Weak growth hits Jordan's housing market
Maria de Guzman | August 31, 2018
Returns on investment for individual investors can be good in Jordan. Rents are high and yields reasonable, due to the large influx of refugees from Iraq and Syria. But because of weak economic the country´s residential real estate price index rose by only 0.3% y-o-y in Q1 2018, according to the Central Bank of Jordan. When adjusted for inflation, prices actually fell by 3.3%.
Villa prices rose by 0.6% y-o-y (-3% inflation-adjusted), while apartments rose by 0.5% y-o-y price increase (-3.1% inflation-adjusted) in Q1 2018. In contrast, house prices fell by 2.1% (-5.6% inflation-adjusted) during the year to Q1 2018, based on the central bank figures.
The UAE-based property management firm Asteco produces figures based on observed sales prices. It saw a 1% y-o-y increase in Amman´s apartment sales prices in Q1 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 rose by 4% to an average of JOD 1,425 (US$ 2,011) per square metre (sq. m.) during the year to Q1 2018, according to Asteco.
- In 4th Circle, apartment prices increased by 2% y-o-y to JOD 1,350 (US$ 1,905) per sq. m.
- In Sweifieh, the average apartment price was up by 1% to JOD 1,200 (US$ 1,693) per sq. m.
- In Um-Othainah, the average apartment was unchanged in Q1 2018 from a year earlier, at JOD 1,250 (US$ 1,764) per sq. m.
- In Al-Rabiah, apartment prices were also stable at an average of JOD 1,100 (US$ 1,552) per sq. m.
- In Der Ghabar, the average apartment price was also unchanged at JOD 1,200 (US$ 1,693) per sq. m.
"There is a lot of negativity in the air as the prices are becoming higher and higher for a normal citizen to buy instead of renting and this is creating a big problem for many," says Amman property agent Fayez Hannan. Real estate transaction volumes fell by 14% in 2017, 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 a lending rate of 7.5% per annum. Yet loans to the construction industry have been rising. In April 2018, the total amount of credit to construction rose by 8.76% to JOD 6.74 billion (US$ 9.51 billion) over the same period last year, 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 early 2018. This program includes permanent residency for non-Jordanians who purchase properties worth a minimum of JOD 200,000 (US$ 282,216) 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.
Rental yields are good; increasing rents in Amman
In Amman, Jordan´s capital, gross rental yields of apartments are good, ranging from 6.45% to 8.82%, based on Global Property Guide´s research in December 2017. Smaller-sized apartments have higher yields than their larger counterparts.
Apartment rents in Amman increased by 3% during the year to Q1 2018, according to Asteco. On a quarterly basis, apartment rents in the capital increased by 1% in Q1 2018.
Sweifieh saw the highest rent price increase of 5% in Q1 2018, followed by a 4% rent hike in 4th Circle. Rent increases were moderate in Abdoun (3%), Der Ghabar (3%), and Um-Othainah (2%), while rents in Al-Rabiah remained unchanged from last year. The increase in rents was mainly due to the shortage of larger unit types (2 BR and 3 BR), according to Asteco.
Rental rates in Amman are rather high, due no doubt to the large number of refugees who have poured into the country.
Abdoun, Amman’s most affluent district, has the most expensive housing, with one-bedroom apartments offered for rent for JOD 5,500 (US$ 7,761) per year, two-bedroom apartments for JOD 11,750 (US$ 16,580), and three-bedroom apartments for JOD 22,250 (US$ 31,397).
APARTMENT RENTS IN AMMAN, 2018
|District||Average rent per annum (JOD)||Q-O-Q change||Y-O-Y change|
Refugee population boosts local property market
The conflict in neighboring Syria has meant an influx of as many as 1.5 million Syrian refugees since 2011, compounded by large Palestinian and Iraqi refugee populations present even before the Syrian civil war. Mafraq Governorate, for example, had 154,655 refugees registered in its territory – equivalent to around half of its population as of the last census. The Zaatari refugee camp has evolved into the governorate’s largest city.
When registered refugees are added to the number of Syrian nationals residing in Jordan, the proportion could be as high as 21% of the population, according to Deputy Prime Minister Nasser Judeh.According to a recent report by REACH Resource Centre, prices of rented accommodation have jumped 200-300% versus pre-crisis levels in some areas.
An additional 86,000 housing units were needed to meet immediate demand, compared to 32,000 units under more normal circumstances, according to REACH.
In Q1 2018, there were around 2,775 real estate sales to non-Jordanians. Of which 2,060 transactions were for apartments while the rest were for land. Most of the foreign buyers were Iraqis at 49% of the total volume of purchases, followed by the Saudis (20%) and Syrians (6%).
Jordan in dire need of affordable housing
Refugees and native Jordanians cite housing as their area of greatest concern, as well as their largest monthly expenditure. Royal efforts have failed in the past. In 2005, King Abdallah II kicked off the “Decent Housing for a Decent Life” campaign, which aimed to provide 120,000 affordable homes for low-income Jordanians over five years. The campaign was later abandoned, as most dwellings ended up being built in rural areas, far from job opportunities.
From 2004-2011, some 28,600 housing units per year were built, against an increase in demand of about 32,000 per year, but they were concentrated in the mid to upper end of the real estate market, exacerbating the shortage of affordable housing.
Attracting more private investment in affordable housing may thus require broader incentive schemes and loosening of restrictions on housing construction.
Presently, the Housing and Urban Development Corporation (HUDC), a government body responsible for the kingdom’s general housing policy, in cooperation with UNHCR and several NGOs, focuses on four forms of intervention: cash-for-rent grants, construction of new units, winterization and upgrading of existing homes, and housing and property rights legal education.
The UNHCR and the International Catholic Migration Commission and Caritas are the primary distributors of cash for rent aid. Shelter upgrading is central to the plans of the Norwegian Refugee Council, the Jordan Health Aid Society, Medair, the Lutheran World Federation and Première Urgence-Aid Médicale Internationale (PU-AMI).
Economic growth still weak; new government to cut spending
Jordan´s economy expanded by 2% in 2017, unchanged from the previous year and the lowest level in two decades. This was amidst the political and social unrest in the region brought by the continuing chaos in Syria and Iraq, which severely effected Jordan´s exports, tourism, and overall economic performance.
During the first quarter of 2018, Jordan´s real GDP increased by 1.9% y-o-y, down from the 2.2% growth in Q1 2017, according to the Central Bank of Jordan.
The economy is expected to have a modest expansion of 2.5% in 2018 and by 2.7% in 2019, 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).
The IMF approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Jordan in August 2016 for US$723 million, on condition that the government reduces public debt as a percentage of GDP from 93% currently to 80% by 2021. It was recently reported that Jordan plans to renegotiate the IMF loan, as the kingdom wants to extend beyond the 36 months, and to revisit some targets, according to Deputy Prime Minister Rajai Muasher.
“Public debt needs to be put on a downward path through gradual fiscal consolidation over the medium term while preserving essential social spending,” the IMF noted.
The public sector deficit fell from 3.2% of GDP in 2016 to 2.6% of GDP in 2017. However, due to weak economic growth, the country´s public debt to GDP ratio increased to 95.3% in 2017.
In June 2018, massive protests occurred against price hikes as well as an income tax draft law aiming to reduce Jordan´s public debt, in line with the IMF recommendations. The income tax draft law was supposed to raise employees´ income taxes by at least 5% and on companies by around 20% to 40%.
The protests resulted to the resignation of former Prime Minister Hani Mulki, who was replaced by then education minister Omar Razzaz, who pledged to withdraw the income tax law, and instead of raising taxes plans to cut spending by 150 million dinars ($211 million) this year.
Jordan´s unemployment rate remains high at 18.4% in Q1 2018, but slightly down from the ´record high´ rate of 18.5% in both Q3 and Q4 2017, according to the Central Bank of Jordan. In 2017, the unemployment rate stood at 18.3%, up from 15.3% in 2016, 13.1% in 2015, 11.9% in 2014, and 12.6% in 2013.
In June 2018, inflation stood at 5.1%, up from 3.3% in 2017, and -0.8% in 2016 and -0.9% in 2015.
Excessive bureaucracy, red tape thwart housing market growth
Excessive bureaucracy and irrational regulations keep Amman under-housed - and the poor, the middle class, and the refugees suffer.
|Population||% of Total|
|Source: Census Data|
New housing developments in the capital are discouraged by high land prices, according to former Jordanian Housing Developers Association (JHDA) president Kamal Awamleh.). Furthermore, the Greater Amman Municipality (GAM), which oversees private and public construction, is rife with red tape.
GAM imposes strict restrictions and procedures significantly limiting investments in the capital. These included time-consuming paperwork and long delays in connecting new buildings to utilities, such as water, electricity and sewage. In Jodan a housing project must undergo 17 different official procedures all in all – while in the Arab region’s most other countries, the average reaches is only 9.
Apart from drawn-out procedures, GAM also restricts the number of flats in each building. “Developers want to construct buildings with 15 smaller apartments but GAM forces them to build only ten,” says Awamleh. This has resulted in larger and less affordable apartments that are basically inaccessible to the majority of Jordanians.
Furthermore, GAM also imposes height restrictions on construction, capping residential buildings at four stories and, in some areas, at two floors plus a roof above street level.
Since 2015, housing investors have been moving their investments from Jordan to other countries, according to current JHDA president Zuheir Omari. As of February 2018, about only 2,000 out of 3,400 investors have renewed their membership in the JHDA. The reduced number of members, however, "does not mean that 1,400 investors have moved but surely indicates a reluctance to continue doing businesses in the Kingdom," Omari noted.
Investor Numaan Hamshari, who relocated his investments to Turkey, said that investors distanced themselves from Jordan due to "fees, ‘high’ taxes, too strict regulations and complicated procedures". Another investor, Haidar Tamimi, also transferred investments to Cyprus and Kyrgystan, noting that the "lack of clear procedures for investing in Jordan and temperamental treatment of some public employees have compelled me to look for a new location of my investments".
Omari called on the government to trim down the owner transfer fees from 9% to 5%, or to maintain the registration fees exemption on the first 150 sq. m. given to first-time buyers who bought from registered developers.
GAM counter the criticisms by saying that any delays are due to disputes or failures to meet the official standards. Procedures should only take 12 days maximum if the building license transaction meets terms and conditions. Normally, around 80-85% of transactions are approved.
In a talk held in February 2018, Amman Mayor Yousef Shawarbeh said that GAM is currently working on reducing red tape. "GAM is focusing its efforts on developing a digitalisation of all the bureaucratic procedures to simplify and create a closer and easier relations between the citizens and the city," according to Mayor Shawarbeh.
A new GAM regulation was implemented on January 1, 2018, mandating all requests for renovating establishments’ licenses to be presented in an electronic format. "Our aim is to bring transparency and eliminate bureaucracy for our citizens’ convenience," said Mayor Shawarbeh. "We want to build confidence between the employers and the inspectors; we have received many complaints of bad behaviours from the inspectors and we apologise for that."