Investment Sector Sales Up 31% Y/Y

KUWAIT CITY, April 27

Data for March show real estate sales increasing 19% year-on-year (y/y), to KD 293 million. The increase followed y/y drops in sales for the first 2 months of the year. Although the data can be volatile, we expect the underlying sales picture to remain firm ahead of the traditional summer slowdown, as the three major market segments continue to be driven by durable demand (to various degrees). Residential sales totaled KD 149 million in March, a mere 1% y/y increase. This came from a total of 490 transactions. Compared to March 2012, this translated to a 7% increase in the average transaction size.

Appetite 
Recent events in the consumer financing area may translate to increased activity in residential real estate purchases in the near-to-mid term, though any potential increased appetite could also be faced with supply constraints. These recent events include the ceiling increase for housing loans provided by the Savings and Credit Bank (see April 10th issue), the establishment of the 'family fund' to help debtors with their pre-2008 loans, as well as a potential cut in interest rates on housing loans provided by conventional banks.

The investment sector saw KD 122 million in sales in March, a 31% y/y increase. These sales are made up mostly of buildings, apartments, or plots of land, with the intention of renting out the end-product. The sector is also seen as an alternative to investing in the Kuwait Stock Exchange. In the past few years, for example, interest in investment property has picked up as returns in the stock market have disappointed.
Overall, we expect the investment sector to see a solid performance in 2013, as both robust demand and supply exist in the market. Nevertheless, we could see a one-off y/y drop this April, driven by a basis effect, as April of last year had exceptionally strong sales.

As for the commercial sector -- the smallest of the three major sectors -- it saw KD 22 million in sales, split over 12 transactions. The sector has been performing well in the past 2 quarters, which -- at least partially -- may be attributed to active participation in the market by the Kuwait Investment Authority (KIA). KIA, through funds managed by two local companies, has aimed to inject some liquidity into the commercial property market, though no official announcements about acquisitions have been made.
The Savings and Credit Bank approved 545 new loans, worth a little more than KD 34 million.

The biggest portion went to loans for new construction, which averaged in March a little under KD 69,000 per loan -- close to the soon-to-be-increased ceiling of KD 70,000. Additionally, disbursed loans totaled about KD 13 million. It is worth noting that the total value of approved loans has been on the rise in recent months, and in fact reached its highest in more than 4 years in March. In all likelihood, this is related to recent government disbursement of lands (for example in Jaber al Ahmad City, Sabah al Ahmad, and Naseem area.)

© Arab Times 2013