Jordanian Real Estate Prices Up

Asteco reports that Jordan’s residential real estate market saw gains as high as 15% for the year ending in the second quarter of 2013 despite a slowdown in demand. Jordan’s property prices have already returned to the peak levels experience prior to the global financial crisis, buoyed by foreign purchases, modest economic growth and rising land prices that are passed on to buyers by property developers. Any foreign buyer can purchase property in Jordan as long as they sell it within five years and displaced Iraqis have taken advantage of the opportunity while their home country remains on uncertain footing. For more on this continue reading the following article from Global Property Guide.

Overall house prices in Jordan rose by 9% during the year to end-Q2 2013, according to UAE-based property management company, Asteco.

"Apartment sales prices across Amman also experienced an average 2% quarter-on-quarter increase (in Q2 2013) due to rising land prices, which has prompted developers to pass on the higher costs directly to buyers," said Hussein Safadi, General Manager of Asteco Jordan.

Al-Rabiah saw the biggest house price increase of 15% during the year to end-Q2 2013. It was followed by the 4th Circle (10%), Abdoun (9%), Sweifieh (8%) and Um-Othainah (8%).

Abdoun has the country’s most expensive housing, with an average price of JOD1,175 (US$1,654) per square meter (sq. m.) in Q2 2013, followed by 4th Circle with an average price of JOD1,150 (US$1,619) per sq. m. over the same period.

Jordan’s property market slowed sharply in 2008 due to the global crisis, with house prices falls estimated at about 10% to 15%, according to local real estate analysts. However in 2011, the housing market almost returned to the peak levels of 2006 and 2007, thanks to the property tax cuts and registration fee exemptions implemented by the government since May 2009.

The country’s rental market remains stable. In Amman, the capital, the average rent for one to three-bedroom apartments was flat in Q2 2013. However, in Sweifieh, apartment rents rose by 2% q-o-q and 4% y-o-y in Q2 2013. Likewise, in Abdoun, apartment rents also increased by 1% q-o-q and 3% y-o-y over the same period. The slight increase in demand in the two areas is mainly attributed to their close proximity to retail and entertainment establishments.

Jordan’s property market is expected to remain stable for the rest of 2013, amidst modest economic growth, according to local property experts.

The economy is projected to grow by 3.3% in 2013, after real GDP growth rates of 2.8% in 2012, 2.6% in 2011 and 2.3% in 2010, amidst rising government spending, higher domestic consumption and a recovery in exports, according to the IMF.
Foreigners can buy housing and land in Jordan, but must not sell within five years.  In the past, permission procedures were lengthy, but now approval can be obtained in just 10 days.

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.

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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.

Lower yields

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.

Modest economic growth

The Jordanian economy was seriously affected by the global financial crisis and regional socio-political unrest. Investment from oil-rich Gulf countries dropped. Remittances from expatriate Jordanians also dropped. After growing by an average of 8.3% from 2004 to 2008, real GDP growth slowed to 5.5% in 2009.  Economic growth slowed to an average of 2.6% from 2010 to 2012, according to the International Monetary Fund (IMF).

In the second quarter of 2013, Jordan’s economy expanded by 3.06% from the same period last year, up from an annual growth rates of 2.6% in Q1 2013, and 2.2% in Q4 2012.

The economy is projected to grow by 3.3% in 2013, after a real GDP growth rate of 2.8% in 2012, amidst rising government spending, higher domestic consumption and a recovery in exports, according to the IMF.

The country’s construction sector grew by 9.5% y-o-y in Q2 2013, fuelled by strong local, expat and Arab demand for housing.

By end-July 2013, bank lending rose by 7.7% y-o-y to JOD18.56 billion (US$26.2 billion), due to higher private sector borrowing.

The kingdom’s budget deficit is expected to shrink to 4.8% of GDP in 2013 from 8.2% of GDP the previous year, according to the IMF. During the first half of 2013, the budget deficit fell by about 26% to JOD309.2 million (US$435.2 million) from JOD416.7 million (US$586.5 million) during the same period last year, according to the Ministry of Finance.   The country expects to receive about JOD850 million (US$1.2 billion) worth of foreign grants in 2013.

The country’s public debt is expected to be about 72.2% of GDP in 2013, down from 75.5% of GDP in 2012.

The Central Bank of Jordan (CBJ) cut its benchmark re-discount rate by 25 basis points to 4.75%, amidst improving economic fundamentals and an increase in the demand for the Jordanian dinar (JOD) denominated assets. The CBJ last changed the benchmark rate in February 2012 when it raised the rate by 50 basis points to curb inflationary pressures.

In September 2013, the overall inflation rate stood at 6.1% y-o-y, according to the Department of Statistics.
The country’s unemployment rate rose to 14% in Q3 2013, up from 12.6% in Q2 2013 – a male unemployment rate of 11.3%, and a female rate of 26.8%.

This article was republished with permission from Global Property Guide.