A housing crisis is brewing in the capital, stakeholders warn

AMMAN — A combination of government regulations and pandemic-induced increases in import and shipping costs has sent the price of homes in Amman soaring, leading stakeholders to warn that a housing crisis is brewing in the capital.اضافة اعلان

In an interview with Jordan News, the head of Jordan’s Housing Investors Association, Kamal Awamleh, said that readily available housing supply is down by 40 percent from previous years. Consequently, both housing supply and demand are declining.

According to Awamleh, land-sorting fees charged by the Department of Land and Survey to determine land size have risen inexplicably in recent months. Up until two months ago, the sorting of land for a 10-unit building in Amman would have cost JD3,500, or JD 350 per apartment unit. Today, fees are as high as JD35,000.

“Fees are up tenfold,” says Awamleh. “This will reflect on the real estate industry in the near future,” he predicts.

Meanwhile, global shipping costs have gone up 30 percent, pushing the costs of importation up, and, as both imported material and the accompanying shipping costs are subject to taxes, greater shipping costs mean higher taxes. Awamleh cites a 10-15 percent increase in the price of imports vital for the real estate industry, including tiles and wood, which are brought into the country primarily from China and other east-Asian countries.

For example, this week, the factory cost of a ton of cement went up by JD10, negatively impacting real estate developers, as a single building, which requires 500 tons of cement on average, now costs between JD7,500 to JD10,000 more than it did last year.

Like Awamleh, head of the Contractors Syndicate, Ahmad Yaqoub, voiced concern over the rise of import costs in a separate interview with Jordan News, confirming that raw material shipping costs are “up disastrously.”

“There’s no running away from it. The crisis is inevitable,” the stakeholder said.

Home loan impediments
Apart from taxes, another government regulation contributing to the looming crisis, according to Awamleh, is a national home loan ceiling, which is a cap on the maximum amount of money that banks can loan to the Jordanian public for home purchases.

Implemented by the Central Bank of Jordan, the JD20-billion loan ceiling — of which 18.5 billion have already been lent, according to Awamleh — has drastically reduced loan accessibility to Jordanians looking to buy a house, especially in light of the COVID-19 pandemic, as “banks have become stricter,” extensively intensifying loan eligibility. 

In pre-pandemic conditions, 5 or 6 out of every 10 applicants were eligible and granted loans. Now, “only 1 or 2 out of every 10 applicants are granted home loans,” according to Awamleh. “The Central Bank must work towards raising the loan ceiling,” the sector representative said.

He accredits this inaccessibility to the lack of job security in the Kingdom. “An employee in the pandemic-rattled tourism industry attempting to take out a loan to purchase a home, for example, is deemed too job-insecure and therefore denied a loan.”

Difficulty faced by prospective homebuyers in obtaining a loan also stems from high interest rates, as rising interest rates on home loans have always disincentivized lending, particularly for the youth. “It is important to decrease loan interests,” says Awamleh in support of first-time homebuyers, which skew young.

In other parts of the world, such as Japan, as the pandemic ensues, young people are incentivized to purchase homes as “interest dropped to as low as 0 percent,” while Jordanian youth are disproportionately impacted by harsh eligibility requirements, and struggle to purchase homes, according to Awamleh.

“It is the Central Bank’s social responsibility to lower interest rates on home loans, especially for the youth,” asserts Awamleh.
Awamleh noted that loan inaccessibility, affects home suppliers as much as it does buyers. “If the average citizen isn't able to secure a loan, the supplier will surely lose out.”

Awamleh cited loan misuse and mismanagement as a reason behind this problem. “A high percentage of home loans aren’t even used for the purchase of homes. You’ll see people taking out JD70,000 or JD80,000 loans for JD50,000 homes, then using the rest to start a business or purchase a car.”

This misuse creates a spillover effect, according to Awamleh; the greater the mismanagement, the more inaccessible lending is to others.

‘Over regulation’
Besides lowering interest rates and sales and customs taxes, Awamleh suggests revisiting the “outdated” Buildings and Urban Planning regulations — a set of rules established in 1966 and modified in 2019, that limit the number of floors and “arbitrarily” restricts population density by limiting the number of units per building.

Because of such regulations, there are less units per building, and units are larger.

“When a building meant for 16 150-(square)-meter apartments is only allowed eight apartments through population density regulations, then each unit will be about 300 (square) meters,” says Awamleh. This is a problem because larger units built in place of smaller ones are precisely what restricts supply and drives prices up, according to Awamleh, “as a landlord, I should be able to maximize efficiency through smaller units.”

Additionally, the growing population segment of individuals aged 18-28 “strongly favors smaller, more reasonably priced units, anyway,” says Awamleh. He proposes allowing more high-story buildings and smaller apartments with areas of 120 square meters or less.

“Government over-regulation in the real estate sector is causing investors to stray away to more profitable sectors,” admits Awamleh. This is especially dangerous when considering that the real estate industry is directly linked to Jordan’s industrial sector, where many are employed.

‘Holistic approach’
Multiple cement and steal factories reliant on construction have closed as demand for real estate plummets, according to the sector leader. “When the real estate market moves, the whole economy moves,” he said, adding that “there has to be a more holistic approach (by government regulators) that recognizes the importance of the real estate industry in the economy.”

Awamleh warned that Amman might witness a rise of slums “reminiscent of those in Egypt,” should the real estate problem persist, as a result of unorganized urban planning when coupled with economic stagnation.

According to him, “the government has put together a committee to modernize the real estate market,” however, citing bureaucracy, Awamleh says he is not very optimistic.

To solve the issue, Yaqoub proposes greater reliance on local material to drive down reliance on importation, cut costs and ultimately mitigate the housing crisis. “We must rely on local production,” he told Jordan News.

This strategy was previously employed in a low-cost housing project demo, built in three Jordanian cities, including Amman, where no more than 15 percent of used materials was imported, according to Yaqoub. Such housing projects, which are meant to provide affordable homes, are known as satellite cities, and are smaller municipalities that typically exist adjacent to a major city. Satellite cities are widely considered essential to any densely populated metropolitan area.

According to Yaqoub, who strongly calls on the Jordanian government to establishment satellite cities around Amman, such projects would bring home prices down, ensure housing for Jordanian youth, and oil the wheels of economic recovery.

Read more Business