Real Estate & Construction
The macroeconomic projection for Kuwait holds that real GDP will slow through 2015 as the government cuts back on subsidies before recovering in 2016 and 2017 as a raft of development projects gets underway. In the real estate and construction sector, the groundwork is already being laid. The country is well placed to withstand lower international oil prices with strong macroeconomic fundamentals and the lowest break-even oil prices amongst the GCC QNB forecasts real GDP to slow to around 1% in 2015 before recovering in 2016 (1.8%) and 2017 (3.3%).
Generally speaking, the real estate market slowed moving into the year, and failed to gain momentum moving into 3Q2015 due to a confluence of seasonal factors such as the Holy Month of Ramadan and global economic factors, most notably oil prices and the emerging markets slowdown. The 3rd Quarter Real Estate Report by the Kuwait International Bank (KIB) showed that national real estate market indicators dropped by approximately 29%, to $2.26 billion (KWD685 million). The total number of deals concluded in the market fell in tandem to 1,180 compared to 1,660 deals during 2Q2015.
For the first eight months of 2015, total real estate sales reached $6.92 billion, down 23% YoY. While the market was strong from 2010-14, low oil prices are crimping spending by energy related firms, and analysts at the Kuwait National Bank also faulted geopolitical tensions in the region finally for the decrease in real estate market activity.
As of early October, total residential sales reached $3.24 billion, with $266 million occurring in August. In terms of dollar volumes and number of units sold over 2014, both were down by 22%. Land prices were up slightly after the market corrected in mid-2015, and are in line with 2014 prices. While vacant plots were bid up by high demand between 2008 and 2014, analysts with the NBK are expecting change in trend over 2015, as residential homes surpass plots in sales. In terms of total area, buyers in Kuwait prefer homes ranging between 300-400 sqm and of 400-500 sqm plots.
Over a year of low oil price environment has taken its toll on property investment, where the preference is for apartment buildings. Total sales reached $2.94 billion through October, representing a 27% decline over the same period 2014. Over the last year or so, investors have shifted from buildings and vacant plots toward apartments. These apartments are relatively small-ticket acquisitions but in current market conditions, they represent a notably higher return than the stock market or bank deposits.
Commercial sector sales activity also slowed, albeit to a lesser extent. Sales volumes were down 14% to $826 million by the beginning of October. In August, eight transactions took place with the most expensive sales being a complex in Farwaniya and a showroom in Dajij valued at over $1 million each.
Performance By Sector
In spite of the decrease in business, average value of property deals in 3Q2015 held, at $1.9 million per deal. The sector average deal value was $1.2 million for residential and $12.7 million for commercial properties.
Residential and investment sectors’ sales rose in 3Q2015, as did commercial sector’s sales. As such, residential sector sales amounted to $912 million, decreasing by 33% YoY. Data from the Real Estate Registration & Authentication Department of the Ministry of Justice showed that during 3Q2015, the residential sector recorded 760 deals, down 34% quarterly and falling by over 53% YoY. Meanwhile, the average value in the residential sector deals increase by 2.4% quarterly and 43% on annual bases. While prices were up, volume was down by 391 deals.
In contrast to the downturn witnessed in the residential sector, commercial sales improved to $370 million, an increase of 10% over 2Q2015. Recent legal reforms have significantly reduced the barriers to entry for foreign firms and the commercial sales are expected to reflect this in the coming years—first through firms capitalizing on conducive market rates for investments, and later through firms following expected market expansion.
Commercial sales in 3Q2015 were twice the levels recorded for the same period in 2014 according to the KIB Kuwait Q3 Real Estate Market Report. In turn, deals bounced back by 9%—to only 29. This is still well above the deals count recorded for 3Q2014, when only 12 deals were conducted. In the commercial sector, the average deal value increased by 21% over Q2 and 36% YoY, hitting $12.86 million average deal values. Meanwhile, warehouse sector sales decreased to $18.12 million, while the crafts sector sales increased to $31 million. Only two deals went down in the showrooms sector in 3Q2015, for a total value of approximately $22.73 million. The investment sector’s share rebounded to 40% only of the total market sales. The residential sector share on the other hand fell to nearly 40.5%. Meanwhile the commercial sector’s share rose to 16.4%.
According to the 3Q2015 numbers from Kuwait Finance House (KFH), the Hawally Governorate attracted the largest share of total sales with 29.4%, or $609.4 million. As of June 2014, the population of Hawally was estimated to be 890,533—or more than a quarter of the total population. The area is a large suburb that hosts a commercial center, sports stadium and numerous other amenities that make it one of the hottest property markets in Kuwait. Al-Ahmadi Governorate came second place with 21% of the market total sales of $441 million. This governorate is located in the southern part of the county, and has rural charm and British architecture. The southern governorate also represents a critical part of Kuwait’s economy, as several oil refineries are located here. Finally, Al-Jahra came in a distant third, with total sales amounting to around $95 million
In terms of market performance by geographical areas, Salmiya registered the strongest performance with 13% of total market sales of $273 million followed by Mahboula with approximately 6.5% of total market sales. That said, Mahboula, which is experiencing an infrastructure boom and heavy construction at several sites, was the strongest performer in terms of number of deals, with 19% of total.
Land is scarce in many parts of the country, and Kuwait faces a housing deficit that the state aims to ameliorate with more than 36,000 residential units by 2017. This project is part of a number of projects undertaken by the Public Authority for Housing Welfare. Stringent technical conditions have been set by the authority. These planned housing projects will address the increasing demand for such projects, where housing applications are on the rise. Some Kuwaitis claim to have waited for up to 20 years on the housing list. According to Reuters, the waiting list for government-subsidized housing grew to more than 100,000 in 2013 and is expected to grow by thousands each year, considering that more than half of the 1.2 million nationals are under 25. In 2015, total applications reached a figure of 4,559, suggesting that demand far exceeds supply.
According to the proposed distribution table for the year 2014/2015, the Public Authority for Housing Welfare has distributed around 3,258 residential units. Up to 1Q2015, 9,459 units were distributed in Sabah Al-Ahmed, Western Abdullah Al-Mubarak, Abu-Halifa, and Sabahiya from September 2014. This means that 12,753 units were distributed during the financial year 2014/2015 in line with the announced distribution plan. By increasing the size of new offered residential lands, these projects may mitigate the volume of housing crises in the country.
During 2Q2015, the Public Authority for Housing Welfare delivered its planned projects inducing houses, plots, services, buildings, public utilities, power stations, infrastructure services and public facilities in Sabah Al-Ahmed city at a cost of $437 million. Such projects also require the construction or upgrading of roads and service buildings. While projects undertaken generally are within timelines, execution is still less than expected in projects and services at Jaber Al-Ahmad and Sabah Al-Ahmed areas, North West Sulaibikhat and Qairawan areas with a cost approximating $1.3 billion. Total value of incomplete projects approximate as of mid-2015 was in the hundreds of millions of dollars, including public buildings projects, which dominate at a cost of around $1.16 billion. In other words, there are delays in the completion of these projects.
Ultimately, the real estate market has a history of stability that is expected to carry forward. Several reasons account for this including residential real estate units in the market that fulfill the increasing demand on residential real estates through the Public Authority for Housing Welfare. Looking ahead the sector can count on improvements in investment real estate thanks to an increase in construction ratios. This will contribute to the increase in offered quantities.