Kuwait real estate sales robust in Q2 ’18: Investor restrictions coming
Kuwait real estate sales in 2Q18 rose modestly compared to 1Q18 but were up strongly on a year ago, boosted by higher sales and lower prices in the investment sector, according to a July 31 NBK report.
Total sales reached $2.55bn in 2Q18, up 31% compared to the same quarter in 2017, with the volume of transactions up 13% year-on-year (YoY).
Although the market remains soft relative to the highs of 2014-15, the improvement in activity levels versus last year and a recent modest rebound in residential prices are encouraging signs. The improvements were likely helped by a better macroeconomic outlook and a confidence boost from higher oil prices.
Investment sector the main driver of higher sales
Sales in the investment sector reached 1.15 bn in 2Q18, almost double its performance of last year, supported by a sharp rise in the volume of transactions. Prices have fallen significantly since 2017, with prices of buildings and apartments down 10% and 6%, respectively, on a year ago.
“Sellers and buyers may be in the process of converging to a new lower equilibrium price, in line with lower building valuations and high vacancy rates for apartments (approximately 13% according to the Real Estate Association),” said NBK.
“We expect prices in this sector to stabilize once the gap between demand and supply narrows, although this may take some time.”
Residential sales weaken on the back of softer volumes
Residential sales fell 5% YoY in 2Q18 to $1bn, driven mainly by a decline in transaction volumes. Further, home prices have posted a small (1.1% yoy) yet significant rise in the context of a trend that has been negative for a considerable period.
Land prices also appeared to be stabilizing with the YoY rate of decline slowing to – 0.8% in 2Q18, possibly due to tightening supply following the glut that reigned over the market over the past two years.
The commercial sector is doing better
Sales in the commercial sector jumped by close to 40% to $396bn in 2Q18 driven by a strong pickup in activity, with 29 transactions compared to 13 during the same period last year.
Real estate market shows signs of recovery
Sales and activity are strong relative to previous quarters, and overall, prices have eased since last year to become more in line with demand. However, the downside risk is still present.
“Rising interest rates may weaken demand for housing, and persisting oversupply in the rental market is likely to keep prices subdued,” said NBK.
“Meanwhile, home and land prices, although recovering, may see headwinds in the near-to-medium term as more areas and homes are introduced and distributed by the Public Authority for Housing Welfare. Our outlook, therefore, remains conservative.”
Secretary of Kuwait Real Estate Union Qais Al-Ghanim says the restructuring of the real estate sector and development of its mechanisms are linked to the decisions taken by the Central Bank of Kuwait (CBK).
He stressed that the future of the real estate sector is determined by the bank’s financing of the projects.
Kuwait’s Legal Affairs Department in the Ministry of Commerce and Industry is reviewing laws that oblige Gulf investors who are geared up to establish real estate companies in Kuwait to mortgage properties they own in their home countries to make it possible for relevant authorities to liquidize all or part of those properties in case citizens are subjected to illegal procedures that require the companies to refund their money,” reports Arab Times, as published by Zawya.
“Sources said Real Estate Department is putting a specific mechanism in place to compel real estate developers to provide detailed plans for international projects floated by the companies and to provide documents proving ownership of the floated real estate,” said Arab Times.
The documents should be stamped by the embassies of the concerned countries where the property will be floated while designating local and overseas banks to deal with.
“They pointed out that Real Estate Department requires the real estate company and the client to deal directly with the concerned official in the ministry in case of dispute.”
The daily also said the ministry is studying the possibility of suspending licenses for engaging in time-sharing (a form of hybrid ownership that grants the right to occupy a unit of real estate such as condominium or vacation home) because experts see this type of real estate investment as having many negative aspects.
“Sources noted the next period will be witness to numerous international real estate exhibitions in an entirely different way under the auspices of the Ministry of Commerce and Industry to reinstate trust in real estate sector.”