Posted by Joshua on Monday, August 18th, 2008
Impressions following a two week visit to Aleppo
For Syria Comment
Aug. 18, 2008
Since August of 2006, It has been my custom to write up my personal observations following each extended trip to Syria.
In August, I stayed in my native city of Aleppo for two weeks, I will restrict my observations to what I saw and experienced in the country’s second largest city.
I will spare the readers any mention of geopolitics, Lebanon, Iran, Israel or the U.S.A. I will instead focus on the daily lives of Aleppo residents from my daily interactions with friends, relatives, Iraqi refugees, taxi drivers, police officers, real estate tycoons and day laborers. Readers of this forum should also be happy to learn that I also met with IDAF (a regular and astute contributor to Syria Comment) for a 3-hour coffee session at one of the city’s “fancy” outlets (more on this later).
The main areas of interest that I will try to cover in this post are real estate values, education, job opportunities, income levels, price inflation, corruption, and public services.
As every Syrian knows by now, real estate values have been on a tear recently. Since 2005, prices of residential units have at least doubled. Land prices have risen even more. Those who have inside knowledge of imminent zoning changes have enjoyed close to six-fold increase in the value of their land holdings. There are several reasons for this trend:
1- Syrian money was frightened out of Lebanese banks following the Hariri assassination and withdrawal of Syrian troops from Lebanon. Much of it returned to Syria.
2- US economic sanctions on Syria and the resulting risk of keeping funds outside the country for fear of having them blocked or frozen.
3- Lower Syrian interest rates on domestic bank deposits.
4- The lack of investment opportunities outside of real estate.
5- General price inflation and the need to hedge through real estate assets.
6- Supportive demographics.
7- Overseas investments in the sector.
While this list is not exhaustive, I think that it helps explain the general background behind the outsized rise in values across the country.
Where does the sector go from here?
I think down, and here is why:
There are two ways to determine whether real estate prices are over valued. One method relies on price/rental income calculation and the other uses median income/price ratio. At the height of the U.S. housing mania, house prices reached 26 times their rental income. During the same peak, median U.S. house prices were at four time’s median income. Using my own calculations, Syrian house prices are currently close to 43 times their rental income. In other words, rather than buying a house, one can rent it for 43 years at prevailing prices and rents for the same property. Buying real estate with such valuations is …. well, let’s settle for the word “risky.” This is not to say that real estate values cannot rise further. I am suggesting that they are overvalued and may have seen their peak.
Income levels and corruption:
A junior traffic policeman makes SYP 9,000 ($USD 196) per month. There is no way for a head of a household with such a meager income to avoid the temptation of bribery. An intriguing observation is how skinny junior traffic officers are when compared to their heavier colleagues who ride motorcycles (presumably the senior officers grab the lion’s share of the bribery pie).
Low incomes have made corruption a way of life for the average Syrian. The country’s armed services are no exception. New cadets who ask to be with their families for few days are asked what they can pay to be granted such a privilege. Their direct army supervisor simply awards the family break to those who pay the most among the group of cadets he supervises. My own relative is the source of this account. His sergeant assembled the entire platoon and offered weekend furloughs to the highest bidders. The prevailing price for a weekend home leave is 5,000 PS. No effort was made to keep the process secret.
This is by far the biggest problem facing the nation. The official Government figures vastly understate the unemployment rate. Having talked extensively to civil organizations dealing with the city’s youth, I was told that close to 40 percent of university graduates cannot find jobs. The public sector has implemented a hiring freeze for years now. The private sector cannot possibly generate enough jobs for the ever increasing labor force. Capital is tied up in empty land and real estate. This does not do much for job creation.
A number of people with inside knowledge have privately admitted to me that the Government mishandled the way in which it lifted the subsidy on heating oil. Rather than moving gradually, it was hiked by 350% in one shot. This shock was compounded by the rapid inflation in world commodity prices, which broadsided Syrians at the same time. The ill timing of the move delivered a major blow to the average person’s budget. Without exception, every single business has suffered since the rise in the price of heating oil several months ago. Salaries were increased by government decree, but the loss of income has been pervasive and demoralizing to the broad mass of Syrians.
The proud historical city of Aleppo has never been dirtier. The daily garbage collection system is embarrassing and disgraceful. Late at night, people are seen placing small plastic bags at street curbs in front of their buildings. By the time they are collected, at least 3 different groups have opened these bags to search for things they might find useful. Wild cats compete with the poor for garbage scraps. The garbage containers that occupy many street corners are giant disease containers. The way they get emptied leaves them with spilled liquid and piles of fallen garbage nearby. In the scorching summer heat, the smell of the left over refuse adds insult to the injury of the smog.
The tax and spend system is totally broken. No one wants to pay taxes because the government does not provide adequate services. The fall in revenues means that the government is indeed unable to provide the needed services. A vicious circle is quickly set in motion. No highway taxes are collected and No meaningful real estate taxes are collected despite vastly higher valuations. Even when an attempt is made, the taxman’s salary is low enough that a bribe is sure to score a hit and be highly effective.
Part of the rise in real estate values is due to non-economic factors. The feel-good attitude that has resulted from the sharply higher values of real estate has masked a deteriorating economic outlook for Syria. The country suffers from an acute shortage of job creation. Nothing is being done about this. Foreign investments in real estate will do little to address the country’s unemployment problem. The country’s youth will jump at any opportunity to leave the country for better economic prospects. This opportunity is clearly not available for most. In the meantime, more people seem to see value in quitting school and learning a trade at an ever younger age.
The taxation system is broken. The Government budget is under severe strain. This has negatively impacted all government services from education to health care to garbage collection. Most importantly, the government is also unable to pay its civil servants adequately. Bribery inevitably fills the void. Everything can be obtained at a price. Government employees are left to fend for themselves. They see their direct superiors guilty of the act and they soon learn that they must do the same or fall even further behind. A culture of “kull-mean-ido-elloh” — every man for himself — is evident everywhere and no one seems to want to stop it.
Some readers will take issue with my memo. Many will see it as “too dramatic” and “biased”. I had a lengthy telephone conversation with Dr. Landis before I wrote this note. He is privy to a lot more details than I have written here. My dear friends Ford Prefect and Observer have recently written their own observations of Syria after visiting the country. I realize that they offered a much rosier picture than the one I portray. I hope that I am wrong and that they are both right. My friend Idaf is also sure to take issue with many of my observations as we were both in Aleppo at the same time. Again, I hope that the future proves him correct.