As battles have subsided since 2018, real estate prices in Damascus have risen to such an extent that owning a private home in the Syrian capital has become an inaccessible luxury to most of its residents. Relative to average wages, prices have increased to surreal levels. Independent estimates show that if prices remain at their current levels, individuals with low incomes would require at least 200 years to secure housing. Consequently, the high price of property has become the main barrier to property rights.
The continuous increase of real estate prices was due to factors not linked to housing needs per se, but rather to speculation among other factors. Induced by real estate brokers who have become the most prominent buyers and sellers of real estate, speculation drove up the prices of real estate while ordinary citizens remained unable to afford buying their own homes.
This year, Syrian authorities formally adopted various legal and regulatory measures to introduce more transparency in the real estate market and to improve tax collection. In practice, however, these measures enabled the government to increase its monitoring and control of a central sector of investment, namely real estate, while also excluding several segments of the population from the market.
While the new measures reduced real estate speculation to a large extent and curbed the influence of real estate brokers in price setting, the government expanded its own role in controlling real estate prices. Government intervention did not result in a significant price reduction and, in fact, limited the abilities of owners to dispose of their properties out of fear of higher tax payments related to real estate transactions.
This paper examines the status of the real estate market in Damascus and the ways in which the market was impacted by the latest measures. Lessons learned here can be applied to the rest of Syria.
Part I: The Damascus real estate market
For quite some time, Syrians found that real estate property was the most secure place to invest their savings – if they could afford it. In recent years, this has driven real estate prices to steadily increase when measured in nominal terms, especially in zones falling within the Damascus city master plan, one of the most sought-after locations in Syria.
The high population growth rates in the years preceding the 2011 uprising were not matched by an increase in private property development. The Damascus master plan did not allow enough residential buildings to be licensed, which resulted in an imbalance between supply and demand. Furthermore, housing cooperatives and social housing projects planned by the government have been minimal and the implementation of many of these projects has not yet begun. The larger developments in the capital combine alternative social housing and private housing based on Decree 66 of 2012, which established two development zones in Damascus: Basilia City and Marota City. Both cities will be built on the ruins of areas destroyed during military operations. In all cases, these are still nascent projects that will likely remain unfinished for quite some time.
As a result, zoned areas in Damascus face great pressure to secure housing amid severe overcrowding. The weak purchasing power of the majority of the population only adds to the difficulties that many households face in order to secure proper housing.
The decline in the exchange rate of the Syrian Pound is another factor causing an increase in real estate prices over the past two years. When the foreign exchange rate of the Syrian Pound increased from about SYP 3,000 per US dollar at the beginning of 2021 to some SYP 4,000 in April, its lowest level yet, real estate prices increased by around 50 percent before dipping by 30 percent when the Syrian Pound rebounded to SYP 3,200. Fluctuations in the exchange rate during that period contributed to the demand for real estate increasing by 30 percent, as per official estimates.
The successive drop in the exchange rate of the Syrian Pound also directly contributed to an almost proportional increase in construction and finishing costs because most building materials are imported. In April 2021, the Head of the Union of Construction Workers stated that over the past 10 years, prices of cement increased thirtyfold and those of steel by a hundredfold. He added that the construction price of a square metre now ranges from SYP 200,000 to 250,000. As for basic finishing, it would cost between SYP 400,000 and 500,000 per square metre. The Ministry of Internal Trade and Consumer Protection increased the prices of building materials at the beginning of April, three months after having adjusted them. Although the increase in the prices of building materials and real estate appear to follow the depreciation of the Syrian Pound, costs do not seem to drop when the currency strengthens. In the black market, prices of building materials, including those produced by the public sector, are much higher.
Real estate brokers
The devaluation of the Syrian Pound led to an increase in demand and widespread speculation across the real estate market engendered by brokers. These brokers worked extensively to buy and sell real estate properties among themselves with the aim of keeping prices high. This situation has created an unrealistic demand on real estate that is not strictly linked to the demand for housing. Syrian expats also invested money in this market, taking advantage of the exchange rate difference. These factors drove real estate prices in many areas to increase by more than 200 percent between 2019 and 2021.
Because of the price increase, trading and speculation have become a vastly lucrative business. The only real costs for traders are taxes, namely property tax and other insignificant taxes. The capital of Damascus, like other Syrian cities, saw thousands of real estate brokers seeking a profit in the real estate market due to the boom in demand driven by the fluctuation in the exchange rate. Some of these brokers only operate on social media and WhatsApp groups. Few of these businesses are linked to a greater network covering the capital. In fact, most are traders who work for private interests on very local levels and execute a great number of sales for non-residential purposes. One of the main characteristics of this market is self-regulation and the continuous linking of prices to the exchange rate of the Syrian Pound. Buyers and sellers pay the brokers a two to three percent commission.
The largely profitable real estate market has posed a challenge to the Syrian government, which attempts to control and regulate the market and to turn the real estate sector into a more significant source of tax revenue. However, the interventions of the Ministry of Finance and the types of new taxes imposed since May 2021 give the impression that the government has removed real estate brokers and property owners from the pricing process. In other words, the government is sidelining real estate brokers.
In an official statement on July 25, the Minister of Finance announced that until new laws were issued this year, the real estate market was considered to be out of control and part of the shadow economy. He added that the real estate market was one of the main fronts for money laundering and that the sources of much of the money invested in it were unclear and did not go through the banking system. He added that linking real estate prices to the exchange rate authorised market manipulation and irrational price increases.
Part II: New real estate laws
In 2021, the government passed several laws and regulatory measures to strengthen its control over the real estate market and, ultimately, to further restrict access to housing by some segments of the population. The government justified the adopted measures as necessary for limiting the uninterrupted rise in real estate prices and achieving transparency and accuracy in tax collection.
One problem the government faced was that previous valuations of real estate did not match actual prices, which led to low taxation levels. Digital services were expanded to better monitor the market, as well as those who buy and sell real estate.
The property sales tax Law No. 41 of 2005 set the tax on residential property sales at between 15 and 25 percent of the value of the property as listed in the records of the Ministry of Finance. However, the ministry’s price records were mostly based on the values of residential properties dating back to 1965 and those of commercial properties dating back to 1986. In 1997, the values of all property types increased by 10 percent. Their estimated value, however, remained well below their real value.
While these low taxation levels generated tax losses for the government, they were inversely advantageous for valuing properties when expropriation occurred. The lower the value of real estate assets, the less the government had to pay owners whose assets were expropriated.
Law No. 15 of 2021
On March 29, 2021, the Syrian President enacted Law No. 15 of 2021 which regulates the property sales tax. Among other things, the law sets the framework for property valuation and the tax rates that will apply when real estate properties change hands, whether through a sale, donation, inheritance, etc. The law also sets the market value of a property as the basis on which taxes will be levied.
The law defines real estate units as a plot or a part of a plot independently registered in financial register records. A group of geographically adjacent real estate units constitutes one price segment, in which the price of one square metre is the same. Meanwhile, a group of contiguous price segments constitutes what the law calls a price zone. To set price zones, the law has established three types of committees: sub-committees within local administrative units, main committees within the financial departments of governorates, and a central committee led by the Minister of Finance. Each of these committees includes representatives from the Ministry of Finance, local administrations, real estate authorities, and the Engineers Syndicate. Upon the request of the Minister of Finance, the committees issue reports and property valuations. The sub-committees within governorates specifically determine the market value for all real estate properties within and outside of the master plans, as well as the appraisal specifications. The sub-committees then report to the main committees which examine the conclusions reached and forward their decisions to the central committee to study the findings and proceed.
The committees rely on separate standards for residential, commercial, industrial, agricultural, and touristic real estate.
Law No. 15 set the sales tax at 1 percent of the market value of completed residential properties and plots falling outside of the master plan. For buildings under construction, the tax is 1.5 percent. As for plots falling within the master plan, the tax is 2 percent. In all cases, the law sets a penalty equivalent to a 0.5 percent annual increase for each year of delay in registering a property sale. When the property is transferred through a donation to parents, children, spouses, and fourth degree relatives, the property sales tax is 25 percent of the market value. As for cases of inheritance, the tax is 10 percent for parents, children, spouses, and fourth degree relatives, 25 percent to siblings and their children, and 50 percent to other beneficiaries.
The Director General of the General Commission for Taxes and Fees at the Ministry of Finance argued that the law allows for a systematic calculation of the property sales tax given that a computer system identifies the market value of a property. The system uses geographical data to build a database for property, as well as a digital map, which automates the calculation of the property sales tax and reduces human error. It also helps determine price zones and the value of a square metre within each zone. More importantly, the real estate appraisal process helps deduce the market price based on the following factors: the zone, the general and detailed master plans, building regulations, the commercial traffic of real estate, population density, and the property function (commercial, residential, mixed).
In official statements, the Minister of Finance stated that the old valuation system was also “unfair” because residents of upscale residential areas, such as the Malki and Abu Rummaneh districts, paid almost the same amount of taxes as residents of the informal area of Mazzeh 86. The Minister’s reference to Mazzeh 86 was interesting given that the area is largely inhabited by regime loyalists. The Minister provided another example about the upscale district of Kafr Sousseh, where a property costs upwards of SYP 400 million in 2020. Under the new tax levels introduced by the laws approved this year, the sales tax on such a property is SYP 4 million, equivalent to some USD 1,600. Under the previous system, the value of the property, as per financial records, would have stood at SYP 47,000 and its tax at SYP 7,000, the equivalent of a mere USD 2.80. According to the Minister, the public treasury has for long been deprived of funds that “could have been used to improve the standards of living for citizens.”
Legally speaking, Law No. 15 has several loopholes, some of which seem intentional, while others are the result of shortsightedness. For example, the law does not allow courts to confirm property sales until the Ministry of Finance issues a clearance certificate confirming the receipt of the taxes due.
The problem is that Syrian law allows clearance certificates to be granted only by entities with a legal status. Property buyers, who are individuals, do not enjoy that status. The buyer is not eligible to receive clearance and it isn’t clear how property sales could be completed. In addition, in order to receive a clearance from the Ministry of Finance, the parties involved in a property sale must settle all their taxes and dues with all state administrations within thirty days after the event (the sale, the donation, or the transfer of property) in order not to risk additional fines. This includes, for example, water and electricity bills that are unrelated to the recently purchased property or taxes that are due in other cases.
While this obligation may be considered a citizen’s standard duty, some taxes and dues owed to other state institutions may be disputed; however, the involved party will have no choice but to settle everything in order to finalise the transaction.
In Syria, there is also a strong resistance against paying taxes to a government that delivers very few or poor services in exchange.
More significantly, the clearance certificate also requires a security approval, i.e. parties involved in a property transaction must be screened by the security services. In practice, this means that large segments of the population, those who hold a record of regime opposition, will find great difficulties in purchasing or disposing of a property.
Security approval and the clearance certificate
Law 15 bans Cadastral Affairs offices, notary publics, or any competent authority to register or document real estate rights unless the parties involved show a financial clearance certificate. Circular No. 463, which was released by the Council of Ministers in August 2015, requires security approvals in cases involving real estate sales, rentals, and vacating houses and shops in zoned and informal areas. Currently, one cannot obtain a financial clearance certificate without also obtaining a security approval. In February 2018, the Minister of Justice issued Circular No. 14 which added public auction sales to the list of cases requiring security approvals. The security approval is not only a major violation of housing, land, and property rights, but also a tool the regime employs against dissidents or men evading military conscription.
On April 29, pursuant to decision 850, the Ministry of Finance issued a guide to Law No. 15, specifying the general framework required for its implementation. The document includes guidance on how to calculate the market value for properties, the price zone, exemptions, exceptions, objections, and deadlines.
Law No. 17 of 2021
On April 22, 2021, the Syrian President issued Law No. 17 of 2021, setting the fees for services offered by Cadastral Affairs offices. The law adopted the market value of properties when setting and collecting fees for cadastral services. Prior to that, based on Law No. 429 of 1948, Cadastral Affairs offices relied either on rates specified by the Ministry of Finance or on the values mentioned in sales contracts, of which higher of the two would be used.
Law No. 17 of 2021 sets a list of fees depending on the type of registration required, ranging from 0.015 percent to 0.1 percent of the value of a property. In practice, the law markedly increases the cost of registering property transactions, adding one more obstacle to would-be buyers and sellers.
Law 17 was issued a month after Law 15 and is complementary to it. Both laws were enforced simultaneously starting May 3, 2021. Law 17 requires that fees on real estate services be paid in advance and enables an 80 percent refund of fees should the cadastral office fail to register the transaction.
Bank circulars and directives
On May 25, 2021, the Central Bank of Syria issued a directive obligating operating banks to accept the transfer of payments by those purchasing vehicles or property or their legal representatives to the sellers or their legal representatives. On March 24, 2021, the Council of Ministers issued Decree No. 28 which specifies that for the sale of a property or vehicle to be duly registered, a minimum amount of money must be credited in the seller’s bank account. At least SYP 5 million is required for the sale of vehicles and commercial and residential property, while SYP 1 million is required for the sale of land. In addition, SYP 500,000 must be frozen in the accounts for at least three months in order to be used for these transactions.
In practice, Decree No. 28, which is an amendment to Decree No. 5 of 2020, imposes limits on the transfer of property, which were not initially instituted by law. Article 825 of the civil code considers that real property rights shall only be acquired and transferred through registration in the land registry.
Also, according to sources knowledgeable about the real estate market, a private decision has been issued by the Combating Money Laundering and Corruption Commission at the Central Bank of Syria to restrict the transport and transfer of funds in cash exceeding SYP 5 million. The Syria Report cannot yet confirm this information. However, sources told The Syria Report that the Syrian Lawyers Union has recently condemned the limits imposed by this decision, which restricts real estate sales, and has called for increasing the ceiling. The decision seems aimed at pushing people towards bank transactions, which would enable the authorities to easily monitor the movement of funds within the market. Our sources pointed out that the implementation of the decision is lax; however, they confirmed that it has been used sporadically, occasionally in cases of revenge.
Part III: The impact of the latest regulatory measures on the market
Since Law 15 and Law 17 came into force, the real estate market has been stagnant. Official Syrian newspapers, namely Al-Watan and Al-Baath, have blamed the Ministry of Finance for the stagnation. As a response, the ministry launched a campaign to highlight the success of the latest laws and directives, disclosing figures that reflect the impact of the new property sale taxes and announcing that up to 1,076 bank accounts were opened at the Real Estate Bank in May after the issuance of Decree No. 28. Cadastral Affairs offices stated that around SYP 737 million fees were collected in May. By July 8, a total of 11,195 sale contracts were concluded across the country for a total value of SYP 981 billion, according to the first detailed report on real estate sales published by the Ministry of Finance on July 14.
However, prior to the implementation of the latest measures, some 30 thousand real estate transactions occurred monthly with an average value of SYP 122 million per transaction, according to previous statements by the Minister of Finance.
On June 22, a high-ranking official from the Cadastral Affairs offices in Damascus revealed that property sales in the capital dropped by at least 70 percent since Law 15 came into force. He added that most property transfer operations that were recently completed were concluded prior to the implementation of the law. The Ministry of Finance pointed out that in May, the number of property sales contracts in Damascus reached 973. Based on market prices, the value of these transactions amounted to more than SYP 215.6 billion with an average of SYP 222 million.
Sources for The Syria Report managed to obtain the market values per square metre in a number of price segments within Damascus. The most expensive district was Malki with an average cost of SYP 20 million per square metre, which is equivalent to around USD 8,000 at the official exchange rate of SYP 2,500 per dollar, or around USD 5,700 at the black market rate. In popular areas such as Mazzeh Jabal, the rate is SYP 4.5 million, which is equivalent to USD 1,800. According to our sources, the rates set by the government do not necessarily reflect the actual prices used. In Mazzeh Jabal, for instance, the ministry set the rate 35 percent higher than the prices currently paid.
The market price of a medium apartment of around 120-160 square metres located west of Malki has reached SYP 3 to 5 billion. The same sized apartment costs SYP 2 to 3 billion in Kafr Sousseh and Abu Rummaneh, over SYP 1 billion in the Western Mazzeh Villas, between SYP 800 million to 1 billion in Al-Midan Corniche, and between SYP 500 and 800 million in the Mazzeh, Tejara, and Dummar projects. Meanwhile, the apartment was valued between SYP 400 to 600 million in the districts of Baramkeh, Barzeh, Midan, and Zahra. In Daf Al-Shok, Aisha River, Mazzeh 86, Qudsaya, and Barzeh, the value was less than SYP 200 million.
On another note, it is common practice for the seller to bear the costs of clearance certificates. However, since the values of taxes and fees have significantly increased, sellers are no longer bearing these costs.
Sources informed of the work of one of the biggest real estate offices in Damascus told The Syria Report that they doubt the accuracy of the Ministry of Finance’s data on the number and value of property sales. They disclosed that the Syrian capital barely witnessed a few dozen deals in May, while the situation only partially improved in the following months.
Another technical obstacle to the sales contract is the daily limit of SYP 2 million on bank withdrawals. For a property valued at SYP 1 billion, it would take the property owner at least two years to withdraw the total amount from the bank. If the money was paid in cash, it would take a vehicle with police protection to transport the cash and create additional risks linked to the secure storage of money. To transport such an amount, permission must be granted by the relevant cadastral affairs office and approved by the security forces.
Part IV: Who can afford property in Damascus today?
It is unclear whether the latest measures will have a serious impact on the ability for most of the Syrian population to own property in Damascus and the rest of the country. However, the measures are indeed an additional tool for the government to generate more fiscal income and to more effectively control the market and the population.
The sharp rise in the amount of taxes paid will deter many in the short-term but its impact will be less consequential in the long term as many realise that the one percent tax rate remains a small price for preserving one’s savings from inflation and currency depreciation. The increased monitoring of real estate transactions , as well as the limitations on cash transactions, will more seriously hinder and deter potential buyers.
The uninterrupted rise in construction costs, the shortages in social housing, low revenues and high inflation rates, and the increased security control will ensure that many Syrians will remain deprived of their basic rights to housing and property ownership. In addition, the prices have been fixed despite officials promising that specialised committees will periodically review prices.
Once again, the weakest actor in this scenario is the individual who wants to purchase their first home. This category of buyers does not benefit from any tax exemption and the Ministry of Finance does not separate between those buying property for residence and those trading in property and competing in the market. This raises serious doubts as to the real purpose of the government’s taxation scheme.
Meanwhile, holders of capital, property traders, and war profiteers, including government, military, and security officials, have few areas to invest and preserve their funds outside of real estate. The government’s intervention in the real estate market appears to be directed at taking advantage of the wealth accumulated by this category of war traders.
Those among the forcibly displaced and refugee populations that are supporters of the opposition and that own property in zoned areas of Damascus are most likely to sell their properties in the coming period. They are motivated by fear given that their properties may be seized by the government or they may not receive the required security clearance. On the other hand, it seems that those among forcibly displaced and refugee populations that own property in informal areas of Damascus or areas subject to Decree 66 of 2012 and Law 10 of 2018 are left to endure the decisions of the Damascus Governorate given that they cannot prove their property rights for security reasons.
Mazen Ezzi is the editor of the Housing, Land and Property section