Strategies to meet Jordan's rising real estate demand and boost affordable options

 

Centred on the capital, Amman, Jordan’s real estate sector experienced a largely stable 2016-17 period. Rents and sales prices registered marginal increases in the residential market, while there were slight declines in the commercial segment. Much of this was due to the higher growth and rapid development of recent years, which left a good supply of real estate, putting a break on upward price movements. There is now, however, a more evident search for quality, as well thought-out, largely higher-end developments attract customers. At the same time, higher taxes and costs have had an impact on the sector, while increased land prices and low building height regulations constrain investors.

Outside the capital there have also been some notable developments, particularly in Aqaba, while projected advances in transport infrastructure around the Greater Amman Municipality should begin to have an impact on real estate development in the years ahead. The overall economic picture in the kingdom may also improve as regional instability eases, borders reopen and Jordan builds on its important regional trade role. Uncertainty, however, remains a significant factor within the economy and, in turn, the real estate market.

Facts & Figures 

The country’s population was 10.1m as of March 2018, according to the Department of Statistics, while the most recent census, held in 2015, put the total at 8.6m. The increase may largely be accounted for by a recent influx of Syrian refugees, with the UN High Commission for Refugees noting that some 736,396 “people of concern” were living in Jordan by mid-2017, of whom 659,593 hailed from Syria. Amman has seen substantial growth in both population and geographical size in recent years, expanding from an original core of seven hills. Now some 19 hills are fully settled, with the city expanding along new corridors such as the highway to Queen Alia International Airport (QAIA), located south of the capital. As for the capital city, the 2015 census put the population at 3.9m, or around 45% of the country’s total at the time the data was collected. The city of Irbid accounted for 1.6m, while Zarqa had a population of 1.3m, with these cities – along with Amman – forming a northern cluster that accounts for most of the Jordanian population. Elsewhere, the three southern governorates of Aqaba, Ma’an and Tafila recorded populations of 160,000, 77,900 and 75,100, respectively, in 2015. Aqaba has the country’s sole international port, however, and is the entry point for much of Jordan’s imports.

Amman has long been divided into a wealthier, less populated western half and a less affluent, more densely inhabited eastern half. The city also has a long history of harbouring populations escaping persecution and warfare, from Circassians in the 19th century to Palestinians in the 20th century and, most recently, displaced Iraqis and Syrians.

Amman’s population accounts for roughly 45% of the country total CAPITAL FOCUS: These demographics have meant that the city of Amman has been the central focus of the real estate sector for many years, with the western parts of the city a target for higher-end developments. Neighbourhoods such as Abdoun, Deir Ghbar and Shmeisani, for example, have seen higher-priced residential and commercial development, with Jabal Amman, the First Circle and Jabal Al Weibdeh home to much of the city’s high-end cultural and entertainment activities.

More recently, projects to revitalise the downtown area have led to major investment in the more central Abdali district. Al Balad is the old town centre, which contains many historic buildings and archaeological sites such as Jabal Al Qal’a, the Amman Citadel hill. This area has significant tourism and retail appeal, as well as being home to residential areas.

Apartments & Villas 

According to regional real estate consultancy Asteco, residential rental rates in Amman rose by an average of 1% during the fourth quarter of 2016. This contributed to a year-on-year (y-o-y) growth of 3%.

Areas with a greater concentration of high-end property saw larger increases, with Abdoun and Deir Ghbar both recording 6% y-o-y hikes in the fourth quarter of 2016, while prices in Sweifieh and Um Uthaina increased by 3% y-o-y. Average rental rates in the city’s most expensive district, Abdoun, were JD5500 ($7760) per year for a one-bedroom apartment and JD19,250 ($27,200) for a three-bedroom flat. Lower rates were available in Al Rabiah – with annual prices averaging JD3500 ($4940) for a one-bedroom and JD10,750 ($15,100) for a three-bedroom. The Sweifieh district, meanwhile, came in at JD4250 ($6000) for a one-bedroom and JD12,250 ($17,300) for the three-bedroom flat.

In terms of sales, the residential market was largely flat. When comparing the fourth quarter of 2015 to the fourth quarter of 2016, Asteco found that apart from an average 2% price rise in Abdoun and a 1% hike in Fourth Circle, apartment sale prices in other districts covered – Sweifieh, Um Uthaina, Al Rabiah and Deir Ghbar – remained unmoved.

These results have proved to be consistent with recent trends. Jordan’s real estate price index – published by the Central Bank of Jordan (CBJ) and established with a base score of 100 points in 2012 – shows minimal price fluctuations for residential real estate, with the index rising from 108.6 in 2014, 110.4 in 2015 and 111.9 in 2016. In the third quarter of 2017, the figure had receded to 110.5, before slowing once again to 110.4 in the fourth quarter.

Commercial & Office 

The Asteco fourth quarter 2016 report also showed limited activity in Amman’s office market, with rental rates declining by an average of 2%. The findings found zero change in rental rates in the areas of Madina Al Munawarah Street, Sweifieh and Abdali between the fourth quarter of 2016 and the corresponding period one year earlier. Shmeisani recorded a y-o-y drop of 3%, while Mecca Street, Wadi Saqra and Um Uthaina witnessed declines of 5% over the same period.

In terms of prices per sq metre, the highest annual rental rate was found in Abdali, at JD130 ($183), while the lowest was JD75 ($106) in both Madina Al Munawarah Street and Sweifieh. When it came to sales prices, there was no change in any area between the fourth quarter of 2015 and the fourth quarter of 2016. The highest sales price was in Abdali, at an average of JD1500 ($2200) per sq metre, while the lowest was in Madina Al Munawarah Street, with prices of JD800 ($1130) per sq metre.

Boosting the Market 

In November 2016 officials introduced a year-long waiver on registration fees for the first 150 sq metres of any home sold, providing the total area of the site did not exceed 180 sq metres. The intervention came amid concerns over the state of the market, with the Jordan Housing Developers Association (JHDA), which has a membership of more than 3000, reporting that some of its members were selling apartments for prices below the cost of construction as a result of the falling demand. Indeed, declining demand has been a major factor behind the generally flat residential market. These factors have, in turn, contributed to a sluggish real GDP growth in recent years.

Figures from the Ministry of Finance show the economy grew by 2.8% in 2013 and 3.1% in 2014, before dropping to 2.4% in 2015, 2% in 2016 and 2.2% in 2017. The country also continues to suffer from stubbornly high levels of unemployment – put at 18.2% in the first nine months of 2017 by the MoF – and a gross public debt-to-GDP ratio, which stood at 95.3% in 2017, further adding to economic concerns.

On top of broader macro conditions, cutbacks by international companies and organisations in Amman have also had an impact on demand for higher-end properties, as numbers of expatriate staff are reduced as part of cost-cutting exercises. Jordanians overseas – a major pillar of investment in the country – have also been facing increasingly difficult circumstances as the fall in oil and gas prices has led to a reduction in projects abroad, particularly in the Gulf, which are a major source of overseas employment for Jordanians.

High Costs 

Despite these challenges with the market, developers continue to face substantially higher costs. “The contribution made by the value of land to the price of a residential unit in the JD100,000 ($141,000) price range has increased over the past 20 years to reach 50-60% at present,” Zuhair Al Omari, president of the JHDA, told OBG.

In addition, zoning and planning regulations have placed restrictions on what can be done with land in the capital. The height of a property in Amman is limited to four storeys, while a large proportion of the plot must be left undeveloped. For Category A projects the maximum amount of built space is 39% of the total plot, while for Category B sites it is 45%. While this code may deliver a more pleasing environment, it does mean that the units built have to cover the costs of a much larger area, pushing up eventual sales and rental prices.

At the same time, other market regulations have been credited with preventing land prices from falling, even when demand is low. “There aren’t a lot of costs to holding on to undeveloped property. Very low taxation rates on land mean people can hold off on selling almost indefinitely,” Alma Alic, general manager at Abdoun Real Estate, told OBG.

Given these restrictions, some developers have started to look outside Amman for lower-cost land and more appealing zoning laws. However, such developers have faced notable challenges associated with a lack of infrastructure.

“The cost of services is becoming very high,” Mai Asfour, head of the housing policy department at the Housing and Urban Development Corporation (HUDC), told OBG. “To ensure effectiveness and affordability, there should be much more coordination between sewage, water and utility services, so that the expense of connecting to the services network does not inflate the cost of the project itself.”

New Strategies 

A further challenge to the sector is the high rate of tax on building materials. In February 2017 the government removed a previous hold on sales tax for many steel products used in construction, resulting in a tax rate increase from 8% to 16% for affected materials. Developers have warned that this will likely contribute to even higher real estate prices in the future.

These issues affecting the industry have led to a lack of affordable housing for many Jordanians, who have faced difficulty in securing housing loans in economically strained times. This is also a major concern for developers and the HUDC. As a result, authorities are working with the World Bank and other agencies to develop a new national housing strategy and action plan. According to industry officials the new strategy had been sent out for evaluation in mid-2017, in the hope that it would be ready for implementation in the coming months. The plan will likely address the issue of affordable housing, land constraints, height restrictions of buildings and the high cost of services for new housing developments, among other issues.

Affordable Housing 

The Jordan Economic Growth Plan 2018-22 also calls for the creation of a national housing action programme, which in mid-2017 was at the draft and consultation stage. This aims to address current difficulties, particularly at the middle and lower end of the market, while also tackling constraints on the residential real estate sector such as low limits on the number of floors and plot density regulations.

Addressing these challenges is expected to lead to a significant increase in the construction of affordable housing domestically. In addition, the plan foresees closer future linkage of construction permit issuance with environmental building regulations, encouraging the development of sustainable and more energy-efficient projects.

Building Out 

Despite issues, there have been some important recent developments in the real estate market in Amman. The first of these is the $5bn Abdali Project, containing hotels, residential, commercial and retail spaces. The 227,000-sq-km Abdali Mall, which won the prize for the best built retail project in Cityscape Global’s 2016 emerging markets awards, was opened in May 2016 as part of the broader Abdali mixed-use development. The mall was built by Kuwait’s United Real Estate Company and is being managed by Abdali Mall Company. Abdali has allocated 34% of its area to residential use, with 23% for retail, 19% for office space, 16% for hotels and 8% for medical developments.

Building Up 

The long-delayed Jordan Gate Towers project also saw progress. After eight years of delays, work resumed on the two-tower, $400m development in 2016. With a 44-floor and a 37-floor tower, the project will comprise the tallest structure in the capital upon its expected completion in the second half of 2018. The development combines residential, retail and commercial units, and is located near the city’s Sixth Circle district.

Meanwhile, the 15-storey, JD50m ($70.5m) Abdoun Towers project was inaugurated in May 2017. Built on a 45,000-sq-metre site, the towers will consist mainly of apartments, with some retail outlets included. Elsewhere, the JD40m ($56.4m) Golden Gate development, located in the city of Um Uthaina, also saw its cornerstone laid in May 2017. The project will consist of residential and office units, along with three vaults of retail outlets. Exploiting the new development corridor stretching out to QAIA, Manazel Amman is being built on a 300,000-sq-metre site just 10 minutes’ drive from the airport, and will feature 1253 apartments and villas. This project is the first such development carried out by Abu Dhabi-based developer Manazel outside of the UAE. Jordan also experienced positive growth in apartment sales in mid-2017, with 3670 sold in July, the highest monthly level since late 2016.

Beyond Amman 

Outside the capital, the Ayla mixed-use development project is being developed on the northern shores of Aqaba with high-end residential and commercial amenities in mind. Ayla Oasis Development Company, the master developer of the project, handed over 150 first-phase duplex apartments to their owners in August 2016, and at the end of that year, 70% of completed units were occupied, exclusively by Jordanians. However, the opening of direct air connections between Aqaba’s King Hussein International Airport and Dubai, Beirut and Cairo in April and June 2017 is expected to boost the presence of non-Jordanian residents. In the first half of 2018 the Hyatt Hotel Aqaba will be the first hotel to open on the Ayla site, comprising a 18-hole championship golf course and 9-hole golf course and golf academy. Four more hotels will have been launched by Ayla’s completion, alongside 3000 residential units and 20,000 sq metres of commercial retail and food and beverage outlets.

Outlook 

With a new housing action plan addressing affordable housing concerns, along with more concerted government efforts to stimulate the market, the sector may see an uptick in the short to medium term. National economic growth is expected to benefit from new trade arrangements with the EU, while the prospect of a reopened border with Iraq also adds positivity to Jordan’s economic outlook, which could boost the real estate market. While issues of expense – particularly with regard to the price of land along with zoning and tax issues – continue to affect the sector, Jordan remains an important market in the region in the long term, and is likely to continue to attract key investments.

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