Affordable housing remains a priority for the real estate sector

Despite some challenges for Jordan’s economy, 2014 saw trading in real estate continue to post healthy growth along with steady rises in property prices. This was especially true in the capital, Amman, where pressure on land and sought-after areas in the city centre has kept returns high for investors. Elsewhere, the need for lower-cost housing continues to grow, with government schemes aimed at meeting this demand now under way.

External factors are also affecting the kingdom’s real estate landscape. In particular, the conflict in neighbouring Syria and the resulting influx of refugees has had a number of effects, ranging from distortions in the rental market to fluctuating demand in secondary and tertiary urban centres. Plenty of opportunities remain, however, with demand for high-end retail, residential and commercial space keeping prices strong. While an oversupply of certain building types may soften the market in the year ahead, there is ample optimism that general economic recovery in 2015-16 will yield rewards for those who invested earlier in many major projects.

Snapshot

According to data from the Department of Land and Survey (DLS), 2014 was something of a banner year for real estate activity. The sector registered some 105,643 transactions that year, up 7% on 2013. By value, these transactions totalled a record JD7.76bn ($10.92bn), a rise of 22% on the previous year’s total of JD6.34bn ($8.92bn). Around 41% of all these transactions were registered in Amman Governorate alone, with the rest split between the 11 other governorates. Within Amman, 24,871 transactions were for buildings and 18,515 for land. In the rest of the country, 11,337 transactions were for buildings and 50,920 for land.

In terms of the buyers’ nationalities, Iraqis topped the list of non-Jordanians, with 2224 transactions recorded, worth a total of JD266.3m ($374.7m). Saudis came next with 822 transactions, while Kuwaitis made 471 and Syrians 445. According to DLS statistics, non-Jordanians accounted for 64% of the total value of apartment purchases made in 2014, or JD315.3m ($443.7m), as well as 36% of the value of all land purchases, or JD176.7m ($248.6m).

Bigger Picture

Jordan’s GDP grew 3.1% in 2014, according to the Department of Statistics (DoS), higher than the 2.8% growth recorded in 2013 and particularly remarkable given increased regional instability. Growth in the fourth quarter was even higher, at 3.3%. The construction sector, often a proxy indicator for real estate, grew above par at 3.9% year-on-year (y-o-y) in 2014.

The most recent DoS data on real estate put a preliminary estimate of the sector’s GDP contribution in 2014 at JD1.96bn ($2.76bn) at current prices, up from JD1.8bn ($2.53bn) in 2013. As a percentage of GDP at current prices, these figures represent 7.7% and 7.5%, respectively, showing respectable growth y-o-y. DoS figures for 2013 – the most recent that were available – also show some 5521 people employed in real estate nationwide, most of them in Amman, which constitutes the country’s main job market.

Location Matters

The concentration of property trading in Amman clearly demonstrates the centrality of the capital to the Jordanian real estate market. Some 43,386 transactions took place in Amman Governorate in 2014. This is not surprising, given the city’s outsized share of the country’s population and economic activity.

According to the most recent census data, some 38.7% of the national population, or 2.47m people, live in Amman. This is more than twice that of next-most-populous governorate, Irbid, which had 1.37m people, or 17.8% of the country’s total. The third-most-populous governorate was Zarqa, with 950,000 (14.9%), followed by Balqa (6.7%), Mafraq (4.7%) and Karak (3.9%). All other governorates had shares under 3%, the smallest being Tafilah, at 1.4%.

Constraints

The concentration of population and economic activity in Amman creates its own challenges for the real estate market. New housing developments in the capital are being squeezed by high land prices, as the president of the Jordanian Housing Developers Association, Kamal Awamleh, told local media in January 2015. Such projects are driven by continuing high demand for housing, especially in central urban areas. The geography of Amman itself, which contains many hills and valleys, further limits the amount of suitable land.

The Greater Amman Municipality (GAM) also imposes height restrictions on construction, capping residential buildings at four storeys and, in some areas, at two floors plus a roof above street level. It also recently banned new developments in Luweibdeh and Naour. These measures have had the effect of driving development out of the centre and into new districts such as Shafa Badran and along the airport road. Still, land prices remain high: Awamleh, in West Amman, reported prices of JD800-1500 ($ 1125-2110) per sq metre at the start of 2015, and even in Shafa Badran prices hit JD250 ($350) per sq metre.

Analysts at Lamudi, a real estate broker, reported in February 2015 that the most expensive areas were in Abdoun, Jabal Amman, Dabouk and the areas around the city’s Third, Fourth and Fifth Circles. In Abdoun, prices were at JD1200-1300 ($1690-1830) per sq metre for property and JD1.5m ($2.11m) per 1000 sq metres for land. Rents were around JD120 ($170) per sq metre in Abdoun, falling to about JD40 ($56) in Khalda. East Amman is generally much cheaper than West Amman, with properties of 70-80 sq metres renting for JD15,000-20,000 ($21,210-28,140) in Jabal Alakhdar, Jabal Almareekh and Jabal Al Natheef.

Population Pressures

Due to the influx of Syrian refugees that has occurred since 2011, population statistics have fluctuated considerably in recent years. Data from the UN High Commission for Refugees (UNHCR) from September 2015 show that Mafraq Governorate, for example, had 154,655 refugees registered within 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. Indeed, UNHCR put the total number of registered refugees in Jordan at 628,887 as of that month, equivalent to 9.5% of the kingdom’s 2014 population according to the World Bank.

A June statement by Nasser Judeh, deputy prime minister and minister of foreign affairs and expatriate affairs, put the proportion even higher, at 21% of the population, when registered refugees are added to the number of Syrian nationals residing in Jordan.

Initially, the influx of Syrian refugees had a large impact on Jordanian real estate as wealthier Syrians arrived and began renting accommodation for a temporary stay. This heightened demand and pushed up rents, which in some areas jumped by 200-300% on pre-crisis levels, according to a November 2013 report by REACH Resource Centre. However, as the conflict has worn on, many wealthier Syrians have left the country. Middle-class refugees who were also renting have progressively run out of funds. Competition for housing at the lower end has therefore increased. According to REACH, an additional 86,000 housing units were needed to meet immediate demand as of June 2014, compared to the 32,000 units needed under more normal circumstances.

In response to the Syrian crisis, the government of Jordan recently released its National Resilience Plan (NRP) 2014-16, which called for critical investment in housing. The report also stated that during the pre-crisis period of 2004-11, some 28,600 units per year had been constructed, against a demand increase of 32,000 units per year. The concentration of new housing in the middle and upper end of the real estate market had also further exacerbated the undersupply of affordable accommodation, pushing prices up across the board.

Meeting Demand

Helping to address this challenge is the Housing and Urban Development Corporation (HUDC), a government body that is responsible for the kingdom’s general housing policy and also helps low-income households access affordable housing. HUDC officials told OBG that in 2014 some 55,000 housing units had been required, with 50,000 more needed in 2015. The aim of this project is to increase the number of available low-cost houses in order to meet the demand of both local Jordanians and Syrian refugees. The HUDC, in cooperation with UN Habitat and a number of other international and national agencies, is therefore concentrating on providing housing for Jordanians. The idea is that, as more and more citizens move out of low-end housing and into the mid-range market, this will free up space at the lower end for Syrians, who are currently competing with locals for limited supply.

Meeting real estate demand in the lower-end of the market will require cooperation between the public and private sectors in financing, building and selling the huge number of new units. Incentives have been offered to encourage private contractors and real estate finance institutions to construct residential units of less than 150 sq metres in size.

Current regulations stipulate that the first 120 sq metres of such properties is exempt from registration fees. Yet wider incentives and schemes launched in recent years have sometimes fallen foul of the government’s competing need to raise revenue at a time when economic conditions have been tight. Until three years ago, the registration fee exemption, for example, had been available for the first 150 sq metres of properties up to 300 sq metres in size. In addition, the 2008 Decent Housing for Decent Living plan, which promised 120,000 affordable housing units for Jordanians, was abandoned, largely due to problems with financing. Attracting more private investment in the years ahead may thus require a fuller package of incentives.

This is particularly the case given that living costs are also relatively high in Jordan. The cost of energy has increased in the kingdom, despite having recently fallen in many markets across the world. Electricity tariffs rose by an average of 15% in January 2015 as the government moved to eliminate subsidies. Building materials have likewise gone up in price: cement and steel prices rose some 70% in the 2005-15 period, according to research conducted by Lamudi. There is, therefore, some pressure on the government to increase its support for private developers in the coming years, which is likely to encourage calls for a loosening of the height restrictions in Amman and implementation of broader incentive schemes.

Mixing It Up

The $5bn Abdali project, a major mixed-use development taking place in the city centre of Amman, made solid progress in 2014. Inaugurated in June of that year, the project includes a covered area of 384,000 sq metres on a 1.8m sq metre site. The developer is Abdali Investment, a joint venture between the National Resources and Development Corporation and Horizon International.

The whole project is being carried out in two phases. The first encompasses 400 luxury serviced apartments, 120 retail outlets and 30,000 sq metres of office space. Abdali Boulevard, a 370-metre-long retail, luxury residential and office development, has already been launched as part of this phase. “The Boulevard has created many job opportunities for Jordanians. It also has access to a number of neighbourhoods,” Taher Al Jaghbir, CEO of the Abdali Boulevard Company, told OBG. Phase two adds a further 800,000 sq metres of offices, apartments and retail space around a 30,000-sq-metre park.

Elsewhere in Amman, the Jordan Gate Towers consists of two 180-metre skyscrapers in the Sixth Circle. Phase one will build office, retail and commercial space – including Jordan’s first Hilton Hotel – while phase two will add a gated residential community.

The stock of high-grade commercial space is therefore on the rise, as Jordan’s stability within the region continues to attract many international companies and organisations to Amman. Three districts – Mecca Street, Shmeisani and the King Hussein Business Park – have become centres for much of this activity. Organised retail space has also seen major expansion in recent years, a trend set to continue in 2016 with the launch of the Abdali Mall and other openings in the Abdali Boulevard. Administrative issues, however, have reportedly delayed the opening of another shopping centre, the Airport Highway Mall.

Outlook

Oversupply in the retail, high-end residential and commercial markets has been a cause for concern among developers, particularly as the political turbulence in the region has had a negative impact on new companies and individuals entering the Jordanian market. Nonetheless, prices are widely expected to stabilise in the year ahead, and the number of new developments is likely to taper off, particularly given the high prices for land.

Developers are also pushing for a more comprehensive spatial study to be carried out in Amman, as well as in other cities and in Jordan as a whole. This would map urban density and a range of social, environmental and economic issues – information highly useful to the construction sector.

Regional instability will likely continue to affect the economy, but it will also reinforce Jordan’s safe-haven status as a selling point for international businesses seeking to set up shop in the region, thus keeping the flow of foreign demand steady. Meanwhile, Amman is likely to keep on expanding outwards, with lower land prices in suburban areas drawing in new developers. To ease their way, developers will continue to put pressure on GAM and the government to lift some building restrictions and expand incentives for construction, especially in the lower-income segment.

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The Report: Jordan 2015

Construction & Real Estate chapter from The Report: Jordan 2015

The Report: Jordan 2015

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