Local real estate firms are predicting that Kuwaiti homeowners should see a rise in property values on the back of the government's $105bn 2010-14 development plan.
According to a report by Emaar Alahlia, house prices in Kuwait should see a boost going forward once the state's multibillion-dollar spending programme is implemented. Targeting investment in a range of projects including public works and a new refinery, the plan should act as a stimulus for the wider economy, with the real estate sector no exception.
This will be welcome news for developers and investors. While several factors made 2010 a challenging year for the sector - including a lending drought, a freeze on private sector residential sales and weak consumer confidence - there were signs as early as mid-summer that buyers were returning to the market.
The number of total sales leapt by 113% in the second quarter of the year compared to the same period of 2009. Residential sales, which represent the bulk of the market, saw an even greater increase of 144.5%. Overall property sales value during the second quarter came in at KD596.87m ($2.07bn), well up on KD280.8m ($981.4m) for the March-June period one year earlier. The only segment to falter was the commercial sector, where sales fell by 41% compared to 2009.
While this was certainly a good sign for the industry, as well as an indicator of burgeoning investor and buyer confidence, the headline sales figures were somewhat misleading. Although the volume rose, the value of transactions remained modest in comparison to pre-crisis levels, with the total value of property sales falling by 30% from May to June 2010.
Indeed, the triple-digit year-on-year increases registered in the second quarter of 2010 have to be viewed in the context of the significant declines recorded in 2009. Compared to pre-crisis levels, many indicators suggest that there is some way to go before a full recovery will be under way.
The number of loans for real estate fell to 134 in June 2010, compared to a monthly figure of 447 in late 2008. This was followed by a drop in real estate sales in July, with 415 transactions recorded at the Ministry of Justice's Real Estate Registration and Authentication Department, down some 42% month-on-month.
According to a report by National Bank of Kuwait (NBK), however, the July decline may have been a one-off, "driven by an unusually large seasonal effect, with activity falling away as the summer travel season began. The timing of the travel season might have shifted this year, with Kuwaitis holidaying earlier than usual in order to return before Ramadan."
While figures have not yet returned to 2008 levels, they are largely moving in the right direction, and the signs of recovery are likely to encourage investors. "Activity through most of 2009 was unusually weak. However, at their current levels sales volumes are well above the average of 608 transactions per month seen during the pre-crisis era between 2003 and 2008," an NBK spokesman told the local press in late August.
Challenges facing the real estate sector going forward include a lack of available land for development - over 90% of land remains in the hands of the state - and legislation that bars private companies from offering mortgages or owning and trading residential property or land, with the latter policy a holdover from the oil price spike-driven inflation of early 2008. There have been recent attempts to address these issues, and a proposal to allow non-Kuwaitis to purchase and own the rights to flats and apartments was submitted to parliament last year.
In spite of these challenges, the longer-term outlook for the property market looks bright. At present there is a substantial undersupply of units in the residential segment, a situation exacerbated by the shortage of available land, and with more than half of nationals under the age of 25, there will be a need for many more apartments and villas in the years to come. In addition, given generous government incentives - upon marriage, nationals are eligible for a loan of KD70,000 ($247,000) to finance the construction of a house - and per capita income levels topping $54,000 according to the World Bank, there should be plenty of money to finance the new home purchases.
With plans to turn the Arab state into a commercial trading centre, as set out in the government's Vision 2030, the real estate sector should become a priority over the coming years. Backed up by strong fundamentals and the state's multibillion-dollar spending programme, returns look set to be solid for investors in the Kuwaiti property market.
© Oxford Business Group 2010
