Jordan's real estate market to benefit from new measures to address housing shortage

Few sectors in Jordan have been more dramatically impacted by recent regional turbulence and uncertainty than housing. With large numbers of Syrian refugees fleeing into Jordan over the past few years, there has been major pressure on low- to middle-income real estate, with the government, developers and international organisations working hard to address this growing need. Meanwhile, at the higher end of the market, though demand has slackened there are still plenty of opportunities for investment.

In Figures

After a strong showing in 2014, a major slowdown in activity was seen across the sector in 2015. Figures from the Department of Land and Survey (DLS) for the first half of 2015 showed real estate trading down 11% on the same period of the previous year. This represented a fall in transaction value from $5.42bn to $4.83bn. The slowdown appeared to be accelerating: the figure for June 2015 was $840m, down 18% on the $1bn recorded in June 2014. The decline also showed up in government revenues: the amount collected from transfer fees, taxes and other charges on real estate transactions fell by 13% from $296m in the first half of 2014 to $258m in the same period of 2015.

Incentives

In response to these trends, in July 2015 the government announced a series of incentives, valid until the end of that year, in an effort to stimulate the market. The package included a halving of the registration fees and taxes levied on any size of property from 10% to 5%. It also declared the first 150 sq metres of any home smaller than 180 sq metres exempt from registration fees. The incentives also apply to second homes and principal dwellings; previously, second homes had been subject to registration fees and taxes as high as 20%. Non-Jordanian investors were also exempted from fines related to delayed investments.

The stimulus package does appear to have slowed the decline in transactions, although the year still ended down on 2014. DLS data for 2015, released in January 2016, showed real estate trading fell 2% year-on-year (y-o-y) from JD7.76bn ($10.9bn) to JD7.60bn ($10.7bn). This fall in volumes, combined with the incentives package, prompted a much larger decline in government revenues, however. These were down 11%, from JD426m ($599.1m) in 2014 to JD377m ($530.3m) in 2015. Because of the new rules, the value of apartments exempted from registration fees and taxes went up some 47%, according to the DLS.

Some metrics appeared to be reversing in 2016. The first two months saw real estate trading up 6% y-o-y, according to the DLS, from JD985m ($1.39bn) to JD1.1bn ($1.54bn). DLS revenues also rose, by 3%, even as the value of apartment exemptions jumped 20% from JD11.1m ($15.6m) to JD13.4m ($18.8m).

Demographics may have increased the effect of the stimulus. According to Maher Halaseh, general manager of The Land, people used to prefer big houses, but the young population is different, shifting demand towards smaller apartments. “This trend is further encouraged by government incentives, where apartments of 150 sq metres are exempt from registration fees,” he told OBG.

Foreign Interest

The DLS figures show that, when it comes to foreign buyers, Jordan’s immediate neighbours make up the overwhelming majority. In 2015 Iraqis were the largest group of overseas purchasers, securing 2076 property deals worth JD215.1m ($302.6m), or 51% of the total. Saudis came second, with 918 deals worth a total of JD66.4m ($93.4m), followed by Kuwaitis with 377 deals worth JD22.9m ($32.2m). Syrians were then responsible for another 223 deals worth a total of JD17.5m ($24.6m). The overall value of deals with foreign nationals, however, declined by 14%, y-o-y, to JD423.2m ($595.2m). The figures for the first two months of 2016 showed Iraqis still far ahead of other nationalities, with 223 transactions worth a total JD19.1m ($26.9m).

The composition of national groupings reflects the kingdom’s advantage as a safe haven in the region. For Saudis, Jordan represents not only an attractive investment proposition, but also a less conservative, more international environment right on their doorstep.

Streamlining Process

Some regulatory changes affecting the sector took place in 2015. In August the Cabinet approved a draft real estate ownership law. This will see the cancellation of 13 existing regulations in this sphere and their replacement with a single law, streamlining procedures on ownership. Jordan ranked 98th out of 189 economies in the World Bank’s “Doing Business 2016” survey for registering property, with some seven procedures necessary for an entrepreneur to purchase land and a building. This was more than Saudi Arabia (ranked 31st, with three procedures) yet less than Lebanon (103rd, with eight procedures). The new law is expected to help raise Jordan’s rankings.

Projects & Districts

The Greater Amman region is the heartland of the kingdom’s middle- to high-end real estate market, although in recent times, projects in Aqaba and on the Dead Sea have also taken off.

In the capital, the market is divided between west and east, with the latter more populated, containing denser conglomerations of low-income housing. The west has thus been the focus of most middle- and high-end real estate development in recent years, in districts such as Abdali, Zahran, Shmeisani, Abdoun and the historic central district of Jabal Amman, with Sweifieh the main shopping district. The capital is divided into a number of circles, or roundabouts, with the First Circle the historic centre, stretching to more suburban circles further out. Due to the city’s hilly geography, there is pressure on disposable land, while population has grown considerably in recent years. Department of Statistics figures showed 4m people living in the Amman governorate in 2015, or 42% of the kingdom’s population. As recently as 1990, the figure had been just 1m.

Pressure On Housing

Such growth is true of Jordan overall, too. Central Bank of Jordan (CBJ) figures show its population rising from 7m in 2011 to 9.5m in 2015, a 36% increase. One reason is the war in Syria, with between 630,000 and 1.2m Syrian refugees entering Jordan since the conflict began. The majority of these live in cities and towns, mostly renting low-end property. The knock-on effect has been a dearth of available low-end housing, particularly as developers have tended to concentrate on the more profitable higher end. “Before the refugees came, we needed 32,000 new housing units every year to keep up with our own population expansion,” Mai Asfour, head of the housing policy department at Housing and Urban Development Corporation (HUDC), a state agency, told OBG. “Now we are therefore under great pressure.”

The HUDC, the top government body for the housing sector, has been tackling the refugee crisis through a number of strategies, from allocating housing for trainee teachers, government employees and refugees, to trying to spread the arrivals around the country. UN Habitat projects, other NGO schemes and a special task force are now all engaged in addressing this urgent humanitarian crisis. The HUDC is also working with the World Bank to develop a new national housing strategy which should be ready for implementation by June 2017.

Low-Income Scheme

The real estate incentive package also targets the housing crisis by making the construction of smaller, more affordable units, attractive. The HUDC is looking for ways to make the rental sector more accessible to those on a low income, by encouraging developers to set aside a percentage of their projects for the rental market, boosting supply and thus bringing down rents. Indeed, rents have continued to rise. CBJ figures show the consumer price index (CPI) – with 2010 as the base year – for rents in the kingdom rising from 104.8 points in 2011 to 126.8 points in 2015. Figures for June 2016 showed rental CPI continuing to rise, reaching 130.2. At the higher end, however, recent times have reportedly seen a decline in rents, as many expatriates – a major source of demand – have relocated out of Amman. “This is because of rising costs in the capital, as well as expatriates being replaced by locals and cuts in company budgets,” Alma Alic, general manager of Abdoun Real Estate, told OBG.

In The Capital

Despite these issues at the higher end, however, a number of new projects have recently completed or restarted that should see more residential, office, hotel and retail space in the capital.

A major milestone was the opening of the Abdali Mall in May 2016. The mall, which was partly financed by a $80m long-term loan from the European Bank for Reconstruction and Development, has a built-up area of more than 227,000 sq metres and a gross leasable area of 70,000 sq metres, including shops, cafés, food courts, a supermarket and an entertainment centre. The shopping complex is the latest part of the $5bn mixed-use Abdali project, currently the largest mixed-use development in Amman. Pedestrian-friendly and energy-efficient, Abdali aims to create an entirely new downtown with more than 2m sq metres of built space.

The mall joins The Boulevard Arjaan by Rotana hotel serviced apartments, the 125-metre residential Heights Tower – a development by Dubai-based DAMAC Properties and the tallest residential building in Jordan – and the 70-metre commercial and residential Abdali Gateway tower among the parts of the project already completed or nearing completion in the vast project. Abdali will see the addition of a medical centre, as well as the W hotel – being built by UAE-based developer Eagle Hills. In addition, the Amman Rotana Hotel also opened in 2016 within the development. The hotel is housed in the capital’s tallest building, which reaches a height of 188 metres and has 50 floors.

Also located in Abdali is The Boulevard, a retail, luxury residential and office development consisting of 12 buildings, six on each side, bordering a 370-metre-long promenade. The Boulevard has around 30,000 sq metres of office space, the above-mentioned 400 hotel serviced apartments managed by Arjaan Rotana, rooftop lounges, and premium retail and food and beverage outlets. Companies that have moved into The Boulevard offices include electronics giant LG, Ferring Pharmaceuticals, credit bureau and business information provider CRIF Jordan, and the Associated Press.

A number of retail stores are due to open in 2016, while Orange Jordan is also expected to relocate its offices there in 2017. Companies within the Abdali district include Al Rajhi Cement and financial institutions such as Bank Audi, Société Générale de Banque Jordanie and Jordan Dubai Islamic Bank.

Cyprus-based Audeh Group’s Al Seraje Real Estate Development Company is overseeing two projects within the Abdali development: Le Gray Living, which comprises a retail area, restaurants, offices and Le Gray Residences, and Le Gray Amman, a five-star hotel with 180 rooms. While it is currently in phase 1, phase 2 of the Abdali development will include a tower for Bank Al Etihad and four further towers.

The St Regis development is also under way, providing Jordan’s first branded residencies around a St Regis hotel and shopping complex. This project, being carried out by Eagle Hills, is due to open in June 2017.

Principal among the restarts is the Jordan Gate project in the Sixth Circle. This $400m venture began in 2005 as a partnership between the Kuwait Investment and Finance Company and the Greater Amman Municipality (GAM). Consisting of offices, conference facilities, a five-star hotel and many retail outlets, the project had a difficult start and was halted due to financial and technical difficulties. News then came in May 2016 that it was restarting under a new agreement between GAM, Kuwait’s Al Bayan Holding Company and Al Hamad Contracting Company. Work is due to restart on the project, which was reported 72% finished at the time of the new agreement. According to Aqel Beltaji, mayor of GAM, the project will be finished within two years.

Elsewhere in the capital, the Tanamee Real Estate Development Company – a Kuwaiti-owned, Jordan-based developer – announced the launch of its Jenan Amman project at the end of 2015. Located on the Airport Road, 20 km away from the Seventh Circle, it is set to contain 500 villas, plus student dormitories, apartments and 65 stores. The project will be built in three stages, each taking 18 months, at a total cost of JD100m ($140.6m). Cognisant of the pressures on middle- and lower-end housing, the project offers a range of prices, from JD145,000 ($204,000) upwards.

Aqaba Developments

Outside Amman, major developments are under way at Aqaba. These centre around the old waterfront area, which has seen its port relocated to the south. There are three major projects in progress: Ayla Oasis, the Marsa Zayed project and the nearby Saraya Aqaba project.

The Ayla project consists of five districts, each built around a different theme, along 17 km of waterfront. One centrepiece is a 27-hole championship golf course – Jordan’s first on grass – while hotels, restaurants and some 4000 homes are envisaged. Being built in phases, the whole project should be complete by 2022.

The $10bn Eagle Hills’ Marsa Zayed is located in the city centre on a 3.2m-sq-metre site, edged by around 2 km of waterfront. Seven districts are to be built, including residential areas, shopping and entertainment districts, and commercial centres. Phase one of the project is due for completion in 2017.

Also under development by Eagle Hills is Saraya Aqaba, a tourism and leisure development with a man-made lagoon being built on a 634,000-sq-metre piece of land. The complex will have four five-star hotels, residential areas, entertainment facilities, business facilities and the Souk Saraya, a new shopping area, in addition to offering a range of housing.

Outlook

With much depending on the course of events outside but adjacent to Jordan’s borders, the year ahead is a difficult one to forecast. Two things seem likely, however. First, pressure on the low and medium segments of the housing market will continue, with the government looking to the private sector for help in addressing a major shortfall in affordable living space. Second, the high end will see a major influx of new units, which will significantly raise standards in Amman and Aqaba. This may attract new interest from overseas, even if the traditional sources of high-end homeowners and renters continue to have less impact as multinational companies scale down. The market may thus have some adjusting to do in the year ahead, with the middle and lower end of the market experiencing both greater demand and new government incentives.