The property market in Jordan is picking up, with a rise in the volume of transactions this year. Prices are also increasing, which whilst good news for investors, may exacerbate an already existing shortage of affordable housing for low- and middle-income residents.
A report issued by the Department of Land and Survey (DLS) in early October showed a 23% jump in the value of registered real estate transactions in the first nine months of the year compared to the same period in 2012. Between January and September, there were more than 75,200 property sales recorded, with a total value of $6.8bn, up from last year’s $5.5bn. Around 30,000 of the sales were registered in Amman, with the remainder spread across the country, the report said.
The increase in real estate transactions comes as economic activity is picking up. According to a Department of Statistics (DoS) report issued at the end of the September, real GDP grew at an annual rate of 2.8% in the first half of the year, up from 2.7% in 2012. Among the faster-growing segments was finance, insurance, real estate and business services, which increased by 4.1% for the January-June period.
While there has been notable activity in the market so far this year, sales could ease off in the final quarter in keeping with trends in the real estate sector, which traditionally sees a spike in trade during the summer months when many Jordanian expatriates return for their holidays. This was supported by another DLS report, this one issued at the beginning of September, showing residential sales of 5243 units in July and August, out of an eight-month total of around 20,000.
Sales prices rising faster than rental rates
This strong interest in residential property appears to be feeding into apartment sales prices, which grew by 9% year-on-year (y-o-y) in the second quarter, according to a report prepared by international real estate services firm Asteco. The report said at least part of the increase could be put down to higher land costs, which developers were passing on to buyers.
The apartment rentals market, however, has remained fairly flat this year, rising by 2% according to Asteco. This would be consistent with the latest monthly inflation data from the DoS, which reported an increase of 3.4% in the price of rentals over the first seven months of 2013, slower than the overall rate of consumer inflation of 6.4%. The growth in rental costs is also well down on the IMF’s forecast for inflation for this year, with the international lender predicting a 5.9% increase in prices for 2013, falling to 3.2% next year.
Shortage of affordable housing
Rising apartment sales prices have pushed home ownership out of the reach of many lower- and middle-class Jordanians, according to local economists and industry experts. The JHDA says that some 40,000 affordable housing units are required each year but that developers complete around 25,000, in part a consequence of developers targeting high-income earners with upmarket products.
Jawad Anani, president of the Economic and Social Council, told the local media that the government should address this shortage by providing tax breaks and fee incentives to developers to reduce construction costs. Anani also called for a revival of the Decent Housing for Decent Living initiative, which was launched in 2008 with a goal of providing 120,000 units for low-income Jordanians but stalled amid allegations of corruption.
One factor that has put pressure on property prices is the cost of land, as pointed out by Asteco. The Jordan Housing Developers Association (JHDA) has noted that land is an increasingly large component of the final price for housing projects, estimating its contribution at between 50% and 70%, up from just 20% three years ago. This reflects a growing shortage of building plots in and around the capital, as well as competition between developers to expand their land banks.
Kamal Awamleh, president of JHDA, suggests the government take steps to improve the desirability Amman’s outlying areas, such as improving road, water and sewer networks, which would help alleviate the shortage of land and reduce development costs. This would also be in line with the plans of the Housing and Urban Development Corporation (HUDC), a government agency, which aims to build large-scale complexes on the outskirts of cities that would provide medical clinics, schools and retail facilities in addition to residential units.
Oxford Business Group