Jordan’s cabinet bails out real estate market
Amman - Jordan’s cabinet is seeking to stimulate the real estate sector in the wake of a slowdown blamed on red tape by the Greater Amman Municipality (GAM), which oversees private and public construction.
The slowdown, following record high trading in 2014, triggered the cabinet to announce incentives on July 22nd to jump-start real estate trading. The incentives, valid until the end of the year, include tax reductions and registration fee and fine exemptions.
The cabinet’s move is expected to attract Jordanians and other Arabs who have been investing in land and apartment units across relatively stable Jordan as violence rattles the region from Syria to Yemen.
Foreign Arab investors come from Syria, Iraq, Libya and Yemen and even petroleum-rich Saudi Arabia and Kuwait, according to Jordan Housing Developers Association (JHDA) President Kamal Awamleh.
“In 2014, Iraqis topped the list of non-Jordanian investors with 952 real estate deals, followed by Saudis at 822, Kuwaitis at 471 and Syrians with 445 deals,” Awamleh said.
He said he did not have the amounts for the foreign ownership but he noted that the overall real estate trading registered a record $10.96 billion in 2014, 22% higher than in 2013.
The Department of Lands and Survey (DLS) said in its annual report that real estate transactions in 2014 stood at 105,643. Of the total, non-Jordanians accounted for 5,170 purchase transactions at an estimated value of $692 million, a 21% increase over 2013.
The value of non-Jordanian apartment purchases amounted to $443 million, while land purchases reached $248 million, DLS said.
Still, Awamleh insisted that performance could have been much better.
“The real estate sector witnessed a slowdown due to GAM’s measures,” Awamleh stressed. He pointed out that they included time-consuming paperwork, limitations on the number of flats each building can have and long delays in connecting new buildings to utilities, such as water, electricity and sewage.
“Developers want to construct buildings with 15 smaller apartments but GAM forces them to build only ten,” he said. He said the guidelines resulted in larger apartments that a majority of Jordanians cannot afford and led to fewer housing projects being built.
The cabinet’s incentives coincided with agreements between housing investors and GAM to speed up licencing and registration measures, Awamleh said. He said GAM’s delays had caused financial losses for housing companies.
During the first six months of 2015, real estate trading saw an 11% drop to $4.83 billion, down from $5.42 billion recorded during the corresponding period in 2014, according to DLS figures. In June, trading in the real estate sector dropped 18% to $840 million, down from $1 billion in June 2014, the figures showed.
“Early 2015 has been a tough period for developers and buyers alike,” Awamleh lamented.
As a result, government revenues in six months starting in January declined 13%, standing at $258 million, compared with $296 million collected in the same period of 2014. Under the government’s incentives, the first 150 square metres of homes 180 sq. metres or smaller are exempt from registration fees, while any home larger than 180 sq. metres has no exemptions. Additionally, registration fees and tax levied on properties of all sizes were halved to 5%.
The new rates apply on those who buy more than one home. Under the previous regulation, registration and taxes of up to 20% were levied on those who buy a second home, which is largely considered an investment. Other incentives include exempting non-Jordanian investors from fines related to delayed investments.
Mohammad Sawafieh, head of DLS’s legal unit, said revenue generated from the fines totalled $2 million in 2014, $3.4 million in 2013 and $2.3 million in 2012.
Awamleh said investors would lobby the government to extend the incentives beyond 2016.
“The real estate sector contributes to the economic activity of more than 40 other sectors,” which Awamleh said would boost the kingdom’s overall economic performance.
Awamleh, who described the incentives as “good news” for investors and buyers, said apartment sales tripled since the decision. “We expect sales to keep rising sharply until the end of year,” he said.
Construction engineer Saleem Nejmeh said the sale price of apartments of 180 sq. metres or less went down slightly after the government’s incentives.
The cost of apartments, however, did not because prices of steel and other construction material increased during the first half of 2014, Nijmeh said.
Prior to the decision, demand was mostly focused on apartments ranging from 120-150 sq. metres. But with the new decision, buyers started to look for apartments up to 180 sq. metres, Nijmeh said.
Salameh Ghandour, a bank employee, said he had been looking for an apartment for several months. He said the money he would save on his new apartment would be used on an extended honeymoon.
“That way, I will start a new life as a happier man. A happy wife makes a happier man,” he said.