“Over the last two decades, the contribution of land value to the price of a residential unit in the JD100,000 ($141,000) price range has risen to between 50-60 percent,” Zuhair Al Omari, head of the JHDA, told OBG.
Additionally, zoning and planning laws have imposed constraints on the use of property in the capital. A home in Amman is restricted to four stories in height, and a significant part of the site must remain undeveloped. For Category A projects, the maximum amount of constructed space is 39% of the entire plot area, whereas for Category B projects, the maximum amount of created space is 45%. While this code may result in a more pleasant atmosphere, it also requires units to pay the expenses of a much wider space, thus increasing ultimate sales and rental rates.
Simultaneously, various market restrictions have been credited with keeping land prices stable, especially during periods of low demand. “There are little expenses associated with owning undeveloped land. Land is taxed at a very low rate, which allows individuals to delay selling practically indefinitely,” Alma Alic, general manager of Abdoun Real Estate, told OBG.
Given these constraints, some developers have begun looking outside of Amman for more affordable property and more palatable zoning regulations. However, such developers have encountered significant obstacles due to a lack of infrastructure.
“The cost of services is increasing dramatically,” Mai Asfour, director of the Housing and Urban Development Corporation's (HUDC) housing policy department, told OBG. “To guarantee efficacy and affordability, there should be much greater cooperation between sewage, water, and utility services, so that the cost of connecting to the services network does not drive up the cost of the project.”
A major impediment to the industry is the high tax rate on construction materials. In February 2017, the government lifted a prior ban on sales tax on a number of steel goods used in construction, resulting in an increase in the tax rate from 8% to 16% for impacted commodities. Developers have cautioned that this would almost certainly result in future increases in real estate prices.
These industry-wide problems have resulted in a shortage of affordable homes for many Jordanians, who have had trouble obtaining mortgages during economically tough times. This is also a significant point of contention for developers and the HUDC. As a consequence, officials are collaborating with the World Bank and other organizations to create a new national housing strategy and action plan. According to industry officials, the new plan was submitted for review in mid-2017 with the aim of being ready for execution in the following months. The proposal is expected to address a variety of problems, including affordable housing, land limitations, construction height restrictions, and the high cost of services for new housing projects.
Jordan's Economic Growth Plan 2018-22 also asks for the establishment of a national housing action plan, which was in draft and consultation form in mid-2017. This seeks to solve existing market challenges, especially at the middle and lower end of the market, while also addressing limitations in the residential real estate industry, such as floor-to-lot ratio restrictions and plot density rules.
Addressing these issues is anticipated to result in a substantial rise in domestic affordable home development. Additionally, the plan envisions a future in which construction permits are more closely linked to environmental building standards, thus promoting the creation of more sustainable and energy-efficient buildings.