Jordan housing market remains fragile
November 12, 2009
Property investors in Jordan estimate that prices have dropped 10% to 15% since the beginning of 2008; the figures are difficult to verify, as no official or unofficial property price indices exist in Jordan. Prices and transactions continued to fall during the first half of 2009.
The market is expected to stabilize in the second half. However, the situation remains fragile, as factors beyond Jordan’s control could either lead to a recovery, or continued slump.
An oversupply of luxurious properties has been one factor dampening prices since the beginning of 2007. In 2008, high construction costs and the global financial crisis further weakened the market.
Prices in 2009 are around 15% below the 2008 level, according to an article by Zuhair Omari, president of the Housing Investors Society.
"Prices have gone down on average 20 percent this year as demand shifts to smaller units and cheaper property while large developers who were leveraged hit harder," said Mohammad Afifi, managing partner of the Century 21-Jordan, in another article.
Data from the Global Property Guide suggest that the average price of small apartments (120 – 150 sq. m.) in central Amman in September 2009 was US$1,138, down 1.1% from the same month in 2008 and 9.75% down on 2007.
Real estate transactions were around 11% lower from January to October 2009 than during the same period in 2008, with around 16,710 apartment sales, according to the Department of Land and Surveys (DLS). Land transactions dropped 14%, from 79,488 to 68,078, over the same period.
Apartment sales in 2008 reached a five-year peak of 21,971. However, land sales were almost 10% down on a year earlier.
Iraqi and foreign buyers
There’s now an oversupply of luxury units in Amman, with oil prices sharply down in 2009, and the Gulf property bubble bust leading to a dearth of Gulf buyers. Several high-profile real estate projects have stalled, or been moved to a future date.
Nevertheless foreign purchases continue to increase. Non-Jordanian purchases rose 22% from January to August 2009 to US$237 million, according to the DLS, while the total value of property deals was US$3.9 billion; down by 38% on a year earlier.
Topping the list of foreign buyers are Iraqis, with US$151.4 million worth of real estate purchases, around 64% of total foreign purchases.
The Iraqi tragedy has been a boon to Jordan’s property market, in the sense that Iraqis are major buyers of luxury apartments. Estimates of the number of Iraqis living in Jordan range from 200,000 to over half a million. Iraqi buyers were followed by Americans (mainly expatriate Jordanians) and Saudi Arabians with US$25 million and US$23.4 million, respectively.
Foreigners can buy housing and land in Jordan, but must not sell within five years. In the past, permission procedures were generally lengthy, but approval can now be obtained in just 10 days. From February 2009, Jordan announced new measures allowing Iraqis freely to buy real estate in Jordan without a security clearance.
Better security in Iraq could lead to an exodus of homebound Iraqis, adding to the oversupply of properties especially in the luxury segment.
Meanwhile, the withdrawal of Gulf money has led to the stalling of several high-end projects. Among these high-profile projects are:
- Abdali Downtown: completion moved from February 2010 to the 4th Quarter of 2010. Completion of the high rise towers moved to 2011 and 2012, after which, Phase II of the project set to be operational by 2014.
- Jordan Gate: reported to be nearly completed in 2008, will be Jordan´s tallest buildings once completed. Completion has been delayed to a future date due to numerous construction problems. Built by Royal Metropolis, the US$1 billion project has been funded by Bahraini and Kuwaiti entrepreneurs.
Reduced registration costs
Despite the high-end oversupply, there is pent-up demand for low to mid-priced housing units.
In 2008, the government exempted from registration tax the first 120 sq. m. of apartments sized 150 sq. m. or less. The exemptions apply only to Jordanian buyers. While apartment sales dropped in 2008, sales of apartments of less than 120 sq. m rose 15%. In May 2009, the exemption was expanded (up to December 2009) to apartments of 300 sq. m. or less.
"The decision helped the sector recover, particularly in the third quarter of this year as buyers did not want to miss the opportunity to benefit from the exemption," Omari said. The measure saved buyers around JOD4,000 (US$5,642) per apartment, he estimated
To adapt to the needs of the population, the government launched a US $7 Billion stimulus in the low-income residential segment in early-2008. The project dubbed “Decent home for Decent Living” was executed by the Housing and Urban Development Corporation. It aims to provide 100,000 affordable housing units to the low to middle household segments.
The oil price dilemma
What will happen as oil prices rise again? The oil price spike in 2007 benefitted Jordan, in terms of rising investment by Gulf-based individuals. However, rising oil prices also push the cost of construction materials, making it more difficult to supply affordable housing units.
Residential permits peaked in 2004 with 24,627 units, before declining to an average of 22,000 units (2005 to 2007). In 2008, residential construction permits dropped further to 19,132 units.
The oversupply of apartments has hit rents. The average rent in September 2009 was 15% lower than a year earlier, dropping from US$8.82, to US$7.51 per sq. m. per month, according to Global Property Guide research.
The drop in rents has led to lower rental yields.
Rental yields of apartments in central Amman ranged from 7% to 8.5% in 2009, lower compared to the range of 7.8% to 9.7% in 2008. Yields of villas are significantly lower at 3.3% to 5%, according to the Global Property Guide.
However, there are signs that the rental market is already stabilising according to a study by Asteco, a regional and international real estate services firm. After dropping by 7% q-o-q during the first two quarters of 2009, the fall of average rental slowed down to 2% q-o-q to Q3 2009. The average rent dropped from JOD2,400 (US$ 3,364) per year to JOD2,350 (US$3,294) per year.
The Jordanian economy was seriously affected by the global financial crisis. Investment from oil-rich Gulf countries dropped, and remittances from Jordanian expatriates dropped 6.5% to JOD1,892 million (US$ 2,652 million), according to the Central Bank of Jordan (CBJ).
Real GDP growth is expected to slow to 3% in 2009, and 4% in 2010, according to the IMF, after rising 8.3% annually from 2004 to 2008.
However the mood is upbeat. “No major companies collapsed, no factories filed bankruptcy,” says Zaki Ayyubi, Director General of the Jordan Chamber of Industry. “Jordan will follow the overall global trend improvement.”