REAL ESTATE ZOOM Global property guide annual report Beirut prices are competitive Real estate in Beirut is amongst the cheapest in the world according to the 2008 Global Property Guide's annual report. Beirut ranked 83 out of 115 markets globally and in sixth out of seven markets in the Middle East & North Africa (MENA) region in terms of the Rent-per-Month of a 120 square meter apartment. Beirut's rent-per- month at $1,154 was lower than the regional average of $1,740. Only resale apartments and houses are included in the survey and excluded newly built and pre- sale property prices. The properties surveyed have to be in excellent condition, have good facilities, and have been refurbished or redecorated within the past five years. The valuation data is based on upscale apartments in prestigious areas that appeal to foreign investors or renters. The areas covered include Ashrafieh, Beirut Central District, Hamra, Jnah, Ramlet El Baida, Ras Beirut, and Verdun. Beirut ranked in 62 globally and fourth among ten markets in the region in terms of Roundtrip Transaction Cost, which reflects all costs of buying and reselling a residential property, expressed as a percentage of the property value. Such costs include registration costs, real estate agent’s fees, legal fees, and sales and transfer taxes. Roundtrip transaction costs in Lebanon were at 11.57 percent higher than the regional average of nine percent. In terms of Gross Rental Yield (GRY), Beirut ranked 42 out of 109 countries, which is the annual rent relative to the house price. The survey said the GRY is the return-on-investment before taxes, maintenance fees, and other costs. The survey classified Lebanon's GRY in the ‘good’ category, along with 16 other markets around the world. Five out of seven markets in the MENA region came in the same category. The Price-to-Rent ratio (price of an apartment relative to its rent) was similar to the rest of the regionat close to 13. This ratio reflects the years of rent that are required to buy an apartment of 120 square meters. Yields are moderate at 6.2 percent in central Beirut Last Updated: Oct. 1, 2007 COST ($) PRICE/SQ.M. ($) BEIRUT 1- YIELD Apartments MONTHLY (p.a.) TO MONTHLY TO BUY RENT BUY RENT 7.46 150 m2 185,550 1,154 1,237 7.69 percent 6.32 200 m2 294,400 1,550 1,472 7.75 percent 250 m2 384,000 2,038 6.37 1,536 8.15 percent 6.38 300 m2 462,600 2,460 1,542 8.20 percent 6.31 350 m2 602,000 3,164 1,720 9.04 percent 5.91 400 m2 756,400 3,728 1,891 9.32 percent 5.77 450 m2 878,850 4,226 1,953 9.39 percent 5.21 500+ m2 1,087,000 4,715 2,174 9.43 percent 1 Ashrafieh, Centre Ville, Hamra, Jnah, Ramlet El Baida, Ras Beirut & Verdun Source: Global Property Guide Recent figures show that Beirut yields have dropped to 6.2 percent on the average from 10.2 percent by the end of 2004. Smaller apartments can get higher yields up to 7.46 percent for 150 m2 Yields can go as low as 5.21 percent for apartments of 500 m2 and bigger. Apartments are priced at an average of $1,690 per m2 Price increases as apartment size gets larger. A 500-m2 apartment can sell for around $2,174 per m2 Gross Rental Yields - Lebanon Compared to Continent Egypt 11.35 percent Jordan 9.62 percent UAE 7.72 percent Morocco 7.66 percent Lebanon 7.46 percent Israel 7.37 percent Tunisia 5.62 percent The gross annual rental income, expressed as a percentage of property purchase price. This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs. The properties are 120-m2 apartments located in premier city centers. The gross rental returns (or rental yields) figures published by the Global Property Guide are based on the Global Property Guide’s own proprietary in-house research. Only resale apartments and houses are researched. Yields for newly-built properties are not included. Buyers should expect the rental yields of new properties to be lower than the gross rental yields published by the Global Property Guide. Properties will be in excellent condition, with good facilities, and have been refurbished or redecorated within the last five years. Square Metre Prices - Lebanon Compared to Continent Israel $5,021 UAE $4,066 Tunisia $2,667 Morocco $1,973 Jordan $1,261 Lebanon $1,237 Egypt $406 Average per square meter (m2) prices in $/€ of 120-m2 apartments located in the centre of the most important city of each country, either the: Administrative capital; and/or Financial capital; and/or The centre of the rental market Residential square metre prices published by the Global Property Guide are based on in-house research, using a simple method – we systematically scan web advertisements, looking at offers for sale, and offers for rent, of resale apartments and houses. Properties are in excellent condition, with good facilities, and have been refurbished or redecorated within the last five years. Newly-built and pre-sale property prices are not included. Buyers should expect the prices of new properties to be higher than house prices published by the Global Property Guide. When was this data collected? Click on individual countries to see the data collection date. Rental income tax is low in Lebanon Income Tax Rental income, provided that it is not a business income is taxed at a flat rate of four percent. Deductible expenses include depreciation costs (depreciation of the building is set at 2.5 percent per annum), expenses incurred by the lessor on behalf of the tenants (not exceeding 20 percent of the rental proceeds), and other management costs and charges for administering lease properties on behalf of the tenants (not exceeding 10 percent of the proceeds). Built-Up Property Tax An additional progressive tax called the built-up property tax is levied on net rental income in excess of LL20,000,000 ($13,271). BUILT-UP PROPERTY TAX TAXABLE INCOME, LL ($) TAX RATE 20 million – 40 million 2 percent ($26,543) 40 million –60 million 4 percent ($38,912) 60 million – 100 million 0.5 percent on band over $418,050 900,000 - 1,189,999 7 percent 100 million – 180 million 10 percent Over 180 million 13 percent 3.5 percent on all value over Over 2,699,999 ($1,792,000) $2,699,999 Capital Gains Tax Unless individual taxpayers are trading in real estate, capital gains on real estate are not subject to capital gains or profit tax Buying costs are moderate in Lebanon How high are realtors’ and lawyers’ fees in Lebanon? What about other property purchase costs? Transaction Costs Who Pays? Registration Fee 5 percent buyer Transfer Tax 5 percent buyer Stamp Duty 0.3 percent buyer Municipality Fee 0.25 percent buyer Bar Association Tax 0.1 percent buyer Notary Tax 0.1 percent buyer Lawyer’s Fee LL750,000 ($487) buyer Real Estate Certificate LL10,000 ($6) seller Costs paid by buyer 11.56 percent seller Costs paid by seller 0.01 percent seller ROUNDTRIP TRANSACTION COSTS 11.57 percent seller Source: Global Property Guide How difficult is the property purchase process in Lebanon? Foreign ownership of real estate property is allowed in Lebanon. Foreigners can acquire up to 3,000 square meters (sq. m) of land. Any bigger than this, a prior decree from the Council of Ministers is needed. Foreigners can only own up to 3 percent of the total land area of Lebanon. In the case of Beirut, foreigners can acquire up to ten percent of the total area of the city. A lawyer isn’t always needed in real estate transactions, except when it is more complicated than usual. If the two parties have agreed on the sale, the sale agreement can be drawn up by a notary public or a qualified facilitator, in place of a lawyer. When registering the property, the seller acquires a Real Estate Certificate from the Land Registry. Other documents that may be produced, but not necessary, are: official cadastral map, urban plan certificate from the Municipality and Urban Planning Authority, and tax clearance from the Municipality. If the documents are signed in the notary’s office, to be presented to the Land Registry, the Notary Tax of 0.1 percent has to be paid. If the documents are presented directly to the Land Registry, this cost is no longer required. Footnotes to transaction costs table The round trip transaction costs include all costs of buying and then re-selling a property – lawyers’ fees, notaries’ fees, registration fees, taxes, agents’ fees, etc. Rental law is neutral in Lebanon, but courts are slow For contracts signed after 1992 the law is neutral between landlord and tenant. However it may take two years in court to evict a non-paying tenant. Rents: Can landlord and tenant freely agree rents in Lebanon? The Lebanese rental market can be divided into two broad categories: the old controlled market, and rent contracts signed after 23 July 1992. Rents can be freely agreed between landlord and tenant only in contracts signed after 23 July 1992. These contracts are governed by the chapter on the rental contract in the Code of Obligations and Contracts, whose main feature is contractual freedom (though freedom is restricted in some regards, see below). Contracts relating to built property signed before that date are not free as to rents. They are not covered by the Code of Obligations, but instead by Temporary Law No 160 (promulgated 23/7/1992), which systematized the ‘temporary’ rent control provisions which applied in previous years. Rent contracts for real property exceeding three years must be registered in the real estate registry. What rights do landlords and tenants have in Lebanon, especially as to duration of contract, and eviction? The date of contract signature is important: Contracts signed after 23 July 1992 In this case, the tenant who signed a one-year contract has the right to hold onto the property for three consecutive years. This clause is implied in all rental contracts by article 543 of the Code of Obligations and Contracts, and cannot be avoided. Thereafter, the landlord is entitled to end the contract, or to renegotiate. Excluded from this rule are: Seasonal rents contracts for summering and wintering places. Rent contracts of places presented by employers to their employees. If the tenant benefiting from an extension desires to leave, he should notify the landlord two months before the end of the extended period, by registered exposed mail, or via a notary. Certain other terms are implied in contracts signed after 23 July 1992, but these terms can all be specifically varied by contract: The landlord guarantees the peaceful unopposed use of the rented place by the tenant for its stipulated purpose. He also guarantees relief from any hidden defects that render the place unusable. Minor regular maintenance is the tenant’s responsibility, including minor repairs, e.g. window glass, doors and windows, broken tiles, and decoration. The landlord pays taxes and other dues, unless otherwise agreed. The tenant is obliged to keep the place in good condition, and to pay the rent on time, but the tenant is not responsible for deterioration resulting from ordinary use, force majeure and the elapse of time. Subletting is allowed for the same use unless otherwise stipulated in the contract. The secondary tenant is responsible vis a vis the landlord. The landlord may pursue the original tenant, or the secondary tenant, in which case the original tenant maintains the right to intervene. The contract is cancelled if the tenant uses the place for a purpose different from that stipulated in the contract, or neglects the place so that serious damage results, or if the tenantdoes not pay due rent. The contract does not end upon the death of the tenant or the landlord. Contracts signed before 23 July 1992 In this case, the tenant has the right to continuously renew the contract for the lifetime of Law 160, with rent increases according to predetermined formulae. Law 160 excludes: Rental contracts for agricultural lands and attached buildings Seasonal rents of summer and wintering places Dwellings provided as part of the work contract to employees, whether free or for pay. Rent contracts of villas built after March 25, 1974 Contracts of state and municipal properties Contracts of furnished places specified as ‘touristic’ (Art. 2) The contract is terminated, and the tenant may be evicted, in the following cases: Non payment of rent for two months after being legally notified. Abuse of the property causing damage beyond ordinary use, or violating contract conditions without written approval of the landlord. Total or partial concession of the property, without written approval of the landlord. The tenant acquiring an equivalent residential place, within a distance of seven kilometres. Leaving the property for other than security reasons for a full year without interruption, while paying the rent, and for 6 months, while not paying the rent. For non-Lebanese, leaving the property for six months without interruption. (Article 10 of law 160/90) In case of the death of the tenant, or if he leaves the rented dwelling, he can be replaced by: His spouse, his ascendants and his children who continue to live in the dwelling. Relatives who entered to the dwelling at the beginning of the contract and continue to live therein (article 5 of law 160/90) The tenant may not sub-let except with the consent of the landlord in writing, or unless stipulated in the conditions of the contract (Article 7 of law 160/90). In case of full or partial sub-letting with the landlord’s approval, the rental relationship remains a relationship between the landlord and the original tenant. The secondary contract period ends with the original contract. The landlord may terminate the contract and regain the property, if: The landlord, or for a member of his/her direct family, needs the dwelling for personal use, provided he/she does not own another equivalent property in the same municipal area. The landlord intends to demolish the building and reconstruct the property. In both cases the landlord should pay to the tenant damages of not less than 25 percent and not more than 50 percent of the property value (article 8 of law 160/90) How effective is the Lebanese legal system? EVICTION FOR NON-PAYMENT OF RENT Duration until completion of service of process 1 Duration of trial 912 Duration of enforcement 60 Total Days to Evict Tenant 973 The Lex Mundi Project Legislation The Code of Obligations and Contracts (1932) is the primary source for Lebanese civil law. The landlord-tenant relationship is governed by the chapter on the rent contract. However, in past decades temporary laws were passed to protect tenants. The last of these was the Temporary Law No 160 of 23 July 1992, which regulates rent contracts of built properties signed before its promulgation. Rent contracts signed after 23 July 1992 were liberated, and returned to the jurisdiction of the Code of Obligations and Contracts which establishes general principles, most of which may be modified by contract. Brief History: Recent changes in Lebanese landlord and tenant law Parliament is now studying a new draft temporary rent law to replace Law 160. It would allow contracts signed before 1992 to be renewed by the tenant for eight more years, at which time the landlord would have the option to pay the tenant 20 percent of the property value in return for the tenant moving out, or freely agreeing on a new rental contract. Neither the Owners’ Association nor the Tenants’ Association are happy with the draft law.
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