Jordan's housing market still struggling
Lalaine C. Delmendo | August 08, 2019
The nationwide residential real estate price index fell by 2.4% during the year to Q1 2019 (-2.43% inflation-adjusted), following y-o-y declines of 2.4% in Q4 2018, 2% in Q3 and 1.9% in Q2, and an annual increase of just 0.3% in Q1, according to the Central Bank of Jordan. Quarter-on-quarter, residential property prices fell 0.52% in Q1 2019 (up 0.47% when adjusted for inflation).
Apartments saw the biggest price decline of 2.59% during the year to Q1 2019 (-2.61% inflation-adjusted). House and villa prices fell by 1.3% and 0.45%, respectively. In contrast, residential land prices rose by 2.16% y-o-y in Q1 2019, based on the central bank figures.
In Amman, Jordan's capital city, the real estate price index fell slightly by 0.7% during 2018, after y-o-y decline of 0.4% in Q4 2018 and miniscule growth of 0.6% in Q3, 0.8% in Q2 and 0.4% in Q1.
The UAE-based property management firm Asteco produces figures based on observed sales prices. It saw Amman's apartment sales prices unchanged during 2018, noting that "it is unknown whether these improvements are based on actual transactions".
In Amman's major districts:
- In Abdoun, the capital city's most affluent area, apartment prices were almost steady, ranging from JOD 1,250 (US$1,763) to JOD 1,600 (US$2,257) per square metre (sq. m.), according to Asteco.
- In 4th Circle, apartment prices range from JOD 1,150 (US$1,622) to JOD 1,550 (US$2,186) per sq. m.
- In Sweifieh, apartment prices range from JOD 1,100 (US$1,551) to JOD 1,300 (US$1,834) per sq. m.
- In Um-Othainah, apartment prices range from JOD 1,150 (US$1,622) to JOD 1,350 (US$1,904) per sq. m.
- In Al-Rabiah, apartment prices were stable at an average of JOD 1,100 (US$1,551) per sq. m.
- In Der Ghabar, the average apartment price was also unchanged at JOD 1,200 (US$1,693) per sq. m.
Demand continues to fall. In the first two months of 2019, real estate transaction volume dropped almost 24% y-o-y to JOD695 million (US$980.3 million), following annual declines of 13% in 2018, 14% in 2017, 9% in 2016 and 2% in 2015, according to the Department of Land and Survey (DLS).
One factor that limits Jordanians buying homes is high mortgage rates. Arab Bank, Jordan's largest regional bank, charges lending rates ranging from 7.2% to 8.9% per annum. Unsurprisingly, loans to the construction industry have been slowing. In May 2019, the total amount of credit to construction rose by a meager 0.6% to JOD 6.82 billion (US$ 9.61 billion) over the same period last year, a sharp slowdown from the prior year's 8.8% growth and the lowest y-o-y increase in 16 years, based on the figures from the Central Bank of Jordan.
In hopes of stimulating capital inflows in the country, Jordan approved an investment program that grants citizenship or permanent residency of non-Jordanians in February 2018. This program includes permanent residency for non-Jordanians who purchase properties worth a minimum of JOD 200,000 (US$ 282,100) and hold the properties for 10 years. Grants of Jordanian citizenship or residency are limited only to 500 applicants per year, according to State Minister for Media Affairs and Government Spokesperson Mohammad Momani.
Foreigners are allowed to buy property in Jordan, provided Jordan and the buyer's country of residence have a reciprocal relationship, and that the approval of the Cabinet (Council of Ministers) is obtained. Foreigners can only sell the property five years after acquisition. Most properties for rent and for sale can be found in Amman, Jordan's capital city.
Jordan: gross rental yields good at 6.5% to 9%
Property prices. Typically, it costs around US$1,850 per square metre to buy an apartment in Jordan’s capital Amman - less at the lower end, more for larger apartments, according to our sample (though this may not apply to the very smallest apartments).
Property rents. Rental rates in Amman are rather high, due no doubt to the large number of refugees who have poured in to the country. Smaller apartments yield significantly more than larger apartments.
Property returns. Gross rental yields on apartments in Amman are good.
Yields on villas are somewhat lower. We researched villas in previous years but this year were unable to gather data. The lower yields are because villas tend to cost substantially more on a per square metre basis, because of the land value.
Property buying costs. Round trip transaction costs on the purchase of residential property in Jordan are moderate to high, especially in comparison with the rest of the Middle East. See our Jordan residential property Buying Guide and Residential property transaction costs in Jordan compared to the rest of the Middle East.
Moderate to high taxes in Jordan
Rental Income: Rental income is considered business income and is subject to corporate income tax at a flat rate of 20%.
Capital Gains: Capital gains are generally not taxed in the country.
Inheritance: There are no inheritance taxes in Jordan.
Residents: Residents are taxed at progressive rates, from 5% to 30%.
Total transaction costs are moderate in Jordan
Roundtrip transaction costs are around 7.94% to 12.94%. Registration fee is levied at 3% to 8%, the applicable rate varies depending on the status of the buyer and property size. Both parties equally share the real estate agent’s fee of 4%, which is subject to a 16% Goods and Services Tax (GST).
Rents are paid a year in advance in Jordan
Rent: Since most rents are paid a year in advance, deposits are not required.
Tenant Security: The typical lease contract lasts a year, with an option to renew. Although leases with shorter terms are also allowed in Jordan, such contracts have higher rents (the one-year contract of lease, under Jordanian law, cannot be broken).
Weak economic growth; record-high unemploymentJordan’s economy expanded by 2% in 2018, the lowest level in more than two decades, amidst political and social unrest in the region brought about by the continuing chaos in Syria and Iraq, which severely effected Jordan’s exports, tourism, and overall economic performance.
During the first quarter of 2019, Jordan’s real GDP increased by 2% y-o-y, marginally up from 1.9% growth in the same quarter last year, according to Finance Minister Ezzeddine Kanakrieh.
The economy is expected to have a modest expansion of 2.2% in 2019 and by 2.4% in 2020, according to the IMF.
To jumpstart the economy, His Majesty King Abdullah unveiled an ambitious economic stimulus plan (2018-2022) that include reforms in various sectors, projects worth JOD6.9 billion (US$9.7 billion) and private sector investment opportunities amounting to JOD9.5 billion (US$13.4 billion).
High unemployment is another major concern. Jordan’s jobless rate rose to a record 19% in Q1 2019, up from 18.4% in the same period last year, according to the Department of Statistics. In 2018, the unemployment rate stood at 18.3%, up from 18.1% in 2017, 15.3% in 2016, 13.1% in 2015, 11.9% in 2014, and 12.6% in 2013.
In June 2019, inflation slowed to just 0.5%, sharply down from 5.1% a year earlier.
In August 2016, Jordan accepted a US$723 million loan from the IMF’s Extended Fund Facility (EFF) on condition that the government reduces public debt as a percentage of GDP from almost 95% currently to 80% by 2021 through fiscal reforms and austerity measures.
However in June 2018, there were massive protests against price hikes as well as against a new income tax draft law, which aimed to raise employees’ income taxes by at least 5% and on companies by around 20% to 40%. The protests caused the resignation of former Prime Minister Hani Mulki. His replacement Omar al-Razzaz pledged to withdraw the income tax law, but his alternative measures also aroused widespread unrest. In May 2019 he reshuffled his cabinet for the third time in less than a year - widely seen as a way of deflecting public frustration amidst declining living standards.
Jordan's public deficit rose in 2018 to 4% of GDP, up from 2.9% in 2017 and 3.8% in 2016, according to the IMF, and during the first five months of 2019, the public budget deficit after grants rose by 11% y-o-y to JOD483.5 million (US$682 million), according to the Finance Ministry.
Nevertheless in 2018, the country’s public debt was down to 94.23% of GDP, slightly down from 95.9% of GDP in 2017 and 95.1% of GDP in 2016, according to the Central Bank of Jordan.