Jordan War Talk Hurts Real Estate Sector
Jordan (The Media Line) – AMMAN — Jordan’s once booming real estate sector is struggling under political and economic uncertainty while, citing the crisis in neighboring Syria, investors and bankers are predicting difficult times.
Figures released by Jordan’s Department of Statistics in early September showed that real estate trade volume dropped by 25 percent during the first eight months of 2012. Trading in property fell to $4.9 billion, down from $6.1 billion during the same period of 2011.
With Syria’s civil war showing no signs of abating, investors are playing “wait-and-see” amid widespread public concern that the spillover from Syria will be violent and taxing to the kingdom. Sameer Abu Ghalyoun, a member of the Jordan Society for Real Estate Investors said the drums of war beating in Syria are echoing in Jordan, spreading panic among residents and investors alike.
“People are no longer certain about what the future holds,” Abu Ghalyoun told The Media Line. He said, “They fear a major outbreak of violence due to the close connection with Syria,” and predicted that the situation will continue unchanged as long as the unrest in Syria remains unresolved.
The past decade has been good for the industry, the real estate sector’s steady growth attributed to the kingdom’s political stability in a region teeming with unrest. Following the American invasion of Iraq, scores of wealthy Iraqis arrived in Jordan, driving up the price of land and fueling a major real estate boom. Traders say the Iraqi war drove up apartment prices three times over the past decade, and were hoping the unrest in Syria would cause the same scenario to play out. But not anymore.
“Iraq’s scenario was different. It is far from Jordan and there was no direct security impact as is the case with Syria,” said Abdul Rahman Saudi, a prominent real estate investor.
Investors from the Gulf States, who have been injecting hundreds of millions of dollars into local real estate projects, have now been looking elsewhere in order to escape from shadows of uncertainty being cast over the Jordanian real estate market by the Syrian instability and the threat to its neighbors. “Real estate boomed in past years following the arrival of investors from Qatar, Kuwait, Dubai and other countries, but not anymore,” Saudi told the Media Line.
Additionally, the global economic crisis worsened position of local investors who struggle with banks reluctant to grant them loans, investors say. The Central Bank last year improvised measures to spur growth in the real estate sector through tax exemptions on small-sized properties. The move helped to boost demand for a good part of last year, said investors, but the difficult economic situation, lack of foreign investment and increasing poverty has impacted on the purchase power of Jordanians.
A senior banker at the Arab Bank, Jordan’s largest commercial banking institution, said the combination of a difficult economic situation and the political uncertainties are causing banks to worry. The banker, who could not be named because he is not authorized to speak to the media, explained that, “Banks feel they are running a high risk by giving loans to a sector that looks to suffer in the short term. But many banks find themselves forced to do business based upon the hope of improvement in the midterm.”
Despite the drop in the volume of trading, the Jordanian government generated more cash this year than last after imposing higher taxation on real estate trading; giving incentives to non-tax payers; and reducing tax exemptions by 20 percent. The government said it generated nearly $282 million in tax revenue, compared with $200.4 million during the previous year.
Historically, governments have often resorted to wiping out taxation worth millions in order to buy the allegiance of influential figures and tribal leaders, a policy that has been condemned by the opposition as a form of corruption.
Meanwhile, the real estate sector is facing a temporary halt in its activities due to strike by workers at the Department of Land and Survey (DLS). Nearly 1,500 employees of 34 government offices have are striking for improved pay while the government responds that it has no funds to meet the demands. It claims to have lost more than $141 million during a single week of striking, but expresses optimism that it will regain the lost funding when the strike ends.
The drop in real estate trading also comes despite an influx of Libyan investors who fled to Jordan to wait-out a return to stability following the revolution that saw the removal of strongman Mu’amar Al-Qaddafi. Yet, foreign investment remains a bright spot in the realm of real estate. The Libyans, along with Arab-Americans and Jordanian expatriates living in the Gulf States form the basis for the foreign investment that continues to rise 3% this year over the same period last year.
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