Demand for residential real estate in Lebanon dropped in the second quarter of 2020 to its lowest level on record, as reflected by the results of the Byblos Bank Real Estate Demand Index. The Index posted a monthly average of 9.6 points in the second quarter of 2020, constituting a decrease of 65% from 27.3 points in the first quarter of 2020 and a decline of 79.4% from 46.5 points in the second quarter of 2019. The second-quarter results constitute their lowest level on record. Further, the Index dropped by 91.7% year-on-year to a record low of 3.7 points in April 2020, while it dropped by 76.1% annually to 12.5 in May and by 70.6% to 12.6 in June 2020.

The Index's average monthly score in the second quarter of 2020 was 92.7% lower than the quarterly peak of 131 points registered in the second quarter of 2010, and came 91.3% below the annual peak of 109.8 points posted in 2010. Also, it was 83% lower than the Index's monthly trend average score of 56.8 points since the Index's inception in July 2007.

The demand for residential real estate dropped sharply during the second quarter of 2020 despite the migration of some deposits out of the banking sector towards real estate since last November, which suggests that the stock of residential units remains significantly higher than the actual demand and that the purchasing trend is originating mainly from a relatively limited number of buyers.
  
The steep drop of the Index was due to the ongoing deterioration of socioeconomic conditions as a result of the government's limited action to tackle the prevailing economic crisis, as well as to the lockdown measures and the shutdown of the economy amid the outbreak of coronavirus in the country. These factors have shifted the attention of citizens away from major investment decisions, such as acquiring or building a residential unit. In addition, the inflationary pressures from the weakening of the Lebanese pound's exchange rate in the parallel market eroded the purchasing power of citizens and made potential real estate buyers reluctant at best and unable at worst to acquire or build a residential unit, as they have been forced to address more urgent and basic needs, even though Lebanese citizens consider real estate historically to be a hedge against inflation. Further, the government's limited efforts to develop a comprehensive housing policy along with measures to stimulate demand for real estate, have deterred demand. 

The answers of respondents to the Index's survey questions in the second quarter of 2020 show that 1.1% of Lebanese residents had plans to either buy or build a residential property in the coming six months, down from 3.1% in the first quarter of 2020 and compared to 5.3% in the second quarter of 2019. In comparison, 6.4% of residents in Lebanon, on average, had plans to buy or build a residential unit in the country between July 2007 and June 2020, with this share peaking at nearly 15% in the second quarter of 2010.

The results of the Index show that demand for housing was the highest in the Bekaa in the second quarter of 2020, as 1.3% of its residents had plans to build or buy a house in the coming six months, down from 6.9% in the same quarter of 2019. The Mount Lebanon region followed with 1.23% of its residents planning to build or buy a residential unit in the coming six months, relative to 3.3% in the second quarter of 2019; while 1.17% of residents in the South had plans to buy or build a house, down from 11% in the second quarter last year. In addition, 1% of Beirut residents intend to buy or build a house, compared to 3.2% in the same quarter of 2019, while 0.7% of residents in the North region had plans to build or buy a residential unit, down from 5% in the second quarter of last year. In parallel, real estate demand decreased across all income brackets in the second quarter of 2020 from the same quarter last year, while it increased by 15.6% quarter-on-quarter by residents who earn a monthly income of more than $2,500.

The Byblos Bank Real Estate Demand Index is a measure of local demand for residential units and houses in Lebanon. The Index is compiled, implemented and analyzed in line with international best practices and according to criteria from leading indices worldwide. The Index is based on a face-to-face monthly survey of a nationally representative sample of 1,200 males and females living throughout Lebanon, but the April and May 2020 survey were conducted through computer-aided telephone interviews due to the coronavirus outbreak. The data segregates the Index based on age, gender, income, profession, geographic region and religious affiliation. The Byblos Bank Economic Research & Analysis Department has been calculating the Index on a monthly basis since July 2007, with November 2009 as its base month. The survey has a margin of error of 2.83%, a confidence level of 95% and a response distribution of 50%. The monthly field survey is conducted by Statistics Lebanon Ltd, a market research and opinion-polling firm.

The World Bank’s (WB) Rapid Damage and Needs Assessment (RDNA), which it conducted in cooperation with the United Nations (UN) and the European Union (EU), estimated at between $3.8bn and $4.6bn the physical damage from the explosion at the Port of Beirut on August 4. It added that housing, transportation and tangible and intangible cultural assets, such as religious and archeological sites, national monuments and theaters, were the most affected by the explosion. It evaluated the physical damage in the housing sector at between $1.9bn and $2.3bn, followed by damage to the cultural sector at between $1bn and $1.2bn, and damage in the transportation sector and port at between $280m and $345m. It also estimated the damage in the tourism sector at between $170m and $205m, damage in the commerce and industry sector at between $105m and $125m, and damage in the healthcare sector at between $95m and $115m. It also estimated the damage to the financial sector at between $10m and $15m.

In addition, it estimated losses in economic flows due to damaged assets and the subsequent decline in output at between $2.9bn and $3.5bn. It indicated that economic losses in the housing sector range from $1bn to $1.2bn, followed by the transportation sector and port at between $580m and $710m, and the cultural sector at $400m to $490m. It also said that the commerce and industrial sectors incurred between $285m and $345m in losses, while the tourism sector registered losses of between $190m and $235m.

Further, it estimated the public sector's reconstruction and recovery needs for the remainder of 2020 and for 2021 at between $1.8bn and $2.2bn, which consist of $605m to $760m by end-December 2020 and between $1.18bn and $1.46bn in 2021. It estimated the transportation sector's needs at between $425m and $520m, followed by the cultural sector at $250m to $310m, and the housing sector at between $220m and $265m. Also, it pointed out that the financial sector needs between $35m to $45m for recovery and reconstruction.

In parallel, the RDNA expected the explosion at the Port of Beirut to reduce Lebanon’s real GDP growth rates by up to 0.4 percentage point in 2020 and 0.6 percentage point in 2021 due to losses in the stock of physical capital. It also projected import constraints to result in additional reductions in real GDP growth of 0.4 percentage point in 2020 and 1.3 percentage points in 2021. It anticipated additional losses in output due to disruption to economic activity amid "the physical damage to the country’s main port, and to the busy retail and commercial centers of Beirut." It expected government revenues to decrease from 20.8% of GDP in 2019 to 10.7% of GDP in 2020 and to 12.7% of GDP in 2021, due to lower receipts from the value-added tax and customs. It projected the current account deficit to narrow from 22.4% of GDP in 2019 to 8.1% of GDP in 2020 and 0.3% of GDP in 2021, due to the improvement in the trade balance and to higher remittance inflows. It also forecast inflation and poverty rates to increase.

Moreover, the assessment indicated that reconstruction efforts require a combination of interventions that prioritize the needs of the people, particularly the most vulnerable segments, with structural reforms related to "macroeconomic stabilization, governance, the private sector's operating environment, and ensuring human security." It added that international aid and private investments are crucial in order to achieve a comprehensive recovery, given the current economic situation in Lebanon. It noted that the authorities' implementation of a credible reforms agenda is a necessity to access international development assistance and to unlock external and private sector financing.

The International Monetary Fund's Middle East Technical Assistance Center (METAC) indicated that Lebanon received 11.5% of the center's overall allocation of technical assistance delivery to member countries during the first quarter of the fiscal year that ends in April 2021, or between May and July 2020. The center provided three technical assistance projects to Lebanon in the first quarter of the fiscal year, the highest number of projects allocated to member countries during the covered quarter, which consisted of two projects in public financial management and one in statistics.
 
In comparison, it provided two technical assistance projects to each of Algeria, Iraq, Libya, and Tunisia in the covered period, and one project to each of Afghanistan and Yemen. It indicated that there are 10 technical assistance projects planned for Lebanon in the fiscal year that ends in April 2021, the second highest number of such projects among member countries, behind only Egypt (12 projects).
 
In terms of public financial management, METAC co-organized with the Institut des Finances Basil Fuleihan a workshop on the management of public-private partnerships (PPP). It indicated that the workshop aimed to develop the capacity of government officials to analyze and report PPP risks. It said that 20 participants from the Ministry of Finance, the Higher Council for Privatization and PPP (HCP), and Electricité du Liban attended the workshop.
 
In addition, METAC held three webinars on medium-term budget planning that 32 staff members from the Ministry of Finance and from six other ministries and agencies attended. It indicated that the workshop highlighted the importance of medium-term budget planning to strengthen the process to allocate and manage budget resources. It added that the workshop stressed on the importance of strengthening Lebanon's current medium-term fiscal framework to increase budget transparency. Further, the mission advised Lebanon to introduce and unify the use of costing parameters across government ministries and agencies, in order to improve the transparency and efficiency of budget costing.
 
In terms of statistics, METAC assisted the Central Administration for Statistics in addressing issues related to the continuity of the Consumer Price Index (CPI) amid the COVID-19 crisis. It helped compile the CPI for March, April and May 2020, draft a statement on the impact of COVID-19 on the computation of the CPI, and develop a forward-looking plan to ensure the continued and timely monthly release of CPI data.
 
In parallel, the center indicated that it has one project planned in Lebanon in the second quarter of FY2020/21, which extends from August to October 2020. It noted that the project is in public financial management on the drafting of a gender-based budget statement by the Ministry of Agriculture.
 
The IMF established METAC in Beirut in October 2004 to serve Afghanistan, Algeria, Djibouti, Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Palestine, Sudan, Syria, Tunisia, and Yemen. The center's mandate is to assist in capacity-building, facilitate the reform process in member countries, and support the region's integration in the world economy.