Middle East developers widen their nets

But those lower costs may not be enough to keep Gulf-based developers active if the money from their Dubai luxury property developments starts to dry up along with the credit markets. The visions these developers have for the region around them are in some cases remarkable, but it remains to be seen how many of them can be realised in this most challenging of environments.“People are wary, and it’s hard to get credit for an investment,” says Mary Nicola, economist for the Middle East and North Africa at Standard Chartered. “Most people are in the process of deleveraging: there’s not much risk appetite when there are fears of a recession.”

BOX: Jordan

The landmark project in Jordan is Adbali, an attempt to develop an entire new business centre for the country’s capital, Amman.  Its chief executive, Jamal Itani, explains the appeal of Jordan and the project itself to Liquid Real Estate.

Abdali began in 2004 after military facilities on 380,000 square metres of land in the centre of Amman were relocated to the outskirts of the city. (The project is 43.75% owned by Mawared, the investment arm of the military.) That allowed for a new regeneration project, “to add a much needed landmark, a modern downtown,” says Itani.

The dynamics to allow for this regeneration had been coming together for years. “Real estate in the region has been on a steady run of growth for the past two decades,” Itani says. “Investors, local and from abroad, are waking up to the possibilities of the region, and Jordan is one of the countries marked for growth in the coming years.” Part of this has had to do with the post-September 11 2001 flight of Arab capital from western countries into Jordan and other Arab nations closer to home. That same year, in December 2001, a free trade agreement signed between Jordan and the USA relaxed barriers between the two countries and encouraged investment in Jordan, as well as exports into the US. On top of that, he says, there was a clear need for high end offices and residential units, while internally, the government’s economic liberalisation programme was well underway, with privatisation at the heart of it. Many sectors benefited from these trends, but real estate was certainly among them, hitting an annual turnover of $4.24 billion in 2005, an 80% increase, Itani says.

Asked whether the opportunity in Amman is in commercial or residential property, Itani says: “Actually, in both.” Amman lacks a proper downtown to serve businesses that want advanced technology and top facilities in the centre of the capital. “On the other hand, high end residential is lacking in Amman and our feasibility studies showed that there is a huge demand from local Jordanians to relocate into the heart of the city. And Jordanian expats living in GCC countries are looking for a decent, affordable residence in Amman reflective of the high standards they are used to in the Gulf and Europe.”

Others could see the need too. The project attracted 29 local and regional developers, 60% of them from the region outside Jordan; total direct investment has passed US$3 billion, US$1 billion of it from the UAE alone.

And is it safe in this environment? “Jordan is a sustainable market rather than a speculative one,” says Itani. “Banks in Jordan do not have a significant exposure to the international markets, and in nature are very conservative when lending to real estate development projects, which protected them from the economic downturn that is being experienced globally.” Itani says general banking practice in Jordan is to provide less than 50% loans relative to construction cost with the investors putting in the rest in equity. “With regards to the Abdali project, the first phase is completely sold” – indeed, it should be up and running by 2010 – and “we have not felt a direct negative impact on the interest shown from developers and investors.” He adds that banks are still providing mortgages to end users in Jordan, “albeit at slightly higher rates.”

Other analysts find Jordan promising. “You’re seeing a lot of business coming from the GCC,” says Faisal Hasan at Global Investment House in Kuwait. “And because of the nearness to Iraq, you’ve seen a lot of affluent Iraqi people setting up in Jordan. That’s created a lot of demand for residential and office property, for above-average prices.” Mary Nicola, economist for the Middle East and North Africa at Standard Chartered, sees a similar trend. “What caused the property boom in Jordan and the increase in prices was the Iraq war,” she says. “Affluent Iraqis went to Jordan and decided to live there.”