Kuwait – Decypha: Amidst the attempt to create a non-oil economy, similarly to other GCC countries, Kuwait has sought over the past period to rely on other sectors to help the economy nourish without dependence on oil. Real estate has always been a cornerstone of Kuwait's economy with the Kuwaiti construction industry being one of the strongest in the region. The importance of the real estate sector is becoming clearer with the growing population and the need for new buildings for housing and other purposes.
In 2014, the two industries of construction and real estate both accounted for 10.6% of non-oil GDP in Kuwait, according to Oxford Business. "A healthy real estate market can help to further diversify the economy. Kuwait's government works through several agencies to support the sector's expansion. The Kuwait Investment Authority (KIA), the Kuwait Credit Bank (KCB) and the Public Authority for Housing Welfare (PAHW) all play critical roles in this regard," Oxford Business said.
Market Overview
The Kuwaiti real estate sector's annual transactions are estimated at approximately KWD 4 billion, according to Al Anba, however, in 2016, the Kuwaiti real estate sector lost a large portion of its transactions, estimated at nearly 25-30%,. The prices of some remote residential areas have also declined by 10-20%. The prices of internal areas in the country remained rather stable due to the lack of lands in them and the scarcity of selling and trading in these areas.
"Sluggish performance and orderly correction in prices best describe the real estate market in 2016," said Press Readers about the Kuwaiti real estate market. It said total sales during that year reached KWD 2.3 billion on 4,264 transactions. It added that on a local level, investors were not sure about the government's financial stance and its capital spending program, which resulted in a very low sales activity, with the commercial sector being an exception as it witnessed a relative increase in sales.
On the other hand, in March 2017, there was an upward stance in the real estate sales by 9%, according to Kuwait Times. The sales were estimated at KWD 200 million with price stability by the end of 2017 first quarter. "The residential sector was the main driver behind the pick-up activity in March where sales reached KWD 175 million on 358 transactions," Kuwait Times said.
In May 2017, the sales of the real estate market have soared to their highest level since December 2014, reaching KWD 370 million, according to Zawya. The total number of deals increased by 91% compared to April 2017, and by 50% compared to the same period last year.
Government Efforts
The Kuwaiti government has a development plan named "New Kuwait 2035" which is inclusive of efforts to encourage new investments and launch several new residential cities in different areas of Kuwait, including Al Metlaa and Sabah Al Ahmed, according to Al Rai Media. The Kuwaiti government plans to establish institutions and government utilities as well as an infrastructure for the new cities to be established, all of which is expected to contribute to improving the real estate sector.
Back in 2013, the government started to take several initiatives and exert noticeable efforts to correct the situation of the real estate sector, especially the issues related to private residence, according to Amlak. The Kuwait Finance House (KFH) released a report that said that the government has carried out amendments to law no.47 for year 1993 which was approved by the council of ministers, in addition to several other announcements made by the government to improve the sector.
Challenges and Opportunities
The major challenges for the sector include the availability, prices and supply of lands, according to Cityscape. The shortage in housing amidst the demand on residential units is considered one of the major challenge as well as an opportunity for both developers and investors.
From the point of view of the public sector in Kuwait, it is challenging to find ways to provide incentives and offer subsidies to enable developers to implement housing projects, as well as involve the private sector in the real estate sector more.
"The low oil prices will create a challenge in terms of infrastructure and certain real estate projects as budget constraints may lead to a delay in delivery," Cityscape reported.
Main Market Players
"The United Real Estate Company ranks fifth with capital of KWD 10 million, according to data from the Kuwait Stock Exchange (KSE)," Oxford Business reported. The company operates across the entire region of the Middle East and North Africa (MENA) with its key assets being in Kuwait. It was established in 1973.
The Commercial Real Estate Company, also known as Al Tijaria, was established in 1968 and ranks fourth by market capitalization of KWD 147 million.
Salhia Real Estate Company, with market capitalization of KWD 187 million, comes in the third place in the Kuwaiti market.
In the second place is the Tamdeen Real Estate company, with market capitalization of KWD 230 million amongst Kuwait-based companies.
At the top of the list is Mabanee, with market capitalization of KWD 39 million. The company had total assets worth KWD 617 million in the latter months of 2015.
Moving Forward
The outlook for the three segments of real estate, investment, commercial, and residential, is generally positive, according to Oxford Business. "Looking ahead, changes in regulations governing the banking sector could have important implications for Kuwait’s real estate market", it said.
These areas may face a slowdown with a reduction in budgets in both the private and public sectors, however "consistently strong consumer spending should provide a great growth source".
By Reem Hosam El-dein
