Property prices in Jordan plummeted as the world moved into the global financial crisis in 2008, but recent changes in the country’s property buying laws, including a partial exemption of the registration tax for Jordanian buyers and a shorter purchase approval process for foreign buyers. Reports from Asteco and data found in the Department of Land Survey indicate market performance has almost returned to pre-crisis levels. Comparative regional instability, particularly in Iraq, is generating more interest in Jordanian real estate, but a weakening economy and lower rent yields are balancing the market. For more on this continue reading the following article from Global Property Guide.
In the first quarter of 2011, the average price of apartments in Jordan rose by 3% to JOD950 (US$1,335) per square metre (sq. m), according to Asteco. The total number of apartments sold rose by 29% to 1,872 units in February 2011, according to the Department of Land Survey (DLS), with land transactions also soaring up 39%. In addition, the total value of property transactions increased 28% to JOD430 million (US$604.3 million) in February 2011. This is a second year of big rises in numbers of apartment sold.
Jordan’s property market slowed sharply in 2008 due to the global crisis. House prices fell by about 10% to 15%, according to local real estate analysts. The figures, however, are difficult to verify as no official or unofficial property price indices exist in Jordan.
According to Zuhair Omari, President of the Housing Investors Society (HIS), the real estate market’s performance this year has almost returned to the peak levels seen in 2006 and 2007. The strong rebound in the property market is mainly due to the property tax cuts and registration fee exemptions implemented by the government since May 2009.
Jordan’s property market is expected to continue its strong performance as the government tends to introduce new financial packages intended to attract foreign investors. The total value of inbound real estate transactions is expected to exceed JD6 billion (US$8.4 billion) by end-2011, close to figures seen during the boom of 2006 and 2007.
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.
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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.”
This article was republished with permission from Global Property Guide.