Interview: Emad Kilani
As construction activity in the region gains momentum, how can real estate developers avoid repeating the mistakes that led to the crash?
EMAD KILANI: The last real estate crash was precipitated by fiscally imprudent trends, including poor speculation, extensive lending to buyers and developers, and heavy dependence on pre-sales for financing. Jordan’s conservative banking system softened the impact on the local economy and real estate sector. While construction activity did slow, there are signs that Jordan’s construction sector is taking off again. To avoid falling into the traps that led to the last crash, developers must focus on meeting the needs of the market, which can be achieved by emphasising proper planning and conducting thorough feasibility studies. This may require revisiting financial models, working out contingency plans, identifying worst case scenarios and coming up with solutions. Another common pitfall developers can find themselves in is to underestimate costs, which often results in financial problems. Employing cost consultants to make more accurate projections is an astute way to prevent coming up against these pitfalls.
Will Jordan’s construction sector be driven more by public sector expenditure or private and foreign involvement? How will this impact financing options?
KILANI: Historically, the public sector in Jordan has been the biggest spender in construction, though government cutbacks in recent years have affected the industry. In recent months, we have seen a strong push from the private sector in recharging the construction sector. The public sector, however, continues to play a pivotal role in this recovery, as the industry is increasingly relying on cooperation between the public sector and private and foreign investors. With the $2.5bn, four-year GCC fund in place, the government is able to allocate these funds to priority infrastructure projects that will most benefit the country. When it comes to financing, banks have plenty of money available to lend to credible investors. Those investors who have a good reputation and are constructing viable projects will always have financing options. Thanks to the progress and optimistic outlook of the sector, fueled largely by the private sector’s contributions to the recovery, financing options are diverse for credible investors.
What is driving the demand for increasing hotel room numbers? How much of an appetite do Jordanian banks have for lending in this area?
KILANI: The Jordan Tourism Board has been very successful in implementing its National Tourism Strategy for 2011-15, with the goal of increasing annual tourist arrivals to 9.4m. The government and the private sector have also undertaken successful efforts to promote the kingdom as a regional business hub and to expand the country’s meetings, incentives, conferences and exhibitions industry. These strategies, coupled with Jordan’s location, have helped fuel remarkable growth in the hotel industry. We have seen that local banks are very eager to lend to projects in this sector. Even smaller banks have shown significant interest in partially financing such projects. For banks to take interest in a project, however, they need to be convinced by the financial model and revenue scheme, and the investment needs to be feasible and viable within the market.
What type of real estate projects in Jordan will be most attractive to international developers?
KILANI: There are a number of areas that could be very appealing to them. Developers always look for good returns, but each may have different criteria for determining the types of returns they aim for and the level of involvement they want to have in their properties. Some developers look for short-term investments with quick returns, others prefer to invest in long-term endeavors; some choose to outsource operations, while others prefer to operate their own projects. Whether a project is residential, commercial or touristic, its attractiveness will depend on whether it meets a need, promises good returns and offers long-term sustainability.
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