Apr 25 2013
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Kuwait: Addressing the housing shortage
In March 2013 the government revealed plans to build 174,000 new houses and three separate cities by 2020, two near the Iraqi border in the north, and one on the Saudi border in the south. Although no official price tag has been given for the project, estimates put the cost at around $5bn.
Under Kuwaiti law, the country's 1.2m nationals are entitled to apply for government housing after marriage, receiving loans that are paid off in small instalments over 30 years. However, despite the state's $400bn oil surplus, applications for housing now outstrip supply by more than 100,000 and will grow by an estimated 8000 applications each year, local media has reported.
Rising land prices have also created challenges for Kuwaiti nationals looking to purchase a home. A recent report by Al Shall Economic Consultants showed a huge increase in residential real estate prices between 2000 and 2011. According to the report, the average price per sq metre rose by 137.7%, largely due to land shortages. As a result, land can cost up to $1000 per sq metre, even in remote areas.
"The long-term fix is for the government to open the sector to investments from international companies and allow participation in the residential market," Saleh Al Kouh, chairman of the Kuwait Real Estate Investment Consortium, told OBG. "The government can standardise the sector by deregulating parts of the law that prohibit private participation. The private sector has the potential to contribute greatly to residential real estate if allowed."
The government has taken steps to improve business regulations in recent months, starting with sweeping reforms approved in December designed to improve ease of doing business and attract new foreign investors. The new regulations will see Kuwait create a "one-stop shop" for licensing and improve corporate governance, both of which could help property developers.
To help its residential development move forward, Kuwait's leadership has also announced plans to accept tenders and embark on a number of PPPs as it strives to meet its 2020 target. For example, the Public Authority for Housing Welfare recently announced it is looking to appoint advisors on the development of two PPP projects for over 30,000 new housing units. The first is for the development of nearly 10,000 units in a low-cost housing scheme, and the second is for an additional 21,000 units at the Al Khiran Housing City.
In addition to enhancing its foreign partnerships, Kuwait's leadership is taking steps to breathe life into the residential real estate sector, starting with the Central Bank of Kuwait's decision to drop interest rates to 2% in October 2012. The government went a step further in March 2013 when it increased the maximum amount of home loans available to women to KD70,000 ($245,623) from KD45,000 ($157,900), while the amount citizens can borrow for renovations rose to KD35,000 ($122,811) from KD30,000 ($105,267). The Cabinet also instructed the Credit and Savings Bank to amend its legislation, allowing maximum home loan amounts to jump to KD500,000 ($1.75m) from KD300,000 ($1.05m).
To meet its housing commitments, the government is increasingly turning to PPPs, easing legal restrictions for foreign investors and improving credit access for its citizens. These efforts should serve to ease the housing shortage, drive growth in the non-oil sectors and improve infrastructure development across the country.
© The Peninsula 2013
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