The Party's over!

Oct 2008 By Rami Batarseh

Have you noticed how many For Sale & For Rent signs are there in Amman latley? Does it seem like every other building is for sale or rent? The sign vendors are happy because they cannot keep up orders. The sad thing is that once we put a sign on a property, it rarely gets removed. This has nothing to do with our marketing or sales capabilities at Cityplex. Our database of available properties for sale has been consistently on the rise, for every 10 sellers that walk into our office to list a property we have 1 buyer asking for it. Our job has never been more difficult, there is simply too much inventory for the current demand. It is quite clear that the real estate market in Jordan is going through a correction phase. In real estate world we use “absorption rate” to measure the performance of the real estate market. Absorption rate is the number of months it will take to “absorb” the current inventory. It is the best indicator of whether that market is a “seller’s market”, a “buyer’s market”, or a “neutral market”, defined as follows:

Seller’s Market – Absorption Rates 1- 4 months Neutral Market – Absorption Rates 5 - 6 months Buyer’s Market – Absorption Rates 7 + months

We estimate the absorption rate for commercial real estate Amman is 24 - 36 months! In other words, if no more buildings enter the market, it will take 2-3 years to sell or rent the current inventory. Furthermore, the asking prices are simply unaffordable. For example, in some parts of Mecca Street property owners are asking JD600/sqm/year for ground retail space, which means if you rent 100sqm space, your annual rent is JD60,000. I wonder what type of business can sustain this kind of rent. And if they do, I wonder how long they will last.

In the last 5 years, there were 2 types of buyers of real estate: 1) Investors who bought properties to flip later at a profit, and 2) Users who buy property for a need, either to run a business or to live in it. We estimated that 70% of the buyers in the last 5 years were Investors and 30% Users. Now that the market has slowed investors pulled out, and we are left with only users, effectively we lost 70% of the market. Now that the party is over, we will go back to the basics, and the fundamentals of real estate will prevail again. A property is worth only what someone is willing to pay for it.

Here are the top 10 Pick for property owners today:

1. Stop dreaming of 2006 & 2007 prices, they’re not coming back
2. If your neighbor is asking a crazy price, you don’t have to
3. If once you were offered a high price, why didn’t you take it?
4. Reducing your asking price isn’t an insult, it smart business decision
5. Real estate prices don’t always go up, often times they go down
6. Tenants are your clients, service them right, they pay your bills
7. There isn’t enough “foreigners” to rent all the properties in Jordan
8. Don’t count on political instabilities to improve your property
9. A vacant building is a dead building, rent it at any cost, bring it to life
10. Stop believing that your property is the best one in Jordan

Posted by Administrator on Thu, 8 Jul 2010
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The 10 most puzzling things about the real estate in Jordan!

Oct 2009 By Rami Bataseh Pubslished: Jordan Property & Al Ghad Newspaper (arabic version)

1. 10% ownership transfer fees (رسوم نقل الملكيه). The government collects 10% of the sales price on any real estate transaction. This is excessive, because effectively this means that the buyer would have lost 10% of the property value at the day of purchase, in other words, the property value would need to go up at least 10% before the buyer can break even. In a booming market, no one would care, but in a slow market, everyone would, especially if the property is sold at a loss.

2. No capital gains tax. Capital gains tax is a tax charged on the “gain” of the sale of an asset. For example, if you bought a land for JD100,000 and sold it for JD120,000 the JD20,000 profit would be taxed. It makes perfect sense to tax a profit but not the sales price. In Jordan there is no Capital Gain tax, there is some sort of Income tax, but usually applies for developers only. Maybe that’s why the government chooses to tax the sales price than capital gains because it is a lot harder to figure out the capital gain on a property than the sales price, especially that there is no reliable recording system.

3. NO property tax. Property tax is an “ad valorem” tax Latin for “according to value” defined often as a percentage of the appraised value of a property, most of the time between 1-3% of the assessed value. This tax is often used to provide funds for services to the community where the property is situated, such as roads, schooling, sewers…etc. I know in Jordan there is “shelter tax” (Musaqafat Tax) but mostly applies to already built homes and the way it is calculated is somewhat primitive. Property tax motivates the owners to sell or utilize their land. Of course property owners wouldn’t like to have a property tax, because now they’d think twice about keeping an un-developed land in the heart of Amman through multiple family generations! I am not suggesting we have property tax, but I am just surprised that there isn’t one.

4. No historical sales data. Why don’t we have a public information system to find out the historical sales prices of similar property in a certain area? Maybe dedicate a tab under the website of the Department of Land and Survey that reads “Recent Sales” which lists the recent sales transaction with the sales price. I understand many people reduce their purchase price to lower the transfer fees, but having publicly accessible recording system will eliminate that. How? Let’s take an example. If you bought a land for JD100,000, and to save money on transfer fees, you record it as JD70,000. Your next door neighbor lists his identical land for JD100,000, a buyer comes along, he accesses the “recent sales” tab in the DSL website and finds that the land next door was sold for only JD70,000! What do you think he is going to offer your neighbor? Bingo! JD70,000. And what do you think your land is worth now? And how will your neighbor feel about you recording a lower price?!

5. There is no “escrow” account. Escrow account is an account maintained by an impartial third party for a real estate transaction, could be a government agency, bank, or any trusted person. All monies between seller and buyer have to go through this account, essentially guarding this account. An Escrow Officer acts as a safe keeper to the account, collects money from the buyer and/or buyer’s bank, and releases it to the seller or other parties to the transaction, such as real estate brokers, government, title insurance …etc. If a conflict arises between the buyer and seller during the transaction money stays in this account (gaining interest) until the conflict is resolved.

6. There is no title insurance (تامين على القشان). When you buy a property, you are given a title (قشان), but how do you know the title you received is in fact for that property? Or whether the seller is in fact the owner of that land? What is the first thing you do when you drive away in a brand new car from the car dealer? Buy insurance. Imagine paying JD1million for a piece of land and as you walk away you find out you have just paid the wrong person! This is the concept of title insurance, its premium you pay to an insurance company at the time of closing to protect you against mistakes and/or fraud. Title insurance could be expanded to cover you against unexpected events, such as unplanned construction of a bridge over your land or zoning change that may substantially reduce your property value.

7. Tenant - landlord laws. I know the government is in the process of changing these laws but please, hurry up! Right now one tenant occupying as little as 10m2 in a 10,000m2 can hold the whole building hostage for years, refusing to vacate and restricting the landlord from demolishing, selling or releasing it, unless they go through legal proceedings, which could take years. By the same token, some landlords neglect their buildings so badly to a point they become uninhabitable to tenants, but tenants are afraid to leave because they can’t find the same rent elsewhere. A balanced and well thought of laws can create a win-win situation to both parties.

8. The concept Key-money (خلو أو خلو رجل) fee. Key-money is usually for retail shops, such as showrooms and stores. Key-money is a lump-sum amount of money given to the landlord by the tenant to take possession of a space. Landlord can choose to take Key-money and reduce the rental amount or no key-money and keep the rent the same. In my opinion, key-money is bad for both tenant and landlord; the tenant bears the risk of losing this amount if decided to terminate tenancy, and for landlord, by reducing the rent amount it could reduce the property value a lot more that the key-money received.

9. Buying with a Wakaleh (وكاله). To avoid paying transfer fees, many speculators use A Wakaleh (Power of Attorney) to buy and sell real estate in Jordan. Wakaleh is a document that is signed by the seller and the buyer at the notary public (not at the Department of Land and Survey) that gives the buyer full control of the property for a period of one year (recently reduced from 5 due to abuse). During this year, the owner of this Wakaleh is entitled to resell the property to a third party but is not permitted to register it in his name. You would think you are safe by buying using this method?! Well, unless you immediately register the Wakaleh with the DLS, the seller could resell the land to another buyer, and if the new buyer runs faster than you can to register at the Wakaleh, you’d be left with useless piece of paper! Another reason why such hefty transfer fees don’t make sense and why there is a huge need for an escrow account and title insurance.

10. There is no license for real estate agents. How is it possible that anyone overnight can become a real estate agent without proper training and/or licensing? How’s it possible a person could be a Taxi driver one day and next day is a real estate agent? An agent’s roll in real estate is an extremely important and sensitive one. There must be some sort of government body that qualifies real estate agents and monitors their conduct. First and foremost agents should understand the meaning of “fiduciary duty”, which means an agent must be honest, loyal and works to the best interest of his client not himself. In layman terms, as an agent, you cannot cheat your client, and if you do, your license will be revoked, pay hefty fines and even be put in jail! Currently, real estate companies are establishing JAR (Jordanian Association of Realtors) through which the rules and restrictions of real estate agency will be set.

Posted by Administrator on Thu, 8 Jul 2010
tags: ID la

Parking in Amman

Jul 09 By Rami Batarseh Pubslish: Jordan Property Magazine & Al Ghad Newspapr (arabic version)

You drive down to Al Swaifyeh to pick up an item or two, you are listening to music and your mood is good. After you zigzag your way through the maze of one-way streets and the dead ends, you reach your destination to find out there is no parking, in fact, cars are double or triple parked in front of your store. So you go through the maze again and try a second time, but there is no hope. Your frustration increases, your music is off and your mood is changing. You have few options: 1) double or triple park like the others and risk getting your side mirror

scraped by another car, 2) drive into an empty lot and risk getting a flat tire, or 3) forget the whole thing and go home!

In 1944, Harold Samuel used a vastly popular phrase among the real estate experts that states the three most important factors in determining the desirability of a property are "location, location, location". Well, in Amman, I would change it to “parking, parking, parking”. There is no doubt that currently in Amman, properties with sufficient parking are more in demand than properties with good locations.

Our biggest challenge as real estate brokers is finding office buildings with sufficient parking. A typical request from our corporate and government clients would be a 2,500 sq.m. building with 60 parking! However, I don’t believe there is one building in Amman which can provide that. Almost all office buildings in Amman have 1 parking space for every 100m2, so for a 2,500 sq.m. building you’ll have 25 parking, that’s 35 parking spaces short from what’s needed! Lately we have been proposing to our clients to purchase an adjacent land for parking, but can you imagine, spending JD1mil + for dunum of land just for parking?!

Think about it! How many people can fit in a 100 sq.m. office? Space planners estimate an office employee requires, on average, 15 sq.m. of space, which adds up to about 7 persons per 100 sq.m. If we assume that half of these people have cars, (forget about visitors parking), we need parking for 3.5 cars, rounded down to 3 parking per 100sq.m. So common sense says we need 3 parking per 100 sq.m. so why do we have only 1? Not to mention that some businesses, like restaurants, where you can fit 50 people in 100 sq.m. you would need far more parking spaces.

The good news is that Amman still has a lot of empty land, and valet-parking attendees don’t need to drive too far before they can find an empty lot to park your car. But how long can this last? With lack of a good public transportation system, the situation will get rapidly worse as the number of cars in Amman is increasing at a phenomenal rate and more empty lots are being developed.

You can’t imagine how many people would rather rent a villa for their office needs rather than take a space in an office building! Number one reason is parking. That’s sad! Why do we have all these hi-rise buildings and skyscraper towers if they don’t satisfy the needs of the ultimate users? We are not urban planners, we are real estate consultants, we look at things from the point of view of the users, and we hear and see what users of real estate want and need. Real estate investment is a long term investment, you ought to foresee what will happen 5-10 years from now and plan accordingly. It is quite clear that buildings without sufficient parking will be very difficult to rent, and if you can’t rent your property, there is no income, and if there is no income, your property is useless.

Rami’s top ten on parking for property owners & developers: 1. Don’t ever substitute parking space for office space 2. If your building lacks parking, covert some of the office space to parking
3. Building with sufficient parking brings higher rents and appreciates faster 4. Building with sufficient parking attracts bigger and stronger tenants
5. Account for 3 parking spaces per 100sq.m. for your next project 6. Please don’t lock your underneath parking garage and use it as storage 7. Lack of parking is the # 1 reason why tenants move from a location
8. Parking conflicts among tenants is # 1 complaint to landlords 9. Don’t count on the pavement (sidewalk) as a parking for your property
10. Don’t count on your neighbors’ empty lot for your tenants parking

Posted by Administrator on Thu, 8 Jul 2010
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