buying them. Land for construction is very scarce in Lebanon and this added to the price hike. This is a striking contrast with the scenario of the region, which has faced 50% fall down in the real estate price. Lebanese real estate prices are dependent on the developers because the general financial trend is positive, being the liquidity, debt and the balance sheet all are in positive condition.
Monday, August 24, 2009
Monday, August 17, 2009
What is the Role of Banque du Liban and its Governor in the Lebanese Financial Stability?
Banque du Liban, better known as BDL, is Lebanon’s central bank and Riyad Salame is the current Governor of it. In 2005, Salame was entitled as the best central bank Governor in the Middle East by Europe’s leading business magazine ‘Euromoney’, for his appreciable performance in stabilizing the economy of Lebanon.
According to Dr. Salame, the financial model of Lebanon is so powerful that it can withstand any form of financial crisis. The following principles are the basis of this financial model-
Stability of currency: Since the past fifteen years, the currency of Lebanon (called Lebanese Pound) has been completely stable in spite of some political and social unrest.
Rapid growth of banks: The sound growth of banking sectors resulted in the extension of credit confidently.
Strict monitoring: The strict monitoring ensured the transparency in banking sector and enhanced the public trust. For this reason, the deposits in the Lebanese banks are currently worth of more than three times than the local economy.
Payment by the state: The Government paid back the debts which in turn, increased the credibility of Lebanon in the global market.
Salame said that they limited the range of credit that a bank could provide of their deposit. They fixed the limit up to 70% but international banks exceeded 100% of their deposits. Adding to that, dependence on interbank was lesser in Lebanon than in other foreign countries.
He noticed that bankruptcy could affect the global financial system negatively as it reduced the credibility of the banking sectors in global market. The price hike of oil collapsed the financial leverages. As a result, jobs and assets of countless people throughout the world were lost. He suggested a possible solution could be to extend the credit in stead of just mere speculation.
Dr. Salame stated, “There are problems in the Lebanese economy, yet its financial system has grown significantly and has been able to withstand the financial crisis.”
The problem of Lebanese economy was the rapid growth of public debt. Security was also another important factor. Having these drawbacks, Lebanon succeeded to achieve an economic growth of almost 8% in 2008 and expecting more than 4% in 2009. The prudent policies of BDL headed by Salame himself played a vital role behind it. The banks loaned up to 85% of the size of economy. The provision of huge credit helped the whole nation to weather the global economic downfall successfully. The public debt was reduced as some Lebanese institutions and CBL bought a large fraction of total debt. In this way, the country risk was reduced by 2-3%. He opined that the new Islamic banks would help to develop the economy considerably. Salame was in favor of introducing a global currency because a stable currency contributes a lot to strengthen the national economy.
The economy of Lebanon is a true example of that.
According to Dr. Salame, the financial model of Lebanon is so powerful that it can withstand any form of financial crisis. The following principles are the basis of this financial model-
Stability of currency: Since the past fifteen years, the currency of Lebanon (called Lebanese Pound) has been completely stable in spite of some political and social unrest.
Rapid growth of banks: The sound growth of banking sectors resulted in the extension of credit confidently.
Strict monitoring: The strict monitoring ensured the transparency in banking sector and enhanced the public trust. For this reason, the deposits in the Lebanese banks are currently worth of more than three times than the local economy.
Payment by the state: The Government paid back the debts which in turn, increased the credibility of Lebanon in the global market.
Salame said that they limited the range of credit that a bank could provide of their deposit. They fixed the limit up to 70% but international banks exceeded 100% of their deposits. Adding to that, dependence on interbank was lesser in Lebanon than in other foreign countries.
He noticed that bankruptcy could affect the global financial system negatively as it reduced the credibility of the banking sectors in global market. The price hike of oil collapsed the financial leverages. As a result, jobs and assets of countless people throughout the world were lost. He suggested a possible solution could be to extend the credit in stead of just mere speculation.
Dr. Salame stated, “There are problems in the Lebanese economy, yet its financial system has grown significantly and has been able to withstand the financial crisis.”
The problem of Lebanese economy was the rapid growth of public debt. Security was also another important factor. Having these drawbacks, Lebanon succeeded to achieve an economic growth of almost 8% in 2008 and expecting more than 4% in 2009. The prudent policies of BDL headed by Salame himself played a vital role behind it. The banks loaned up to 85% of the size of economy. The provision of huge credit helped the whole nation to weather the global economic downfall successfully. The public debt was reduced as some Lebanese institutions and CBL bought a large fraction of total debt. In this way, the country risk was reduced by 2-3%. He opined that the new Islamic banks would help to develop the economy considerably. Salame was in favor of introducing a global currency because a stable currency contributes a lot to strengthen the national economy.
The economy of Lebanon is a true example of that.
Sunday, August 16, 2009
How stable is the Lebanese Financial Market?
The global recession has affected more or less the economy of all leading nations of this planet. During this global crisis, the economy of Lebanon has shown a prominent rigidity to weather it successfully. The domestic economy of Lebanon didn’t have any direct openings to the affected financial global market or products. As a result, it hasn’t undergone any considerable impact of current global crisis.
Two main challenges that Lebanon faced were- the huge amount of public debt and the large financial requirement of the contemporary Government. But the smart and prudent economical policies helped the country to overcome the external effects. These meticulous policies covered three aspects:
- A prudent policy of interest rate,
- Utilization of primary surpluses,
- Stringent supervision of Economy.
The primary surpluses considerably have been reducing the ratio of debt to GDP by approximately 20% for last three years. The Government has retained an optimized rate of interest for backing the continuation of deposit inflow, transformation of dollar into Lebanese pound (or dedollarization). The government has also emphasized on the empowerment of the country’s external position among the leading nations. A strict supervision of economy protected the domestic banks from interacting with the outer global markets, affected international banks and foreign productions.
Still there are some challenges that demand the immediate attention of Government like boosting the international reserves, proper fiscal consolidation (as it lowers the monetary stabilization cost) and powerful donor support.
The above stated policies contributed a lot to retain confidence in the economy of Lebanon even during this acute recession. The deposit inflows haven’t been affected except the initial pause. The rate of transformation from dollar to Lebanese pound has grown gradually. The banking services have passed through the global crisis with ease. The BDL (Central Bank) has succeeded to acquire international reserves without facing much difficulty. During the Lehman failure, Eurobond spreads reached a peak level but have been come down astonishingly after that.
The high rate of currency transformation has stabilized the local currency and the economic growth of Lebanon is still continuing remarkably despite the struggle of the leading nations to overcome the impact of the global recession.
Two main challenges that Lebanon faced were- the huge amount of public debt and the large financial requirement of the contemporary Government. But the smart and prudent economical policies helped the country to overcome the external effects. These meticulous policies covered three aspects:
- A prudent policy of interest rate,
- Utilization of primary surpluses,
- Stringent supervision of Economy.
The primary surpluses considerably have been reducing the ratio of debt to GDP by approximately 20% for last three years. The Government has retained an optimized rate of interest for backing the continuation of deposit inflow, transformation of dollar into Lebanese pound (or dedollarization). The government has also emphasized on the empowerment of the country’s external position among the leading nations. A strict supervision of economy protected the domestic banks from interacting with the outer global markets, affected international banks and foreign productions.
Still there are some challenges that demand the immediate attention of Government like boosting the international reserves, proper fiscal consolidation (as it lowers the monetary stabilization cost) and powerful donor support.
The above stated policies contributed a lot to retain confidence in the economy of Lebanon even during this acute recession. The deposit inflows haven’t been affected except the initial pause. The rate of transformation from dollar to Lebanese pound has grown gradually. The banking services have passed through the global crisis with ease. The BDL (Central Bank) has succeeded to acquire international reserves without facing much difficulty. During the Lehman failure, Eurobond spreads reached a peak level but have been come down astonishingly after that.
The high rate of currency transformation has stabilized the local currency and the economic growth of Lebanon is still continuing remarkably despite the struggle of the leading nations to overcome the impact of the global recession.
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