02 February 2009
As the fallout from the sub-prime mortgage crisis continues to spread, Jordan is taking a number of steps to protect its real estate and construction industry from undue exposure to the global slowdown.
In advance of the expected real estate downturn, Jordan's government has already begun negotiations to provide financial assistance to 30 housing companies, according to the Lower House Financial and Economic Committee's rapporteur, Yousef Qurneh. The proposed bailout plan would provide over $280m in funding support to a variety of development companies in a bid to provide sufficient backing to complete their projects.
The support plan could not be more timely. The country representative for the International Finance Corporation (IFC), Ahmed Attiga, told local press that while it is unlikely that the larger real estate consortia behind some of Jordan's bigger property developments will scrap their projects, many of their plans may be postponed as a result of financing difficulties.
For the most part, measures such as the bailout plan are preventative rather than curative. Despite the turmoil in international financial markets, the impact on the Jordanian economy has so far remained manageable, and while the local property sector has seen some knock-on effects, drops elsewhere are far more precipitous. Arguably, the crisis will actually serve Jordan's economy, with the decline in international commodity prices easing pressure on the Kingdom's trade deficit as well as inflation, which is projected to decline to 7% in 2009.
However, in spite of having posted impressive results over the first three quarters in 2008 - unit sales were up noticeably from 2007 - the effects of the worldwide economic slowdown became visible in the final months of last year, with apartment prices dropping by 10%. Although construction costs and land prices are falling, the pace of new developments has begun to slow, with companies cutting back on their activities in light of sluggish demand.
The drop in demand has prompted a push for a consumer-oriented stimulus in the Kingdom. President of the Housing Investors Society Zuhair Omari, speaking with local press, said that demand has dropped in part because of the difficulty consumers have in finding available financing. According to Omari, the interest rate on housing loans, which is set by the Central Bank at 10.5%, is higher than necessary given the relatively stable financial situation in the Kingdom. By increasing both the payback period for new loans and lowering rates to 6%, advocates argue that buyer demand could be encouraged by boosting access to affordable forms of housing finance.
Not unexpectedly, this has been met with some resistance from the local banking sector. The impact of the sub-prime mortgage crisis in the US, where housing loans were often extended to customers who lacked the necessary means to repay them, has forced banks worldwide to review their credit strategies and tighten lending criteria, in a bid to avoid a repeat scenario.
Although the past months have seen a reduction in the issue of new retail housing loans, mortgage lending, particularly in the middle to upper sector of the market, has increased considerably in recent years. As that segment reaches its limits, the housing finance market has risen to meet the demand for loans and mortgages from the low-income sector. In some instances, institutions offering low interest loans will be subsidised by the state. The US Overseas Private Investment Corporation (OPIC), for example, is providing up to $250m in financing to help back low-cost, 25-year mortgages for low-income housing, providing $100m both to Arab Bank and to the Housing Bank of Trade and Finance, and up to $50m to Cairo Amman Bank.
In light of the glut of high-end developments and the surge in demand for more affordable units, Jordan is taking a number of measures to boost its stock of low-income housing, including the implementation of a $7bn affordable housing initiative to provide shelter for low-income citizens.
Unveiled by King Abdullah II early last year, the "Decent Home for Decent Living" plan will provide 100,000 houses for low-income citizens across Jordan over the next five years. Working in conjunction with the private sector, the government will provide over $20m to jumpstart the project, with construction beginning on the first 20,000 properties later this year. The project will be run by a new government agency, in association with the state-run Housing and Urban Development Corporation.
To ensure that the new properties remain within reach of lower-income segments of the populace, the "Decent Home for Decent Living" initiative will set the price for apartments built under the policy at $33,000. Buyers will also be provided with a number of payment options, including instalment plans, to alleviate the burden of large down payments.
While the royal initiative represents a massive investment into a property sector that is often overlooked, several other low-income housing projects are also in the pipeline, spurred in part by the slowdown in the high-end luxury market.
One of the larger proposals is the King Abdullah bin Abdulaziz City, a 25m sq metre master-planned mixed-income city. Spearheaded by Mawared, the state-owned National Resources Investment and Development Corporation, the city will house over 400,000 low-income residents in some 70,000 units of up to 160 sq metres. Taameer Jordan Holdings has also broken ground on its own affordable housing project, the 7.5m sq metre Ahl Al Azm mixed-use development. Aimed at the medium- and low-income markets, the $900m project will be located on the outskirts of the Greater Amman Municipality, and will include over 16,000 units with targeted financing plans to encourage first-time buyers. The new development, which is being built in cooperation with the Housing and Urban Development Corporation, will include a variety of health and education facilities, as well as public spaces and leisure areas.
The Kingdom has less cause to worry than many other countries, given its limited exposure to the immediate fallout of the sub-prime crisis, but the measures Jordan has taken to soften any potential slowdowns in the housing sector are laudable. However, the long-term demographic trends of the country are putting increasing pressure on the real estate sector to accommodate the burgeoning demand from the lower and lower-middle income segments
As the fallout from the sub-prime mortgage crisis continues to spread, Jordan is taking a number of steps to protect its real estate and construction industry from undue exposure to the global slowdown.
In advance of the expected real estate downturn, Jordan's government has already begun negotiations to provide financial assistance to 30 housing companies, according to the Lower House Financial and Economic Committee's rapporteur, Yousef Qurneh. The proposed bailout plan would provide over $280m in funding support to a variety of development companies in a bid to provide sufficient backing to complete their projects.
The support plan could not be more timely. The country representative for the International Finance Corporation (IFC), Ahmed Attiga, told local press that while it is unlikely that the larger real estate consortia behind some of Jordan's bigger property developments will scrap their projects, many of their plans may be postponed as a result of financing difficulties.
For the most part, measures such as the bailout plan are preventative rather than curative. Despite the turmoil in international financial markets, the impact on the Jordanian economy has so far remained manageable, and while the local property sector has seen some knock-on effects, drops elsewhere are far more precipitous. Arguably, the crisis will actually serve Jordan's economy, with the decline in international commodity prices easing pressure on the Kingdom's trade deficit as well as inflation, which is projected to decline to 7% in 2009.
However, in spite of having posted impressive results over the first three quarters in 2008 - unit sales were up noticeably from 2007 - the effects of the worldwide economic slowdown became visible in the final months of last year, with apartment prices dropping by 10%. Although construction costs and land prices are falling, the pace of new developments has begun to slow, with companies cutting back on their activities in light of sluggish demand.
The drop in demand has prompted a push for a consumer-oriented stimulus in the Kingdom. President of the Housing Investors Society Zuhair Omari, speaking with local press, said that demand has dropped in part because of the difficulty consumers have in finding available financing. According to Omari, the interest rate on housing loans, which is set by the Central Bank at 10.5%, is higher than necessary given the relatively stable financial situation in the Kingdom. By increasing both the payback period for new loans and lowering rates to 6%, advocates argue that buyer demand could be encouraged by boosting access to affordable forms of housing finance.
Not unexpectedly, this has been met with some resistance from the local banking sector. The impact of the sub-prime mortgage crisis in the US, where housing loans were often extended to customers who lacked the necessary means to repay them, has forced banks worldwide to review their credit strategies and tighten lending criteria, in a bid to avoid a repeat scenario.
Although the past months have seen a reduction in the issue of new retail housing loans, mortgage lending, particularly in the middle to upper sector of the market, has increased considerably in recent years. As that segment reaches its limits, the housing finance market has risen to meet the demand for loans and mortgages from the low-income sector. In some instances, institutions offering low interest loans will be subsidised by the state. The US Overseas Private Investment Corporation (OPIC), for example, is providing up to $250m in financing to help back low-cost, 25-year mortgages for low-income housing, providing $100m both to Arab Bank and to the Housing Bank of Trade and Finance, and up to $50m to Cairo Amman Bank.
In light of the glut of high-end developments and the surge in demand for more affordable units, Jordan is taking a number of measures to boost its stock of low-income housing, including the implementation of a $7bn affordable housing initiative to provide shelter for low-income citizens.
Unveiled by King Abdullah II early last year, the "Decent Home for Decent Living" plan will provide 100,000 houses for low-income citizens across Jordan over the next five years. Working in conjunction with the private sector, the government will provide over $20m to jumpstart the project, with construction beginning on the first 20,000 properties later this year. The project will be run by a new government agency, in association with the state-run Housing and Urban Development Corporation.
To ensure that the new properties remain within reach of lower-income segments of the populace, the "Decent Home for Decent Living" initiative will set the price for apartments built under the policy at $33,000. Buyers will also be provided with a number of payment options, including instalment plans, to alleviate the burden of large down payments.
While the royal initiative represents a massive investment into a property sector that is often overlooked, several other low-income housing projects are also in the pipeline, spurred in part by the slowdown in the high-end luxury market.
One of the larger proposals is the King Abdullah bin Abdulaziz City, a 25m sq metre master-planned mixed-income city. Spearheaded by Mawared, the state-owned National Resources Investment and Development Corporation, the city will house over 400,000 low-income residents in some 70,000 units of up to 160 sq metres. Taameer Jordan Holdings has also broken ground on its own affordable housing project, the 7.5m sq metre Ahl Al Azm mixed-use development. Aimed at the medium- and low-income markets, the $900m project will be located on the outskirts of the Greater Amman Municipality, and will include over 16,000 units with targeted financing plans to encourage first-time buyers. The new development, which is being built in cooperation with the Housing and Urban Development Corporation, will include a variety of health and education facilities, as well as public spaces and leisure areas.
The Kingdom has less cause to worry than many other countries, given its limited exposure to the immediate fallout of the sub-prime crisis, but the measures Jordan has taken to soften any potential slowdowns in the housing sector are laudable. However, the long-term demographic trends of the country are putting increasing pressure on the real estate sector to accommodate the burgeoning demand from the lower and lower-middle income segments
© Oxford Business Group 2009
