Apr 16 2013
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Kuwait government takes steps to tackle housing shortage
As the waiting list for government-subsidised housing in Kuwait has grown to more than 100,000 in 2013, projects aimed at combating the shortage will see a number of new construction projects in the coming years. Sluggish residential real estate growth and restrictive legislation have created difficulties for the sector, but new public-private partnerships (PPPs) and improved credit access could help alleviate Kuwait's housing problems.
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.
Land shortages are high on the list of problems facing residential real estate development. Less than 8% of the country's territory has been developed, and 95% of land is owned by the government and controlled by the oil and gas sector. Additionally, social expectations mean many Kuwaitis prefer living in houses or villas within Kuwait City and the immediate area - not high-rises in outlying, more remote regions slated for future development.
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. Development is further hampered by laws making it difficult for investors to enter Kuwait's market. Under Laws 8 and 9, passed in 2008 to curb speculation, private companies are restricted from buying and trading residential property.
The impact of these problems is reflected in the sector's recent underperformance. In its March 2013 economic report, the National Bank of Kuwait announced total real estate sales in January fell to KD 254m ($891.26m), a 20% year-on-year (y-o-y) decrease, while residential sales stood at KD 145m ($508.79m), down KD 25m ($87.72m) y-o-y.
"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."
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 KD 70,000 ($245,623) from KD 45,000 ($157,900), while the amount citizens can borrow for renovations rose to KD 35,000 ($122,811) from KD 30,000 ($105,267). The Cabinet also instructed the Credit and Savings Bank to amend its legislation, allowing maximum home loan amounts to jump to KD 500,000 ($1.75m) from KD 300,000 ($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.
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