From a distance, one observes the birth of a new skyline – sprouting towers of elegant bricks, mortar and concrete that will house an eclectic range of people that choose to live in Beirut, a city with a raw database of stories with even more plots and twists than a Hollywood movie. But the flawless finishing of these apartments, the kaleidoscope of designs and the stainless steel of kitchens, however, come with a somewhat jaw-dropping price tag.

Apartments in the tower blocks facing the marina go for $1m and upwards, a modest figure compared with the many that have already been sold off-plan. A recent report on Lebanese real estate by Bank Audi records more than 35,000 property transactions in the third quarter of 2007 alone, with the value of transactions priced at over $1.5m in this quarter.

The political difficulties of the country are no secret, with the World Bank and International Monetary Fund rating Lebanon’s investment risk on par with the likes of Chad and Sudan. Currently, the country is functioning without a president, who in turn appoints the prime minister. The vote on electing a president has been delayed month after month since November 2007, with no agreement in sight between the parties involved.

In recent years, the opposition Hezbollah has won considerable backing within Lebanon, though business in the city remains hindered by the protest tents erected to achieve the political concessions its supporters seek. To add extra flavour, all parties with different approaches must elect a Maronite Christian president as per Lebanese constitution.

The resulting scenario is one of stagnation, uncertainty, and reports of sporadic riots and bomb blasts in the suburbs. Both the US State department and HM Foreign and commonwealth office advise against all but essential travel to the country.

How then to explain the exorbitant property prices?

Analysts could cite the strong banking sector with its impressive levels of liquidity and the availability of credit, investment from the Middle East region in general, former Lebanese residents re-investing in their motherland and a social transformation of the younger generation irrespective of the political divisions and diversions that frustratingly prevail. The prices must therefore exist due to supply and demand side factors that have assimilated the ‘political factor’ combined with changing perceptions of the nation to both investors and home buyers. The supply-side factors may be explained two-dimensionally by fact that key locations in the city, such as Hamra, are crowded with developments in a relatively small space; this is compounded with the needs of the local and growing student population providing short to medium-term tenants for investors, all scrambling for limited good space locations.

For comparison’s sake, take Marbella in the southern coast of Spain, where apartments and villas in gated compounds boast similar million-dollar-plus tags and which boats EU membership, a stable and functioning government, relative absence of political violence and considerably lower investment risk rating.

Prices in Marbella, however, have long reached their peak, and the large number of British residents and investors living in this southern gem of Spain is known fact. In similar fashion, Beirut has lured investors from a variety of locations in the Middle East. The country boasted FDI stocks of $18.3bn and inflows of $2.7bn in 2006 – this in a year Lebanon went to war with Israel. There is speculation that further investment and price rises are yet to come, provided that the political tensions dilute or at least don’t escalate to the previous historical levels – though it has to be noted that both Lebanese economics and politics exist in varying shades of grey. Growth in 2008 is projected to be positive, with estimates varying from 4-8% depending on which local source is consulted. According to local research companies such as Infopro, while prices have risen, the bigger boom is coming in 2008.

Beirut offers that something extra - an intangible and unquantifiable element, a healthy dose of ‘x-factor’ which many cities in the region may lack. A drive through the city centre and a glimpse at the restoration of a once-destroyed French-style quarter would awe the most critical of architects. Retail spaces are plenty, with prices in key commercial areas ranging from $2000-$3000 per square metre. One would expect the political factor to suppress prices, yet it appears that some defiance amongst buyers and sellers remains. In terms of real estate at least, the city seems to be becoming, once again, the Marbella of the Middle East.

Dr Priyan P. Khakhar is an assistant professor at the American University of Beirut’s Olayan School of Business