Stronger economic growth and increased domestic employment levels could increase access to credit for real estate in Kuwait, although a decline in the number of expatriates, along with excess stock, may pose challenges for the rental market.
In a positive start to 2018, the value of sales in the residential property segment increased by 11.7% year-on-year (y-o-y) in January to KD87.5m ($291.7m), according to research from National Bank of Kuwait (NBK).
The number of transactions in the segment also rose to 283 in January, up from 246 in the preceding month, and marginally higher than last year’s average of 280.
Significantly for both homeowners and those seeking to enter the market, average house prices edged up 1.1% y-o-y, the first annual increase in two and a half years, while land prices dropped by 5.5%.
The performance builds on momentum generated last year, when transactions in the residential segment rose by 22%, compared to retreats in both the investment and commercial components of the sector.
Credit growth in the months ahead is expected to facilitate further transactions, though borrowing costs may edge up slightly.
In March ratings agency Moody’s cited expanding housing credit as the primary driver of an expected 6% rise in domestic credit over the next 12-18 months, supported by steady employment growth and improving economic sentiment; the agency anticipates non-oil GDP will expand by 3.5% this year and 4% in 2019.
Employment growth is being fuelled in part by the government’s Kuwaitisation strategy, which aims to increase the number of citizens employed by public agencies.
The strategy has outlined a series of domestic workforce targets to be achieved by 2022, including having 100% Kuwaiti employment in the areas of IT, maritime, arts, information, public relations, development, statistics and administrative support. As of the end of June last year non-Kuwaitis accounted for 26.3% of the total government workforce.
While higher levels of liquidity should give banks the scope to grow their loan portfolios, the cost of credit has risen somewhat as a result of tighter monetary policy.
On March 21 the Central Bank of Kuwait raised its benchmark discount interest rate by 25 basis points to 3%, the first increase in a year. The hike came on the heels of an increase by the US Federal Reserve, tracking similar moves by other central banks in the region.
While residential sales and values are on the rise, Kuwait’s rental market could come under renewed pressure in 2018 due to Kuwaitisation.
The strategy largely targets the public sector, but some areas of the private sector have also been pressed for their expatriate employment levels, with local media reporting that the Central Bank of Kuwait has advised the financial services sector to prioritise the hiring of local workers.
According to industry stakeholders, the shifting composition of the labour market in the coming years could affect rental demand and slow the rollout of new housing developments.
“The recent pressures imposed on expatriates resulted in a large number of vacant flats, especially in the investment residential sector,” Qais Al Ghanem, secretary of the Kuwait Real Estate Association, told local media in February.
As per estimates from the association released in late March, some 52,000 residential units remain empty across the country, representing 14% of the total. As a result, rental rates in many areas have fallen, with industry figures noting that in some cases rents had dropped by up to 25%.
If it continues, the oversupply of residential units could have an impact on the pace of development in construction, as credit to the sector contracted by 11.1% last year.
Excess stock and weaker housing demand were similarly reflected in the latest inflation data, issued by the Central Statistics Bureau (CSB) in mid-April.
While the consumer price index increased by 0.63% year-on-year (y-o-y) in March 2018, the housing services component, which covers rental costs, fell by 1.45% y-o-y and 1.28% month-on-month. According to the CSB, this was the result of fallings rents.
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