Beirut :  Beirut used to conjure up images of clear skies, sparkling sea and red-roofed Ottoman-era houses, but cranes and new buildings now puncture its Mediterranean skyline and the cacophony of bulldozers has shattered the idyll.

All over Beirut, developers are spending hundreds of millions of dollars building luxury flats for high-income Lebanese, and prices are soaring, especially in the central district widely dubbed Solidere after the company that rebuilt it from the ruins of the 1975-1990 civil war.

While analysts insist no property bubble is looming, price rises are forcing middle income Lebanese out of a capital city some refused to leave even in the midst of war and unrest.

"I'm frustrated. It's going to be a while before I can afford something and I'll have to get a loan and pay for it for a long time," said Labib Gulumiyyah, a 35-year-old doctor, who has been trying to buy an apartment for two years. "With all the problems in Beirut, I'd still rather be here."

World ranking

A 2010 report by property consultants Cushman and Wakefield said Beirut was the 30th most expensive retail rental city in the world, up three places from last year, and the most expensive compared to ten cities in the Arab world.

Retail rents in Beirut's Solidere area stood at 1,470 euros (Dh7,658) per square metre, ahead of Luxembourg and Stockholm. In the central district, a mixture of restored period properties and new buildings, property sells for anything from $7,000 to $13,000 a square metre. Other prime neighbourhoods see prices in the range of $4,000 per square metre, several real estate experts have said.

Lebanon's Central Bank Governor, Riad Salameh, said the sector was worth $10 billion (Dh36.7 billion) a year in sales and projects. That may seem small compared to even single developments in the oil-exporting Gulf, but is a lot of money for Lebanon. To put the numbers in perspective, Lebanon's government budgeted total spending of $12 billion for 2010.

Demand in Beirut has been driven up by Leban-on's large community of expatriates, who are either returning or want a foothold in the city though they do not live there full time. Wealthy Arabs and Lebanese who are buying flats as an investment for their children have also pushed up prices.

Analysts and real estate experts insist however that this is not a property bubble in the making because the buyers are end-users, not speculators, and many are either paying in cash or borrowing amounts they can afford.

"I don't believe there's a bubble in the market. It's true that prices have risen significantly, but they emanated from a low base so prices today are more in line with regional and international benchmarks," Marwan Barakat, Head of Group Research at Lebanon's Bank Audi, said.

No crash

Salameh, the central bank governor, said Lebanon's property sector was not overleveraged so he did not expect a price crash.

"The credit linked to the real estate sector does not exceed 8 percent of the total balance sheets of our banks. Usually you have negative effects on real estate prices when there is high debt attached to that sector," he told Reuters. "We expect prices to level after this big increase and historically we have seen this pattern in Lebanon, where you have a quick rise, and then a levelling and then another rise."

Only a dramatic deterioration in security could hit demand for property, but even that does not seem to faze developers who are breaking ground on projects across Beirut. Indeed, Lebanon's resilience has translated into an average of 8 per cent growth for the last three years, driven by strong consumer confidence.

Property prices have risen 30 per cent each year since 2007, Barakat said, impressive for any city let alone one that has seen dozens of bombings, weeks of protests, days of deadly clashes and a war with Israel in the last five years alone.

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