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Markaz Study Kuwait Financial Centre ‘Makaz’ in its Jordan real estate report, anticipates significant growth potential for the real estate and construction sectors, led by economic growth, favorable regulations allowing foreign ownership of properties, doubling of bank credit facilities to real estate, and growing tourism. The growth in economy has in turn attracted immense inflows of investment from GCC countries as well as from Iraq. Jordan’s total FDI increased from JOD 77.0 Mn (USD108 Mn) in 2002 to JOD 2,212.5 Mn (USD 3,121 Mn) in 2006.
This has positively impacted domestic infrastructure, fuelling the demand in real estate and construction sectors. Currently, all the segments of the Jordanian real estate market — residential, commercial, industrial, and retail — are experiencing high demand. Residential Segment Demand for residential units has outpaced supply in the last couple of years, fuelled by an influx of Iraqis settling in Jordan, increasing number of Gulf tourists, a growing and young population, low mortgage rates, and amendments to the tenants’ law. Although the majority of supply of residential units is expected to come on stream post 2008, we anticipate the shortage to be slightly met at the end of 2009, to pick up again in 2010 with Jordan’s population growing at its current level and young population setting up homes of their own. Majority of the future demand will be for low and middle income apartments in areas inside Amman and outside (such as Balqa, Zarqa and Madaba) primarily due to limited availability of land and rising property prices in Amman. This growth in the real estate and construction sectors has triggered substantial price and rental appreciation in major cities and regions of Jordan. Property prices in the residential segment have increased by 50% to 300% in the last couple of years. However, this appreciation came at a cost. Jordan’s inflation increased to 6.25% in 2006, compared to 3.4% and 3.5% in 2003 and 2004 respectively. Inflation pressures are rising due to increasing rents, and imported oil and food prices, which in its turn have led to budget deficits. Rentals in the residential segment are expected to increase at moderate levels in the near-term as the shortage for the housing units is covered. Commercial Segment (Office) The demand for modern office space in Jordan has picked up in recent years from local as well as multinational firms entering the market on the back of favorable regulations as well as Non-Governmental Organizations (NGOs) and United Nation Agencies post Iraqi war. Furthermore, relocation of huge number of Iraqi families who set up their own businesses and offices in Jordan has fuelled the demand for office space. Consequently, there is a shortage of office space in Jordan, especially in the capital Amman. The total supply of office space in Amman has grown at an average annual rate of 3% since 2005. However, this was not sufficient to meet the strong surge in demand for office space witnessed during the last couple of years. Consequently, there has been development of more office space in anticipation of further demand. However, this demand for office space has triggered the increase in office prices and rentals. According to Colliers International, land and Property prices in the office segment of Jordan have increased by more than 50% during the last two years. Prices and rentals of offices are to witness upward trend in the short to medium term, with approximately 50 international companies expected to set up offices in Amman over the next 18 months. With the vast quantity of office buildings expected to come up in the next 4-5 years, we expect prices of land and property to stabilize and rentals to witness downward pressure in the long term. Commercial Segment (Retail) The growth in the real estate sector of Jordan has spilled over the retail real estate market of Jordan where it is flourishing following a relatively stagnant performance up to early 2000. Increasing number of expatriates coupled with growing young population has fuelled retail consumption. Shopping malls are the modern day version of the retail real estate market in Jordan, where retail market is primarily concentrated in Amman. Consequently, several regional and foreign players have entered the market, where the increasing presence of foreign brands has led to the gradual building up of Gross Leasable Area (GLA) in the retail segment. According to “Retail International”, approximately 107,000 sqm of GLA retail space in Amman was completed by 2006, another 160,000 sqm of GLA is in the planning phase. Furthermore, total offering of mall space is expected to increase by 250,000 sqm in the next five years. This growth has pushed the rentals considerably upwards. Hospitality/Tourism Segment Tourism has been the main driver for the real estate sector market in Jordan with its revival over the past few years. The total number of tourist arrivals increased 8% y-o-y to reach 3.2 Mn in 2006. The growth in Jordan’s tourism sector is primarily led by favorable economic conditions such as increase in the number of Arab and foreign tourists, and government's vast efforts in revitalizing the tourism sector by adopting open business policies. With increasing number of tourists visiting Jordan, there has been steady increase in supply of hotels and hotel rooms, where hotel rooms in Jordan grew at a CAGR of 2.7% over the period 2002-2006. According to Jordan Tourism Board, the number of tourist arrivals in Jordan is expected to grow by 7% by 2010. This is expected to encourage investment in hotel and tourism infrastructure in the medium to long term. To accommodate the large number of tourists visiting Jordan, the government has been encouraging investments in developing hotel infrastructure. Industrial segment Given the current high level of industrial activity, the industrial sector is set to have a positive impact on Jordan’s real estate sector. It has reported a healthy growth as reflected by a number of indicators. For instance, industrial exports which accounts for 90.2% of the total domestic exports amounted to JOD 2,542 Mn (US$3,585 Mn) in 2006 up by 14.4% y-o-y. Furthermore, companies operating in the industrial sector have increased to 1,430 in 2006 compared to 1,127 in 2005. The sector has been receiving full fledged support from the Jordanian government where investments made in the industrial estates which are designated as Special Industrial Areas are granted exemptions on income and social services taxes for a period of 2 years. Such projects are also granted property tax exemption throughout their life time, and are granted partial or full exemption from most municipality and planning fees. The government established Jordan Industrial Estates Corporation (JIEC) in 1984 as a semi–governmental corporation to own and manage these industrial estates. It also offers the land at a concessional rate. To increase Jordan’s exports to the U.S. market, a Qualified Industrial Zones (QIZs) agreement was established. The agreement allows quota free and duty free access to the US market. This is likely to provide further boost to Jordan’s exports, which in turn will fuel the demand for industrial properties such as transport and logistics facilities. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.3 billion as of December 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.