The Lebanese housing bubble is an economic bubble affecting almost all of Lebanon, where 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 the same period[1].
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There are many reasons behind the current housing bubble in Lebanon:
The Lebanese GDP per capita is around USD 10,000 (after taxes) while Lebanese working abroad make on average around USD 30,0000 /year (after taxes). A decent housing far away from Beirut can cost around USD 150,000, a decent housing in the suburbs of Beirut can easily cost 4 times that amount, while a decent housing in the Beirut Central District can cost millions (note that most people who buy in the BCD are Arab Investors). 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.
Riad Salameh, the governor of the Banque du Liban, issued two contradicting statements, one in 2008[3] where he raises fears about a real estate bubble and another one in 2010 [4] where he claims that there is no real estate bubble in Lebanon (although prices have increased 2 folds between the 2 dates) and that the demand is real.
A speculative bubble reflects a situation where asset prices are consistently trading at considerably higher values than intrinsic values. In order to evaluate a speculative bubble, we need to have reliable prices and a model to determine intrinsic values.
The lack of official and reliable statistics in Lebanon makes a true discussion of price bubbles difficult. For example, while GDP numbers are widely available [5] -USD 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 can 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.[6]
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 also no reliable data to estimate the average income of the Lebanese working abroad.)