KUWAIT CITY - The first quarter of 2018 saw a pick-up in real estate activity, driven in particular by strong sales in March. Sales reached KD 767 million in 1Q18, 45% of which took place in March.
The pickup at the end of the quarter was due to an increase in the number of transactions — perhaps helped by one-off factors and a sales rush ahead of the traditionally slow Ramadan and summer periods – coupled with a sharp rise in average transaction values in the investment sector. Sales in March rose 38% y/y, 87% m/m and were the highest since December 2014.
Investment property sales meanwhile strengthened on the back of an increase in high value building transactions. Total investment sector sales stood at KD 357 million in 1Q18, up 97% y/y. This was driven by an 11% y/y increase in transactions, but more importantly a significant rise in the average transaction size (85% y/y), reflecting a large number of building sales. Contrary to the norm, the investment sector surpassed the residential sector as the leader in sales, with 47% of the total (by value) in the quarter.
The commercial sector posted sales of KD 112 million in 1Q18, up 45% y/y. This was driven by an 8.4% y/y rise in the number of transactions, combined with arise in the quarterly average transaction size.
Increased transaction activity across all the sub-sectors appears to be stemming from emerging areas. Saad Al Abdulla recorded the highest number of transactions, with 95 sales worth KD 73 million. It was also the most active area for residential and commercial sales. In the investment sector, Sabah Al Salem was the most active area, with 17 transactions valued at KD 19.1m, followed by Saad al Abdulla which also posted a large number of investment transactions. The highest single residential sale value was recorded in Funaitees at KD 9 million for a 5,300 sqm residential plot of land, while the highest recorded transaction in the investment sector was a KD 20 million, 10,000 sqm building sale in Saad Al Abdulla.
The NBK residential home and land price indices both eased slightly in 1Q18, resuming the negative price trend that started in 2016 but abated somewhat last year. The home and land indices fell 3.4% and 8.8% y/y, respectively. An increase in supply of homes on the market from newly developed areas likely contributed to weaken price trends.
The investment building price index was broadly flat y/y in March 2018, though edged up 0.7% q/q overall in 1Q18. Prices in the investment apartment sector, by contrast, declined by 9.8% y/y and 8% m/m in March. Weak price trends in the investment sector may be linked to the surge in development in the years leading up to 2016, and by weaker demand from expats, resulting in relatively high vacancy rates. According to the Real Estate Association, vacancy rates are high and expected to increase with new supply in the pipeline and further decline in expat numbers.
The real estate market is not without risks in 2018-19. Despite the strong figures posted in 1Q18, sales are still not that high relative to some earlier years, and our outlook for the rest of the year remains conservative. We expect the oversupply in the rental market to linger, making sustained price increases unlikely. Further, we may see more policy interest rate hikes during 2018, which could tighten demand and keep prices subdued.
Report by National Bank of Kuwait
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