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The Lebanese housing bubble refers to an economic bubble affecting almost all of the Lebanese real estate sector, whereby property prices have risen exponentially since 2005 (an average 5-fold increase as of February 2010), while the GDP has risen only around 52% during that same period. [1]
The Lebanese GDP per capita is around US$13,000 (after taxes) while the Lebanese working abroad make on average around $30,000 /year (after taxes). A decent housing situation far away from Beirut can cost around $150,000, a decent housing in the suburbs of Beirut can easily cost 4 times that amount, while decent housing in the Beirut Central District could cost millions. Since home prices are rising constantly, many Lebanese and other investors are buying (through a mortgage) houses in order to resell them later (to other potential investors) at inflated prices. This strategy, as well as other deceptive strategies by the real estate agents left many Lebanese, both inside and outside Lebanon, unable to buy property in Lebanon anymore. Additionally, the inflated home prices are leading to an increase in rental prices, further increasing inflation and decreasing the real income of the Lebanese living in Lebanon. Other Lebanese who are end-buyers (e.g. not thinking of reselling their home) are committing to long term and risky loans in order to repay their mortgage. Since the banks only give 60% of the price of the house, [2] the banking system in Lebanon can sustain a decrease of 40% of home prices in case of a bubble burst, this will increase the effect of the bubble burst on the buyer, as sometimes the 40% can constitute one's life savings (as well as his family's).
House prices in decent areas have increased so much that they're currently much more than in luxurious cities in countries enjoying political stability and a much higher GDP per capita. Although the governor of the Banque du Liban claims that the demand is 'real', there does not seem to be a real logic behind the continuous sharp increase in home prices.
Despite slowing local demand, high real estate prices are sustained for several reasons. First, Lebanon's real estate sector faces currently real demand and not much speculative demand. In fact, Lebanese residents account for the largest portion of demand for property. Hence, Lebanon's real estate sector does not encompass high-risk associated with speculative pressure that has been witnessed in other countries during the global financial crisis. This explains the stickiness in property prices, which did not adjust downward, given the continued momentum in demand by end-users despite the slowing overall real estate market. Second, the scarcity of land and mounting construction of luxurious residences exert upward pressure on property prices. Third, the increase in real estate demand by displaced Syrian nationals is playing an important role in compensating for reduced local demand, hence contributing to further stickiness in real estate prices. In order to understand the discrepancy in trend evolution of real estate demand, it is important to study the evolution of average value per real estate transaction. This value has gradually increased over the period 2008–2013. The highest increment was recorded in Metn region, where the average value increased by 107.3% over the six-year period to reach US$213,584 in 2013. Concurrently, the average value per transaction in Beirut region rose by 69.5% in the same reporting period reaching US$499,948 in 2013. Baabda and Kesserwan also witnessed rises in average value per real estate transactions, which reached US$121,913 and US$144,711 respectively. However, while the average selling price per real estate transaction continued to rise in most regions during 2014, Metn and Kesserwan regions witnessed year-on-year declines in average value per transaction each reaching US$194,807 and US$127,614 in 2014. This is attributed to a combination of factors including price adjustment to falling demand and the shift towards smaller-sized property, which lowers the value per transaction.
A speculative bubble reflects a situation in which asset prices are consistently trading at considerably higher values than intrinsic values. The determination that there is a speculative bubble is therefore contingent on the availability of reliable price data and a model to determine intrinsic values.
There are no official and reliable statistics in Lebanon to allow for such an objective determination. While GDP numbers are widely available [3] - US$13,200 (2009 est.) -, there is no reliable real estate price index. There is also no current survey of quality of housing in Lebanon, which could be used to determine intrinsic values for houses. The lack of reliable data shows up in discussions of house prices in the Lebanese press, where in the same article different price increases are cited. [4]
Thus, discussion of the "Lebanese housing bubble" relies on subjective evaluations of the evolution of observed real estate prices relative to their intrinsic values.
In addition, there is no reliable data to estimate the average income of the Lebanese working abroad, complicating the analysis of likely reasons for a possible housing bubble.
The economy of Lebanon has been experiencing, as of late 2019, a large-scale, multi-dimensional crisis, including a banking collapse, a liquidity crisis and a sovereign default. It is classified as a developing, lower-middle-income economy. The nominal GDP was estimated at $19 billion in 2020, with a per capita GDP amounting to $2,500. In 2018 government spending amounted to $15.9 billion, or 23% of GDP.
An economic bubble is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be caused by overly optimistic projections about the scale and sustainability of growth, and/or by the belief that intrinsic valuation is no longer relevant when making an investment. They have appeared in most asset classes, including equities, commodities, real estate, and even esoteric assets. Bubbles usually form as a result of either excess liquidity in markets, and/or changed investor psychology. Large multi-asset bubbles, are attributed to central banking liquidity.
Real estate economics is the application of economic techniques to real estate markets. It tries to describe, explain, and predict patterns of prices, supply, and demand. The closely related field of housing economics is narrower in scope, concentrating on residential real estate markets, while the research on real estate trends focuses on the business and structural changes affecting the industry. Both draw on partial equilibrium analysis, urban economics, spatial economics, basic and extensive research, surveys, and finance.
The 2000s United States housing bubble was a real-estate bubble affecting over half of the U.S. states. It was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011. On December 30, 2008, the Case–Shiller home price index reported its largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States.
A housing bubble is one of several types of asset price bubbles which periodically occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First there is a period where house prices increase dramatically, driven more and more by speculation. In the second phase, house prices fall dramatically. Housing bubbles tend to be among the asset bubbles with the largest effect on the real economy, because they are credit-fueled, because a large number of households participate and not just investors, and because the wealth effect from housing tends to be larger than for other types of financial assets.
A real-estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real-estate markets, and typically follow a land boom. A land boom is the rapid increase in the market price of real property such as housing until they reach unsustainable levels and then decline. This period, during the run up to the crash, is also known as froth. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below.
Flipping is a term used to describe purchasing a revenue-generating asset and quickly reselling it for profit.
The Irish property bubble was the speculative excess element of a long-term price increase of real estate in the Republic of Ireland from the early 2000s to 2007, a period known as the later part of the Celtic Tiger. In 2006, the prices peaked at the top of the bubble, with a combination of increased speculative construction and rapidly rising prices; in 2007 the prices first stabilised and then started to fall until 2010 following the shock effect of the Great Recession. By the second quarter of 2010, house prices in Ireland had fallen by 35% compared with the second quarter of 2007, and the number of housing loans approved fell by 73%.
The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble.
The real economy concerns the production, purchase and flow of goods and services within an economy. It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transactions of money and other financial assets, which represent ownership or claims to ownership of real sector goods and services.
The Spanish property bubble is the collapsed overshooting part of a long-term price increase of Spanish real estate prices. This long-term price increase has happened in various stages from 1985 up to 2008. The housing bubble can be clearly divided in three periods: 1985–1991, in which the price nearly tripled; 1992–1996, in which the price remained somewhat stable; and 1996–2008, in which prices grew astonishingly again. Coinciding with the financial crisis of 2007–08, prices began to fall. In 2013, Raj Badiani, an economist at IHS Global Insight in London, estimated that the value of residential real estate has dropped more than 30 percent since 2007 and that house prices would fall at least 50 percent from the peak by 2015. Alcidi and Gros note; “If construction were to continue at the still relatively high rate of today, the process of absorption of the bubble would take more than 30 years”.
The Indian real estate sector is collapsing due to increasing costs of financing. Real estate projects in India take a long time to complete due to a complicated regulatory mechanism. Several of India's publicly traded real estate firms are in debt. The inventory of unsold real estate assets is growing and it is expected the market will undergo price corrections. According to the Mumbai-based market research agency, Liases Foras, 30% of the transactions in the real estate sector are done with black money. Experts expect new property prices to fall up to 50% in the next three months in Tier 1 cities.
Real estate prices rose drastically from 2002 to 2008 in Poland. Between June 2006 and June 2007 the average price of one square metre of residential area in Warsaw rose from 6,683 PLN to 9,540 PLN, or 50% in euro terms. A peak in prices occurred in autumn 2008 as the average price of a square meter of residential space in Poland started to drop by 5% in nominal terms or 10% per year in real terms.
Observers and analysts have attributed the reasons for the 2001–2006 housing bubble and its 2007–10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan". Other factors that are named include "Mortgage underwriters, investment banks, rating agencies, and investors", "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance" Politicians in both the Democratic and Republican political parties have been cited for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".
Ever since the 1997 Asian financial crisis, property markets have greatly developed through the years. Asian governments have improved the financial stance associated with the structure of housing finance, allowing more access to a diverse range of mortgages products.
The Australian property bubble is the economic theory that the Australian property market has become or is becoming significantly overpriced and due for a significant downturn. Since the early 2010s, various commentators, including one Treasury official, have claimed the Australian property market is in a significant bubble.
The 2005 Chinese property bubble was a real estate bubble in residential and commercial real estate in China. The New York Times reported that the bubble started to deflate in 2011, while observing increased complaints that members of the middle-class were unable to afford homes in large cities. The deflation of the property bubble is seen as one of the primary causes for China's declining economic growth in 2013.
Real estate in China is developed and managed by public, private, and state-owned red chip enterprises.
The Baltic states' housing bubble was an economic bubble involving major cities in Estonia, Latvia and Lithuania. The three Baltic countries had enjoyed a relatively strong economic growth between 2000 and 2006, and the real estate sectors had performed well since 2000. In fact, in between 2005Q1 and 2007Q1, the official house price index for Estonia, Latvia and Lithuania recorded a sharp jump of 104.6%, 134.3% and 106.7%. By comparison, the official house price index for Euro Area increased by 11.8% for a similar time period.
The 2022 Canadian property crash refers to a significant rise in Canadian real estate prices from 2002 to present which some observers have called a real estate bubble. From 2003 to 2018, Canada saw an increase in home and property prices of up to 337% in some cities. By 2018, home-owning costs were above 1990 levels when Canada saw its last housing bubble burst. Bloomberg Economics ranks Canada as the second largest housing bubble across the OECD in 2019 and 2021. Starting in February 2022, prices started to decline rapidly as the Bank of Canada hiked interest rates culminating in detached prices to decline by $400,000 in the Greater Toronto Area by September of 2022.