Kuwait’s real estate market strengthens

With rising demand for residential units starting to match interest in commercial space,
Kuwait’s real estate sector appears set to see greater activity in the second half of the year. However, high prices and a shortage of supply in some segments may put a dampener on sales growth.

A straw poll of real estate professionals undertaken by KUNA, the state news agency, in late August showed many property agents were optimistic the sector would pick up further in the closing months of the year, with investors looking for higher returns than banks could offer.

This forecast has been backed up by an increase in sales activity, with the value of transactions rising 27% year-on-year (y-o-y) in June, maintaining the same pace of growth from the previous month. According to a report released by the National Bank of Kuwait (NBK) in early August, sales in the residential, commercial and retail segments combined amounted to $1.18bn in June. With sales for the first six months of the year increasing at a rate of 3% y-o-y, the recent surge in activity could indicate a stronger rebound in the offing.

While it is expected that there may be a slight slowing of activity in the later summer months, a period that coincided with Ramadan, which traditionally sees fewer transactions, and the peak holidaymaking season, any decline in activity will likely be offset by higher turnover in the autumn.

According to Ayoub Al Taher, a Kuwait-based real estate agent, the volume of property sales should increase further by the end of September, and prices are expected to remain at high levels. Demand in the residential component of the market will be driven, as it has been for some time, by first-time homeowners, Al Taher told KUNA on August 21.

Lending activity is consistent with growth in the market, with real estate loans climbing 6.9% y-o-y in May, compared to a 6.4% rise in overall credit, according to data issued by Kuwait Finance House (KFH) at the beginning of August. Total outstanding property loans were valued at $25.6bn as of the end of May.

The rise in demand for property may also serve as a boost for the construction sector, with a report issued by business consultancy Ventures Middle East in late August saying the building industry is set to enjoy steady growth in the coming years. The relatively low cost of construction materials and higher government spending – including on state-backed housing developments – should in turn help further boost the real estate sector.

Growth in the construction trade was also highlighted by the KFH report, which showed lending to the sector rising in May by 11.3% y-o-y, compared to a 5.5% increase in the previous month. At least some of this extra liquidity will flow into property development, but state support for new infrastructure projects will be a focal point for the industry moving towards 2014.

One challenge faced by both potential homeowners and developers is a shortage of land, with prime plots at a premium. With much of Kuwait either unsuitable for construction or in areas that do not appeal to homeowners, there is limited space available. There have been calls for the government to free up more land for development, especially to cater to the growing need for lower- to medium-cost housing.

However, in the short term, with the housing supply relatively limited, high levels of demand in both the rental and sales market is expected to keep prices elevated for the remainder of this year.