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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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