Kuwait's property market sees sustained growth

Kuwait’s construction and real estate sectors rebounded in the years preceding the Covid-19 pandemic following the 2017 unveiling of New Kuwait 2035, the government’s overarching development blueprint, heralding an extensive infrastructure pipeline. This sparked growth in construction activity, and saw a host of new residential and commercial properties enter the market.

In spite of that reinvigoration, both the country’s traditional reliance on oil revenue and the fact that the government has routinely favoured public financing over private for major infrastructure developments has contributed to delays on construction projects in recent years. However, the easing of pandemic-related disruptions and a spike in global oil prices has allowed the government to once again channel funding into housing, energy, utilities, industry and health care infrastructure projects.

The property market has also witnessed sustained growth. Kuwait has a shortage of public housing, with portions of the population having to wait close to two decades for a home once they are registered on the government’s waiting list. The government has unveiled a number of major housing projects that aim to erase the backlog by 2029. Looking ahead, innovative solutions to the local and international forces that are exerting pressure on construction and real estate activity will be essential to unlocking the sectors’ full potential.

Strategy

Under the banner of New Kuwait 2035, the government aims to leverage the country’s strategic location on the Gulf to establish it as a regional and global financial, commercial and logistics centre. To that end, major infrastructure upgrades are required and in the works, particularly in regards to transport networks and overall capacity (see Transport & Logistics chapter). New Kuwait 2035 also envisages the development of a high-quality health care system and increased provision of public housing for Kuwaiti nationals. Prior to the launch of New Kuwait 2035, development was guided by sequential five-year plans – titled Kuwait National Development Plans (KNDPs) – which now act as roadmaps towards New Kuwait 2035 goals. The current KNDP covers the 2020-25 period and sees the government targeting increased levels of private investment while strengthening efforts to align Kuwait’s economic development with the UN Sustainable Development Goals (SDGs).

Structure & Oversight

The most prominent government entities in the local construction and real estate sectors are the Ministry of Public Works (MPW) and the Public Authority for Housing Welfare (PAHW). The former oversees national infrastructure works through its various specialist units and departments, which cover areas such as construction engineering, roads, sanitation and mega-projects, while the latter oversees and coordinates the provision of public housing for Kuwaiti nationals. Housing is divided into two segments in the domestic market: private residential housing, which is overseen by the government and available only to Kuwaiti or GCC citizens; and investment development, which is largely lease-driven and primarily caters for the country’s large expatriate contingent but is open to the entire population. Notably, Kuwaiti nationals’ right to government housing support is enshrined in law.

There are other key public and semi-public entities in the construction and real estate sectors. These include the Department of Airport Projects; the Public Authority for Roads and Transportation; Kuwait Ports Authority; the Kuwait Authority for Partnership Projects (KAPP); and the Environment Public Authority (EPA), which is tasked with overseeing green construction works. The EPA also runs campaigns to promote environmental issues and awareness.

In September 2021 the government announced an extensive restructuring of its ministerial frameworks as it seeks to shift its role in the market from operator to regulator by increasing privatisation. The changes are set to be phased in during the 2022-25 period. The Ministry of Electricity and Water and the Ministry of Oil will merge to form a single Ministry of Energy in late 2022, which will coordinate with the MPW on the multiple infrastructure projects significant to its jurisdiction. In addition, the PAHW will be dissolved and its duties absorbed by both a new Ministry of Social Affairs, and an independent entity named the Public Authority for Social and Housing Support, set to be established in late 2022. Furthermore, a new Ministry of Economy and Trade will officially launch in 2023. It will be responsible for the national privatisation strategy and management of KAPP. The ministry will also assume the duties of the Kuwait Direct Investment Promotion Authority.

Given the importance of hydrocarbons activities to Kuwait’s economy, government-owned companies such as Kuwait Oil Company, Kuwait National Petroleum Company (KNPC) and Kuwait Integrated Petroleum Industries Company (KIPIC) – also known as the “K companies” – are highly influential. In relation to construction and real estate, this is reflected in the fact that those companies’ revenue dictates the level of public funding available for broader infrastructure works, and their own expansion projects act as significant drivers for the local construction and engineering industries.

Business Environment

Under Kuwait’s Foreign Direct Investment Law, overseas entities or individuals can only assume 100% ownership of companies belonging to a restricted range of sectors and activities considered beneficial to the government’s overarching development plans. It is therefore more common for international investors to hold a maximum 49% shareholding, with the majority stake held by Kuwaiti nationals. While personal income is not taxed, foreign-owned companies and joint ventures are subject to a flat 15% corporate income tax rate.

A proposal to allow foreigners to own property in Kuwait is expected to be presented to the government following the September 2022 elections. Currently, only GCC nationals are permitted to own real estate in Kuwait, but the new law would enable all qualified foreigners to own one residential apartment for private use. It is hoped that this law, along with proposed rules relating to long-term visas, would encourage more foreign investment in the country.

In another effort to strengthen the sector, in May 2021 the government made it compulsory for all public and semi-public entities to display notifications of planned tenders and prequalification exercises in the official gazette, Kuwait Al Youm, at least 90 days before their planned date of issue in order to improve transparency in tendering processes.

Size & Performance

The most recent quarterly data from the Central Statistical Bureau highlights the extent to which the pandemic disrupted construction activity. The first quarter of 2020 saw the sector contribute KD267.3m ($879.7m) to GDP at current prices. It then contracted sharply to KD89.3m ($293.9m) by the close of the second quarter. The remainder of the year brought increased momentum as supply chain disruptions eased, with sector output expanding by 29.9% from KD139.3m ($636.1m) in the third quarter to KD180.9m ($595.3m) in the last three months of 2020. Despite this recovery, a comparison between the fourth quarters of 2019 and 2020 shows a contraction of 45.6% year-on-year (y-o-y). Furthermore, the construction sector’s contribution to non-oil GDP dropped from 5.1% in 2019 to 2.9% in 2020.

In light of the measures being implemented by the government to attract higher levels of private and foreign direct investment, and revive stalled projects, industry observers have predicted a favourable growth trajectory in the coming years. In a January 2022 report, research and analytics firm Fitch Solutions forecast that Kuwait’s construction activity would increase by 3.5% in 2022, while also predicting a compound annual growth rate (CAGR) of 3.3% between 2023 and 2030. A report published by business management consultancy Mordor Intelligence was more bullish in its prediction, forecasting a CAGR of 6% for the 2022-27 period.

While tracking platform MEED Projects expected the value of awarded projects to double to KD3.1bn ($10.2bn) in 2022, the second quarter saw a 55% quarter-on-quarter (q-o-q) contraction, suggesting that the project pipeline for the year may ultimately be more modest. The Al Shadadiya Industrial Area infrastructure package, valued at KD84m ($276.4m), accounted for more than 50% of the KD156m ($513.4m) in projects awarded that quarter.

According to the National Bank of Kuwait, real estate sales reached a multi-year high of just over KD1bn ($3.3bn) in the second quarter of 2022 – an 11% q-o-q uptick from KD891m ($2.9bn). Growth throughout the first half of 2022 was consistent with what was experienced in 2021. However, whereas demand in the private residential segment proved STRATEGIC PROJECTS: In its budget statement for FY 2021/22, the government announced that it would inject KD19.6bn ($64.5bn) into a list of strategic projects. Public financing will provide around KD18bn ($59.2bn) of that sum, while the remainder is to be sourced through public-private partnerships (PPPs). Transport, health care and energy infrastructure are set to be bolstered by the programme.

Expansion works at Kuwait International Airport are progressing, and a portion of the aforementioned investment will be channelled into the airport development programme. The government also aims to revive the Kuwait Metro PPP project, the inauguration of which was delayed in recent years. Though it also saw some delays, the KNPC’s Clean Fuels Project was completed in April 2021. Furthermore, despite delays the crucial driver of momentum that year, investment residential and commercial property sales were responsible for expansion in the first half of 2022. Kuwait’s improving business environment, the easing of pandemic-related operating restrictions and high house prices are all factors that have contributed to the shift in demand profile. Although private residential sales have dropped off from their 2021 peak, they remained higher during the first quarter of 2022 than compared to their pre-pandemic level, according to Kuwait Financial Centre (Markaz).

Silk City – a 250-sq-km, $82.2bn multipurpose city in the northern region – will be among the largest integrated urban developments in the world upon completion. With a new major port and international airport, Silk City is key to the government’s vision of turning Kuwait into a regional and logistics centre. in commissioning, KIPIC’s new 615,000-barrel-per-day crude refinery in Al Zour became partially operational in July 2022, with full operations expected by December of that year. Meanwhile, the Ministry of Oil announced in May 2022 that Kuwait will build the world’s largest petroleum research centre in Al Ahmadi fitted with 28 laboratories, at a cost of approximately KD394.9m ($120m).

Northern Development

The 2019 opening of the 37.5-km, KD8.6bn ($2.6bn) Sheikh Jaber Al Ahmad Al Sabah Causeway – linking Kuwait City with Subiyah – significantly improved transport connectivity between the country’s most populous area and its comparatively underdeveloped northern regions. The causeway is intended as the first component of a broader development aimed at unlocking the latent economic potential of the north.

Another project that targets bolstering the northern region’s economy is the proposed 250-sq-km, $82.2bn Silk City project, a multipurpose planned city spanning economy, commerce, culture, residence and entertainment. The government hopes to create 200,000 jobs through the project, which is scheduled to be completed around 2035. Once complete, it will be among the largest integrated urban developments in the world. It is intended to provide accommodation for 700,000 people, and house both a new major port and international airport, making it key to the government’s vision of turning Kuwait into a regional and global logistics centre.

The potential benefits of such a development for the local construction and real estate sectors would be significant and long-lasting, given that the project was launched in 2014 with a 25-year timeline. Progress has run up against a series of obstacles, however, ranging from low oil prices and subsequent lack of public financing, to political disagreements. The project’s supporters believe Silk City to be critical to attracting foreign private investment and successfully diversifying the economy. Notably, Kuwait signed cooperation agreements with China in both 2014 and 2018 regarding financing for the development, and the Silk City project is set to be incorporated into the Belt and Road Initiative (BRI).

PPP

Due to Kuwait’s low level of annual rainfall and scarcity of available groundwater, the country relies on desalination and wastewater processing. To help bolster the local water supply, as of late 2022 KAPP was offering a number of integrated water and power plants (IWPP) and wastewater treatment plants as PPPs. Phase one of the Al Zour North One Power and Water Plant reached completion in November 2016, located approximately 100 km south of Kuwait City. It was developed under a build-operate-transfer (BOT) framework and operates through a public shareholding company. Ownership is divided between Kuwaiti government entities (60%); French multinational utilities firm Engie (17.5%); diversified Japanese trading company Sumitomo Corporation (17.5%); and local energy and petrochemicals player A.H. Al Sagar & Brothers Company (5%). Engineering, procurement and construction was undertaken by South Korea’s Hyundai Heavy Industries and Sidam, a subsidiary of French services and utilities multinational Veolia. Awarded contracts for phase one of the development amounted to around $1.4bn. Phases two and three of the five-phase project will focus on the construction of a gas-fired power plant and require an estimated total investment of around $2.5bn. The project is expected to provide a minimum of 2700 MW of additional net power generation capacity and at least 546m litres of water per day.

One of the world’s largest and most complex water projects, the Umm Al Hayman wastewater treatment plant, was under construction as of late 2022. German multinational environmental services provider WTE Wassertechnik was the assigned general contractor. The project comprises the construction of a wastewater treatment plant and a sewer network with pumping stations. Those developments carry a combined construction cost of around €1.6bn. The project was launched in mid-2020 and was slated for completion by the close of 2022. Despite pandemic-related disruptions, the plant’s substation was successfully brought on-line in April of that year.

Another related project is the $1.7bn Al Khairan IWPP, with the government issuing a request for quotation for the project in July 2022. The project consists of a power and water desalination plant and is expected to operate on liquefied natural gas.

Meanwhile, phase three of the Al Shagaya Renewable Energy Complex – part of Kuwait’s vision of producing up to 15% of its energy from renewable energy sources by 2030 – and a series of rest houses and chalets along motorways and causeways in remote locations, are also being offered as PPPs. The latter will constitute mixed-use developments that offer a range of commercial services and public spaces in underserved areas. All projects are being offered via BOT schemes similar to other projects in the pipeline, or under design-construct-operate models.

Residential Projects

In early 2022 Kuwait’s housing deficit stood at around 100,000 units, with waiting times of up to 17 years. The government is keen to increase the proportion of Kuwaiti nationals in the workforce, so the provision of suitable housing will be key to achieving this goal and addressing pent-up demand. PPPs are also being targeted in this area. The 6673-unit Jaber Al Ahmad district development has been divided into sub-projects that are being offered under BOT schemes. A consortium of local and GCC investors has so far entered into agreements with the PAHW with a cumulative value of over KD156.3m ($514.4m).

Upon completion, Kuwait’s pipeline of active housing construction projects are expected to bring a total of 46,765 houses and apartments to market, the majority of which will be 400-sq-metre units. The 28,288-unit South Al Mutlaa residential city is set to be another component of the BRI. The main contractor, China Gezhouba Group, delivered the first section of completed general infrastructure to the Kuwaiti government in October 2020, and the second batch of completed houses in March 2021. Work on several of the city’s constituent suburbs intended for completion in the February-April 2022 period was between 56% and 82% complete as of December 2021. The project is expected to house 400,000 people and incorporate 150 km of roads, 156 schools, 179 mosques and 12 public health centres.

The PAHW website offers details of six similar housing projects not yet under construction. Those six developments would create an additional 183,246 housing units for the market. The government announced in April 2021 that it would invite tenders for the 20,380-unit South Sabah Al Ahmad residential city later that year, though further updates were unavailable as of late 2022. More substantial was the April 2022 announcement that KD2.1bn ($6.9bn) of government funding had been approved for the South Saad Al Abdullah residential project. It is set to comprise 22,152 units of 400 sq metres and will be developed on land 27 km west of Kuwait City. Funding will be phased across multiple government budgets beginning in FY 2022/23.

Public Housing

Under the public housing programme, qualifying persons can apply for a house built on a 400-sq-metre plot or an apartment larger than 200 sq metres. They can also apply for a longterm, interest-free loan of KD70,000 ($230,400), accompanied by KD30,000 ($98,700) worth of construction materials offered at a subsidised price; or a long-term, interest-free loan of KD70,000 ($230,400) to cover either the purchase of a home of at least 375 sq metres or the construction of accommodation in situations where the applicant already owns land.

All financing, land and housing allocations are handled by either the Kuwait Credit Bank (KCB) or the PAHW. The first two options include a monthly rent allowance of KD150 ($494) to cover the time applicants spend on the waiting list – a facility that cost the government KD2.9bn ($9.5bn) in 2020.

In a move intended to provide additional support for the private residential housing segment, in January 2022 Kuwait’s government unanimously approved an increase of KD300m ($987.3m) to KCB’s capital, raising the bank’s overall capital to KD3.3bn ($10.9bn) and providing it with KD800m ($2.6bn) in additional liquidity. While the public housing programme is a key driver of construction activity in Kuwait, it will be important in the coming years for the country to modernise its housing finance model.

Mortgages Property Market Retail & Commercial Building Materials Outlook

Banks and investment companies offer instalment-based loans for the purpose of house purchase, construction or renovation. Those loans are capped at KD70,000 ($230,000) and secured against individual salaries. Under this model, additional investment is frequently required from borrowers due to Kuwait’s high house prices.

A new draft mortgage law would allow banks and financing companies to offer mortgages with interest paid by the government in instances when the customer is on the waiting list for public housing. Lenders would be permitted to repossess the homes of customers who default on repayments, with the government pledging to rehouse evicted persons. As well as offering citizens a more viable route into the property market, the new law could enable banks to free up capital for strategic redeployment, and benefit trading and financial markets.

Mortgages Property

The high cost of housing in Kuwait is connected to the relative lack of available land. The government owns more than 80% of Kuwait’s 17,820-sq-km landmass and controls the release of land for residential development projects. As a result, Kuwait had the lowest residential affordability in the GCC as of mid-2022, according to figures from Markaz. The cost of land accounts for 80% of house prices in Kuwait on average, well above the global standard of 30%. Indeed, the average price of private residential housing in Kuwait is 15.8 times higher than the average annual salary, which makes owning a residence particularly difficult for young adults.

According to Markaz, the average value of land containing investment residential apartments declined by 0.8% between the first and third quarters of 2021. Seafront land in Shaab dropped from an average of KD2965 ($9760) to KD2960 ($9740) per sq metre over this period. Similar contractions were recorded throughout the country, the most pronounced of which was seen in Mahboula, where average prices dipped from KD1260 ($4150) to KD1168 ($3840) per sq metre. Breid Al Gar, however, saw an increase, with seafront land rising from an average of KD2900 ($9540) to KD2980 ($9810) per sq metre.

In terms of residential rentals, the reduced number of expatriates in the country since the start of the pandemic has negatively impacted demand. The segment saw rates drop between the first and third quarters of 2021, most significantly in Khaitan, where prices for a 600-sq-metre apartment narrowed from a range of KD265 ($872) to KD280 ($921) in the first three months to a range of KD260 ($856) to KD265 ($872) in the third quarter. In Salmiya, the average price range for non-seafront properties of the same size tightened from between KD270 ($888) and KD300 ($987) in the first quarter to a range of KD270 ($888) to KD285 ($938) in the third quarter. According to local media, at the end of 2021 there were 396,000 investment residential apartments in Kuwait, with an occupancy rate of 84.6%.

Market Retail & Commercial

Kuwait’s leisure and retail portfolio is being strengthened. The 380,000-sq-metre Assima Mall complex opened in November 2021 in Kuwait City. The mall’s facilities – which include retail spaces, restaurants, a gym, spa, cinema and a hypermarket – are spread across six floors. The project was developed by Assima Real Estate Company and is owned by Salhia Real Estate Company.

Meanwhile, the 350,000-sq-metre, $212m Al Khiran Hybrid Outlet Mall, part of the Al Khiran Pearl City mega-project located in Sabah Al Ahmad Sea City, is still under construction and due to open in late 2022. In addition to a similar array of leisure facilities, the development will include a 900-berth marina, a multipurpose events arena, a 1.3-km-long landscaped park and boardwalk, exhibition spaces and a total area of 70,000 sq metres comprising 300 retail units. It is a Tamdeen Group project, with Alghanim International serving as the engineering, procurement and construction contractor.

“The local population has become accustomed to the online world, and local retail companies today need to perform constant evaluations to understand whether to invest in e-commerce or physical outlets. Retailers also need to look at the entertainment element of malls and retail outlets for families, catering to a broader spectrum of customers beyond individual shoppers,” Khaled K Al Mashaan, vice-chairman and CEO of Alargan Group, told OBG.

Sales of commercial real estate registered a 128% y-o-y increase in the first quarter of 2022, marking a strong recovery. The segment’s rebound was driven by the completion of a number of large transactions, including the KD10m ($32.9m) sale of a 945-sq-metre building in Qibla and a KD30m ($98.7m) deal for a 1260-sq-metre premises in Mirqab. The most recent available data from Markaz states that the average purchase cost of commercial land between the first and third quarters of 2021 either remained stable or displayed a slight downward trend, depending on the region. In Kuwait City the average value per sq metre of commercial land remained static in the range of KD5750 ($18,900) to KD7625 ($25,100), whereas in Farwaniya prices dropped slightly from KD3950 ($13,000) to KD4475 ($14,700) in the first quarter to a range of KD3950 ($13,000) to KD4425 ($14,600) in the third quarter.

Retail rental rates for a ground-floor unit were near-uniformly steady between the first and third quarters of 2021. Prices per sq metre were stable in Kuwait City and Farwaniya from KD20 ($65.82) to KD40 ($132) and from KD20 ($65.82) to KD42 ($138), respectively, while in Khaitan they showed a minor variance from an average of KD18 ($59.24) to KD40 ($132) in the first quarter to a range of KD18 ($59.24) to KD39 ($128) in the third quarter. Office rents also showed little to no movement across the country, with per sq metre prices remaining steady with ranges of KD8.5 ($27.97) to KD11 ($36.20) in Kuwait City, KD8 ($26.33) to KD9 ($29.62) in Farwaniya, and KD7 ($23.04) to KD8.5 ($27.97) in Khaitan.

Meanwhile, industrial rents displayed more significant fluctuation, with per-sq-metre prices of a ground-floor unit increasing from KD7 ($23.04) to KD25 ($82.27) from January to March 2021, to KD6 ($19.75) to KD30 ($98.73) in the third quarter of that year in Kuwait City. In Salmiya average rent prices ranged from KD7 ($23.04) to KD25 ($82.27) between the first three months of 2021 to KD7 ($23.04) to KD32 ($105) in the third quarter of that year.

Building Materials

The global cost of building materials has increased considerably in recent years. In June 2021 the Ministry of Commerce and Industry (MoCI) banned exports of cement and other construction materials in an effort to meet local demand, while still allowing citizens to import building materials for personal use. India, one of Kuwait’s chief suppliers, experienced a resurgence in Covid-19 cases in April 2021, leading to the cessation of exports. That led to shortages of various construction materials in Kuwait and subsequent price increases. The MoCI subsidises building materials for Kuwaiti construction firms and in May 2021 alone those payments amounted to KD13.7m ($45m).

Cement production capacity in Kuwait stands at 9m tonnes per year, while consumption in 2020 was around 6m tonnes. Heidelberg Cement subsidiary Suez Cement sold its 51% shareholding in Kuwait’s Hilal Cement in January 2021 as part of its portfolio-optimisation programme. The decision to sell was made in 2020, following KD68,800 ($226,000) and KD681,000 ($2.2m) in respective losses at Hilal Cement in 2018 and 2019. The available 25.7m shares were purchased by Silver Share Real Estate Company, which is part of Boodai Group of Companies. Boodai Group owns 94% of Hilal Cement’s shares.

Outlook

Kuwait’s construction and real estate sectors possess significant potential for expansion. If current obstacles can be overcome, and investment regulations and processes continue to improve, foreign finance should be forthcoming, with international investors displaying significant appetite for involvement in GCC-based infrastructure projects.

Growth in housing demand is forecast to outstrip supply until at least 2026, underscoring the importance of easing issues related to land availability, project financing and delays. Meanwhile, the proposed mortgage law is expected to stimulate activity in the country’s private housing market and free up a significant portion of government financing for redeployment into broader infrastructure development.