SYRIA'S RED HOT REAL ESTATE MARKET- A POTENTIAL

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 002439

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LOEFLER

E.O. 12958: DECL: 05/25/2016
TAGS: ECON EINV EFIN SY
SUBJECT: SYRIA'S RED HOT REAL ESTATE MARKET- A POTENTIAL
VULNERABILITY

REF: A. DMS 0005


B. DMS 0290

C. 05 DMS 4977

Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d


1. (C) Summary: Contacts suggest that Syria may be
experiencing a real estate bubble, with property prices
rising rapidly throughout the country, but especially in
Damascus and the surrounding area. Speculators increasingly
are active in the market, with some Syrians trying to take
advantage of an expected continuation of Gulf investment in
real estate and the influx of Iraqis, which have increased
pressure on an already tight supply of available property.
While there is no indication that the bubble will burst any
time soon, contacts say that a rapid devaluation in prices
could have serious repercussions in some sectors of the
economy that have speculated in the market, hitting industry
and the nascent insurance companies particularly hard. End
summary.

A Speculator's Market


2. (C) Property prices in Damascus and throughout Syria have
been rising steadily over the past three years, with high
demand for a limited supply of property escalating possibly
into a real estate bubble. The influx of hundreds of
thousands of Iraqis since 2003 has been one of the primary
sources of increased demand, with contacts reporting that
property values in Damascus' poorer eastern suburbs have
almost tripled. Other contacts contend that members of the
elite with close ties to the regime, as well as many other
Syrians who historically have held their wealth in Lebanese
and other foreign banks, are adding to the demand for
property by repatriating their assets and feeding them into
real estate to protect them from future financial sanctions.
Demand has increased most recently, contacts say, primarily
due to Gulf investors who are seeking to spend their excess
liquidity from high oil prices in real estate markets
throughout the region. Syrians are buying real estate in
anticipation of new project starts, due to the SARG's hyping
of Gulf investment that began at the end of 2005 (ref A). At
the same time, strict government control of land, which
limits the expansion of existing communities, and the high
cost of building supplies like cement, is stifling new
construction (ref B).


3. (C) Contacts say that speculators are putting additional
pressure on the market. Buyers are turning over properties
rapidly, with one contact stating that a new buyer realized a
17% return in one month by reselling his new apartment with
minimal upgrades. Business contacts report that they face
increasing difficulties finding new office space, because
prices for commercial property can rise as much as 10% in a
week during negotiations. George Sayegh, General Manager of
Bank of Syria and Overseas, stated that some industrialists
have informed him they are choosing to invest their profits
in real estate rather than reinvest them into their companies
to take advantage of much higher expected returns. As a
result, prices for real estate in Damascus and surrounding
areas have increased an average of 40% since January 2006,
contacts report, with values increasing by as much as 200% in
select areas during the same time period.

High Prices Expected to Continue


4. (C) Most contacts do not expect a market correction for
the foreseeable future. Contacts point out that prices in
the rental market also are increasing at a rapid pace, which
indicates that property is retaining its value. Basil Hamwi,
General Manager of Bank Audi Syria, stated his belief that
petrodollars from the Gulf should keep Damascus property
values high until the cost of living in the Gulf catches up
with the high cost of oil. Walid Abdel Nour, General Manager
of Byblos Bank Syria, added that the market should continue
to feed on the excess liquidity among domestic investors, who
still have too few opportunities other than real estate in
which to invest. Demand for real estate will remain high, he
stated, until a credible market for SARG treasury bills, a
functional stock market, and a more competitive private
banking sector are established. Contacts state, however,
that there are discrete events that could cause the bubble to
burst. Iraqis beginning to exit the market would decrease

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the demand pressure immediately, contacts say. If Gulf
investment dries up, Hamwi warned, the market may begin to
unravel quickly, particularly if the hyped investment
projects do not materialize.

Economic Consequences


5. (C) Abdul Kader Housrieh, a manager at Ernst & Young
Syria, downplayed the potential economic consequences of a
market correction, due to the fact that most Syrians still
buy property with cash instead of loans, insulating the
financial sector from the negative effects of a rapid
devaluation in real estate prices. For his part, Hamwi
commented that Bank Audi has only three real estate loans in
its portfolio, and that the private banking sector as a whole
has been very slow in extending credit to new projects.
Other contacts, however, point out that a price crash could
have severe repercussions in other, equally important sectors
of the economy that are exposed to the market: industry and
the nascent insurance sector. Industrialists, who
traditionally self-finance their business projects and
increasingly have been speculating in the market, would see
immediate erosion in their available capital. The new
private insurance companies, contacts report, are investing
up to 25% of their liquidity in the real estate market
because of the lack of other investment opportunities. A
market crash, therefore, could undermine the development of
this new and promising sector (ref C). In the meantime, the
spike in real estate prices is deteriorating the standard of
living for many Syrians, who no longer can afford housing in
Damascus and other areas on incomes that have remained
stagnant for the past several years. Families reportedly are
selling their homes in Damascus to buy multiple, larger units
in the less affluent suburbs to support their children's
needs for housing.


7. (C) Comment: Contacts are uniform in admitting that the
real estate market is a source of economic vulnerability for
the country, but that it still is too early to tell when or
how the market may correct itself. It appears that prices
are set to continue their rise for the time being, making
some wealthy Syrians wealthier still, while limiting the
economic opportunities for the vast majority.
SECHE