“Property is theft”
Proudhon, 1840
One may not agree with Proudhon but I am sure this is what nonagenarian Ossie Lofton felt when the bank came to foreclose on her property for failing to pay 27 cents on her mortgage; yes, you read that right, 27 cents.
Such craziness could never happen in the Middle East - so how would one go about investing in real estate in Jordan.
“When money is dear, land is cheap, and when land is expensive money is cheap”
Anonymous Pamphlet 1621
A first time home buyer in Jordan would need to check on a important few things before buying a piece of property and committing to a long term mortgage:
How much will it cost them in the long term? How much will the value of the property appreciate in the long term (home appreciation)?
For e.g. to buy a 120,000 JOD apartment (assuming 20,000 JODs deposit and 8% interest rate on a 100,000 loan or 83% LTV, loan-to-value), using Bank of Jordan’s Mortgage calculator (or the one on my blog site) that person would need to pay a monthly instalment of 955 JODs1 for the duration of the loan.
In other words, in 15 years, total repayment will be 172,017.35 JODs - that means to break even, the value of the property needs to go up by 45% in 15 years or 2.5% per annum (N.B. most mortgages terms are > 20 years).
2.5% per year seems quite reasonable, however looking at the General Price Index2 for the past few years gives another story:
From 2005 until 2012, both house prices and land prices appreciated by 70%, with double digit growth in 2006 and 2007. Yet from 2012 until 2020, house prices have gone up by 7% only.
Land prices on the other hand, which account for 54.3% of the Real Estate Index’s relative weight (compared to Residential’s 43.6%) have disconnected from housing prices and went up by 30% from 2012 until 2020.
Looking at it in more detail, one can see that residential prices peaked in Q4 of 2015 before falling 3.3%.
The General Index per Jordan’s 12 Governorates paints another picture (bearing in mind that Amman represents 75% of said index):
The above shows how Amman attracted the most investments in real estate unfavourable compared to other Governorates. It also shows that, like everything else in Jordan’s economy, we had amazing growth post Iraq War in 2003 (despite global slowdown in 2008), with Iraqi investment to the Kingdom reaching $32 billion3, however it was after the Arab Spring and the Syrian Civil War that things started to cool down. So what is affecting these prices and how can we ensure future appreciation?
“Sous les pavés la plage” (under the concrete lies the beach)
May 1968
A historical map of North of Jordan will show how tiny disparate towns and villages were (Salt - Fuheis- Sweileh - Amman - Naur - Husban - Madaba etc.) and how they have become interconnected in a web of a concrete jungle where we cannot distinguish one from the other no more. Construction has been encroaching and booming over the past few years and shot up after COVID. One reason for this, post-pandemic, is that most savers wanted to “solidify” (يجمدوا) their liquid cash sitting at the bank. Traditionally, owning a tangible hard rock asset is more secure than paper. Every empty plot of land in Amman (if not sequestered by the courts) is currently under construction.
From a supply perspective, there is no shortage of new housing.
From a credit supply side, things are starting to dry up, both for new home owners scared to commit to higher mortgage rates, and to real estate developers finding it too expensive to finance new construction.
From a demand side, with the population of the Kingdom going from 7 million in 2011 to 11.5 million in 2022, things are not looking too good. Prices were expected to skyrocket during the early years of Arab Spring, similar to what happened in the early 2000s. But that didn’t materialise. Part of the blame lies on the nuclear structure of the Arab family. 3 generations of one family are happy to live under one roof. The real blame goes to the fact that a lot of people cannot afford to buy a home (be it from low income, high prices, or high interest). In fact, at 14.2, the Price to Income ratio in Jordan is one of the highest around the world (median annual income is 8,200 JODs and median house price is 120,000 JODs).
Where are real estate prices headed? What headwinds will real estate face?
As seen, supply is abundant: lots of vacant and abandoned properties in Jordan. Despite downward pressure, the Jordanian property owner will never sell at a loss. They are ready to sit and wait until the market picks up. Unless it’s for travel reasons of course.
In part 2, I will look into commercial real estate and privately trading real estate firms in the Amman Stock Exchange. In part 3, I will discuss a possible solution linked to Islamic financing on how to revive the sector.
This does not include other fees and charges by the bank. When buying a property one has to also take into account property tax, maintenance etc.
Jordan Real Estate Price Index: https://www.cbj.gov.jo/Pages/viewpage.aspx?pageID=212
https://alghad.com/Section-210/الاقتصاد-المحلي/السقاف-32-مليار-دولار-حجم-الاستثمارات-العراقية-في-الأردن-1352589