Environmental Risks: How Will They Affect Property Values?

Real estate wealth could face the threat of gradual erosion, while residential markets may see their property values and investment appeal reshaped as climate and environmental risks become increasingly important factors that have so far received insufficient attention from participants in Jordan’s real estate market.

اضافة اعلان

This raises the possibility of what is known as the “climate discount”, whereby property values decline because of exposure to risks such as flash floods, rising temperatures and water scarcity.

Experts in economics, architectural engineering and property valuation warn that continued reliance on historical prices and traditional indicators could delay the recognition of these risks until actual losses occur.

The potential consequences extend beyond property prices to economic and social equity and financial stability. Higher-income households may be able to relocate to areas less exposed to environmental risks, while other families could face declining property values without having comparable alternatives.

Market Values May Be Overstated

Dr. Hudhayfa Al-Qarala, Professor of Financial Econometrics at the Faculty of Business at Mutah University, believes that some properties may be overvalued in market terms because environmental risks they could face in the future are being overlooked.

He explained that a property’s true value is determined not only by its location, size and currently available services, but also by its ability to retain these advantages in the future.

He noted that property pricing in Jordan relies heavily on location, current demand and urban development expectations, while long-term environmental risks receive considerably less weight in purchasing and investment decisions.

According to Al-Qarala, this could create a gap between a property’s current market price and its future economic value. For example, a property located in an area prone to flooding or facing growing pressure on water resources may command a high price today, but maintaining that value in the future is not guaranteed.

He described this phenomenon as a “climate discount”, meaning a decline in a property’s relative value due to rising anticipated environmental risks or the costs associated with them.

However, he stressed that this does not mean Jordanian properties are generally overvalued. Such a conclusion would require studies linking actual prices to the degree of exposure to environmental risks.

Al-Qarala identified the environmental risks most likely to reshape property demand in Jordan, noting that some high-value areas could lose their investment appeal because of water scarcity, rising temperatures, flash floods and sudden flooding.

He explained that these risks do not affect all areas equally. Rising temperatures, for example, may increase cooling and energy costs and reduce the attractiveness of certain residential areas. Flooding, meanwhile, can raise maintenance and insurance expenses and increase investment risks for exposed properties.

Consequently, some areas that currently command high property values could lose their investment appeal, not necessarily because their location or economic importance has declined, but because the costs of maintaining and using properties have increased.

He stressed that the decisive factor is the ability of infrastructure to adapt. Areas with effective drainage networks, reliable services and more energy-efficient buildings may retain their appeal despite exposure to climate risks.

From an economic perspective, asset prices should reflect available information about future risks, even before those risks materialise. However, this depends on investor awareness, the availability of information and their understanding of the scale of potential threats.

In Jordan’s local market, he expects the pricing of environmental risks to occur gradually and unevenly across different areas, particularly given the limited detailed information available to buyers about climate risks at individual locations.

A buyer may not reduce an offered price until a particular problem occurs repeatedly, such as flooding, service interruptions or rising maintenance costs. By contrast, a better-informed investor may begin factoring these risks into purchasing decisions before any actual losses occur.

Al-Qarala pointed out that the climate discount does not necessarily appear as an immediate decline in prices. It may first emerge through weaker demand, longer periods required to sell properties or slower price appreciation compared with other areas.

Asked whether water scarcity could eventually become a determining factor in land values, he said the issue could become one of the most important economic determinants of real estate value in Jordan over the long term.

Jordan already suffers from severe water scarcity. The National Water Strategy 2023–2040 indicates that per capita renewable freshwater resources stood at approximately 61 cubic metres annually in 2021, an extremely low level by international standards.

He added that urban expansion alone cannot guarantee continued increases in land values. Residential and investment projects require stable and sustainable water services to maintain their economic attractiveness.

He warned that if the cost of securing water rises or obtaining reliable supplies becomes more difficult, this could increase operating and investment expenses and consequently reduce the amount investors are willing to pay for land.

However, he noted that major infrastructure projects, particularly the National Water Carrier Project, could mitigate these risks and support property value stability in the areas that benefit from them.

Nevertheless, he did not rule out the possibility that climate risks could create a new divide in property wealth among Jordanians.

Real estate represents a major component of the wealth of many Jordanian households, and any long-term change in property values directly affects their financial position and their ability to save and borrow.

He expects property markets to perform differently in the future, with some areas better equipped to withstand climate risks, while others face rising adaptation and maintenance costs and increasing pressure on essential services.

The problem, he explained, is that higher-income households are generally better positioned to relocate to more suitable areas or invest in improving their properties. Lower-income families may not have the same options.

As a result, climate risks could evolve from an environmental challenge into a factor deepening inequality in property wealth among households.

However, he stressed that this outcome is not inevitable, as public investment in infrastructure and improved services in areas most exposed to risks could help narrow the gap.

Al-Qarala also highlighted the possibility that banks and insurance companies may increasingly differentiate between properties according to their exposure to climate risks, as this issue becomes part of evolving regulatory and financial frameworks, including within Jordan’s banking sector.

He explained that banks do not regard property as an asset with permanently fixed value, but rather as collateral that must retain its value and ability to be liquidated throughout the loan period.

If assessments show that a particular property faces significant environmental risks, this could eventually affect the loan-to-value ratio, lending conditions or the valuation assigned to the property as collateral.

How Environmental Risks Could Affect Property Prices

The same applies to insurance companies, which may reconsider premiums or coverage conditions according to the level of risk.

However, it is important to distinguish between this expected trend and claiming that local banks are already applying specific climate-related discounts to real estate collateral. Such a claim would require actual data from financial institutions.

Al-Qarala believes that incorporating environmental risks into financing decisions could accelerate their impact on property prices, since higher financing costs or reduced available credit directly affect investment demand.

This issue is expected to become a key area of focus for the Jordanian Association of Real Estate Appraisers over the coming years.

Hisham Al-Natour, president of the association and a property valuation expert holding an international valuation licence from the British Institute, stressed that climate risk maps should become an official reference for property appraisers.

He explained that property appraisers in Jordan cannot issue valuations without consulting zoning plans, land classifications and land title deeds.

Al-Natour said failing to refer to climate risk maps would constitute professional negligence, particularly given discussions surrounding flash-flood risk maps in the governorates of Amman and Zarqa, heat stress, water scarcity and their impact on agricultural and tourism projects in Azraq and the Dead Sea, as well as soil degradation.

He cited countries such as Britain and the Netherlands, where flood maps have become a mandatory component of property valuation reports.

Jordan, he said, is not far removed from this trend, particularly following the flooding incidents witnessed in downtown areas and around the Dead Sea.

However, he noted that the valuation sector does not currently possess all the tools needed to achieve this objective. Existing property valuation standards rely on three main approaches: market comparison, cost and income.

He explained that all three approaches depend heavily on historical market experience. The problem is that climate change has disrupted this assumption, as what happened in the market over the past decade may no longer provide an accurate indication of what will happen over the next ten years.

One example he cited was a villa in a low-lying area that had attracted strong demand five years ago. However, repeated incidents of water accumulation and service interruptions in such areas have since reduced its residential appeal.

He noted that traditional market comparison methods do not capture this decline until damage has already occurred.

This makes it necessary to introduce a factor reflecting future environmental risks into valuation calculations, a process that requires training and professional development that has yet to begin institutionally.

One of the most serious issues raised by Al-Natour was the lack of information, known in valuation terminology as “asymmetric information”.

He explained that when environmental data is not equally available to everyone, two types of market participants emerge.

The first could be a major real estate developer with the resources to purchase satellite imagery and hydrological studies, allowing it to identify that a particular plot of land may face flooding risks within five years and sell it quickly.

The second could be an ordinary citizen who purchases the same land at the prevailing market price without knowing about these risks.

In his view, property valuation could then shift from being a tool that protects the market to one that reinforces inequality.

This is where appraisers have a responsibility to protect the less-informed party, something that can only be achieved through unified and publicly accessible information.

He placed responsibility for providing such data on both the government and the real estate sector.

The government’s role, he explained, is to provide verified raw data from the ministries of environment and water and irrigation, the meteorological department, the Greater Amman Municipality and the Department of Lands and Survey.

These institutions should work towards issuing a national climate risk map for real estate and updating it annually as a mandatory reference.

The valuation sector’s role, meanwhile, is to translate this information into property values. Appraisers are not responsible for producing climate data, but rather for analysing its impact on value.

He argued that it would be unreasonable to expect more than 400 licensed appraisers to produce separate maps, as this could create confusion in the market.

Al-Natour did not rule out the possibility that climate change would redraw Jordan’s real estate market map.

Traditional classifications such as West Amman versus East Amman, or Amman versus Zarqa and Irbid, are no longer sufficient, as the market is beginning to differentiate between areas according to new criteria.

He identified these criteria as climate-resilient areas, including elevated locations with effective drainage, thermal insulation and access to alternative water sources. Such areas are expected to experience increases in value.

Other areas may be classified as climate-vulnerable, including low-lying locations, flood channels and properties with hot western-facing exposures and no green infrastructure. These areas could experience stagnant or declining values over the long term.

To illustrate his point, he said demand for west-facing apartments without insulation in Jordan has begun to decline during summer because of air-conditioning costs.

Similarly, demand for rain-fed agricultural land in the north has started to weaken in favour of plots equipped with licensed wells.

These emerging factors, he noted, are not reflected in conventional zoning plans.

To address this gap, Al-Natour called for the urgent establishment of a National Observatory for Real Estate Values and Environmental Changes, or a permanent joint committee comprising the Association of Real Estate Appraisers, the Department of Lands and Survey, the Ministry of Environment, the Royal Society for the Conservation of Nature and the Jordan Engineers Association.

The purpose of such a body would not be to issue reports after disasters occur, but to provide early warnings about potential changes in property values.

Without such a mechanism, he warned, the country would remain dependent on reactive measures, leaving citizens and banks to ultimately bear the losses.

He concluded that the issue was no longer merely an environmental concern but had become a matter of financial stability.

Approximately 70% of Jordanian banks’ loan portfolios are backed by real estate collateral. If the value of these assets declines because of climate factors that were not previously considered, the problem could spread from the property market to the banking sector.

Reviewing Zoning Maps

A recent historical study on urban and hydrological changes in downtown areas found that flood risks cannot be understood separately from the city’s historical development, changing land-use patterns and interventions affecting natural waterways, particularly the Amman Stream.

This was explained by Dr. Salam Marei, Assistant Professor of Architectural Engineering at the Faculty of Architecture and Design at the University of Petra.

Her study emphasised that converting a natural watercourse into an infrastructure corridor and urban road does not necessarily eliminate the site’s hydrological function. Instead, it changes how the city interacts with water.

Marei called for zoning maps to be reviewed and expanded beyond demographic and urban changes to incorporate updated climate and hydrological data, flood and flash-flood risk maps, and future climate scenarios.

She also urged a shift away from traditional approaches to urban planning and environmental risk management, so that engineering interventions are not automatically treated as the first or only solution in every situation.

Engineering measures, she explained, such as constructing stormwater drainage channels and expanding box culverts, may be necessary in certain locations.

However, they do not necessarily address the underlying causes of accumulating risks, particularly when these are linked to patterns of urban expansion, changes in natural terrain, increasing impermeable surfaces and other factors.

From the perspective of sustainable planning, she advocated moving away from the concept of controlling water towards planning in harmony with natural water systems.

This requires reconsidering land use, preserving valleys and natural drainage areas, allocating open spaces capable of absorbing rainwater and avoiding treating all land as equally suitable for urban development.

Her research on community adaptation in the city of Amman supports this approach.

The study found that residents in some areas, faced with limited official intervention, had developed local solutions to manage floodwater. These included creating drainage routes and modifying parts of the urban fabric.

However, these interventions did not eliminate the problem and instead contributed to redirecting water towards other parts of the same areas.

Regarding responsibility for transferring flood risks to neighbouring communities, Marei stressed that this was a matter of planning and institutional responsibility, not merely engineering or implementation.

She emphasised a fundamental principle of sustainable urban planning: no project should transfer environmental risks from one location to another or from one social group to another.

Referring to the adaptive practices identified in her research, she said the findings showed that local interventions, despite their importance in protecting homes and property, could ultimately redistribute water flows and increase the exposure of areas at lower elevations.

She believes responsibility should be shared but clearly defined, covering authorities issuing zoning approvals, institutions responsible for environmental and hydrological impact assessments, developers, consulting offices and implementing entities, each according to its role.

Marei also highlighted a key problem in flood-risk management known in scientific literature as “risk transfer”.

For example, constructing a stormwater drainage channel, protective wall or culvert may reduce the likelihood of water accumulation in one area but increase the speed or concentration of water flow elsewhere.

This can relocate the problem geographically rather than resolve it comprehensively.

She stressed that the challenge is not simply providing protection, but also determining who benefits from it, who bears its costs and who suffers its side effects.

She called for flood-protection projects to be based on comprehensive hydrological assessments at the watershed level rather than focusing solely on individual projects.

Such assessments should examine the impact of interventions on water-flow speed, volume and routes, as well as their cumulative and future effects.

Regarding residents’ right to object to zoning decisions on the basis of future environmental risks, Marei believes this should become an essential part of developing Jordan’s urban planning and environmental governance systems.

She explained that residents in some areas had not simply remained passive victims waiting for official intervention. Instead, they had developed collective adaptation practices to cope with flooding by modifying the built environment, creating drainage routes and negotiating possible solutions among themselves.

In her view, the next step should be to move beyond involving residents merely in implementing solutions and recognise them as partners in the planning decision-making process itself.

Residents should therefore be allowed to object to projects and zoning decisions when they have evidence or documented local experience indicating that these developments could increase their exposure to environmental risks, even if the projects currently meet legal requirements.

She clarified that the right to object does not necessarily mean giving residents the authority to halt every project.

Rather, it means ensuring transparent institutional mechanisms that allow them to submit observations and evidence, while requiring the rel