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.