Research Project: The Financialisation of Home in the Middle East // A study of Lebanon’s mortgage markets: Tracing regulatory changes
This project by OIB postdoctoral fellow Marieke Krijnen focuses on the increasing interconnections between real estate and finance in Lebanon. Real estate has always been dependent on the financial sector for loans, but the financial sector itself has become increasingly involved in real estate development, with its own subsidiaries and active investments. The financialisation of real estate is part of a larger movement towards the financialisation of the economy, which began during the 1980s when the capitalist system increasingly created money out of money in order to grow in the face of stagnation and inflation. Academic interest in the interconnections between real estate and finance increased massively following the global financial crisis in 2008, which was caused, in part, by the volatility that secondary mortgage markets had created.
When the financial crisis hit the global economy in 2008, Lebanon experienced one of its biggest economic booms, especially in the real estate and banking sectors (see
picture). It escaped the crisis because its banks had not participated in the risky lending
practices that led to major real estate and financial market crashes in other contexts.
Subsequently, a large number of expatriate Lebanese and Gulf Arabs transferred their
money to Lebanese banks and invested it in real estate projects in Beirut. The large
amount of funds sitting in the banks constituted a risk of overaccumulation, i.e. a situation where there was too much capital and too little profitable investment opportunities for this capital. In order to prevent devaluation, excess capital was “switched” into the stagnating Lebanese real estate market. This was done in several ways: from mortgage lending incentives provided to the Lebanese domestic banks by the Central Bank, to the increasing involvement of banks in real estate development via separate companies.
The project traces the regulatory changes that underlay this switch, and
ultimately seeks to understand its political, geographic, social and economic consequences. It gauges whether the switch and accompanying new regulations, housing markets and banking products lead to increasing interdependencies between the real estate and financial sectors in Lebanon via the creation of secondary mortgage markets, the development of capital markets and/or sub-prime lending, and what this means in terms of the volatility of the Lebanese economy and its regional and global position. It also seeks to understand the switch’s social consequences, as increasing numbers of households are becoming subject to the risk and insecurity of financing a home via credit, and are judged on their ability to treat their housing need as an investment and financial asset. Finally, the project looks at the impact of a financialised real estate market on the rent gap, political-sectarian geographies of housing and the geographies of capital at the metropolitan scale.
During the OIB fellowship (November 2016 to October 2017), Marieke Krijnen focused on fieldwork, beginning with the collection of laws and regulations that pertain to the switching of capital from the banks to the real estate market, and the interviewing of relevant actors at banks and public institutions. From 1 to 3 November 2017 Marieke organised a workshop at the OIB, bringing together international experts on interconnections between finance and real estate and enabling an exchange of expertise between them and Lebanese experts and stakeholders. You can read more about the motivations for the workshop on this TRAFO blog post.