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Real Estate sector reveals revival sprouts
September 22, 2018, 5:24 pm

Increased distribution of subsidized residential plots by the Public Authority for Housing Welfare (PAHW) and high non-occupancy of apartments have led to a more realistic appraisal of land and building prices that are helping to revive the real estate sector.

Analysts say that on average prices of building and apartments are down 10 percent and 6 percent respectively from 2017. The downwardly revised real-estate rates have led to a spurt in sector’s market activity in second-quarter of this year, which appears to be continuing into the third-quarter as well.

According to documentation and registration data from Ministry of Justice in Kuwait, the total of all real estate transactions during the quarter ending in June was around KD857 million, a jump of 3.1 percent from first-quarter.

The average value of real-estate transactions in the second-quarter at KD540,000 was also a significant hike from that of the quarter before. The brisk activity witnessed in the first two quarters appears to have now overflowed into the third-quarter.

Despite summer and holiday season, real estate sales for July registered KD161.6 million, a hike of 11.8 percent year-on-year (y/y), mainly from transactions in the residential sector. In a report published in August on the performance of the real estate sector in the country, the National Bank of Kuwait (NBK) highlighted the improved momentum in the residential sector, where sales grew 43.4 percent y/y in July to KD90.3 million.

There were 268 transactions in the sector during the month, a third of which were plots and the rest homes. The improved momentum in the residential sector was also reflected in the NBK residential price index, which at 163 points was down 11 percent y/y and at a price level last seen in first-half of 2013.

The bank noted that the downward pressure on land prices could be the result of increased supply of residential land from a greater distribution of subsidized plots by the Public Authority for Housing Welfare (PAHW). However, sales in the investment sector remained lackluster, and at a total of KD57.5 million was down 6 percent y/y.

Though the number of transactions picked up in July to 100 from the 74 a month earlier, it still remained below the month’s registered average over the years of 108. More than 70 percent of the transactions were confined to three areas: Bnied Al-Gar, Sabah Al-Salem and Mahboula.

Reflecting the anemic activity in the sector, the NBK investment building price index slipped to 181.5, a 6.8-point slide from the figure in June, but an improvement from the double-digit decline rates witnessed a year earlier. The NBK report also showed that on the commercial sector front, sales recovered slightly from the lows of 2017 to register KD13.8 million in July. Of the four transactions recorded in July, the largest was the KD6 million for a commercial building in Farwaniya.

Despite relatively robust sales and market activity in the real-estate sector since start of the year, and prices that have eased from a year earlier to become more in line with demand, the NBK report warned the sector could still face headwinds.

Rising interest rates that could dampen demand for housing and oversupply in the apartment rental market that could keep prices subdued are just two of the challenges the sector will need to overcome in the near- to mid-term, said the bank. With nearly 13 percent of apartments lying vacant and generally lower building evaluations, “sellers and buyers may be in the process of converging to a new lower equilibrium price. We expect prices in this sector to stabilize once the gap between demand and supply narrows, although this may take some time,” the report noted.

Meanwhile, it was reported that the Legal Affairs Department in the Ministry of Commerce and Industry is reviewing laws that would compel Gulf investors who are preparing to set up real estate companies in Kuwait to mortgage properties they own in their home countries.

This would enable relevant authorities to liquidate those holdings and refund money to citizens, if realtors engage in fraudulent procedures or cannot complete projects as promised. The Real Estate Department is also believed to be putting in place a specific mechanism that would oblige real estate developers to provide detailed plans for international projects floated by their companies and to provide documents proving ownership of the floated real estate.

The documents would need to be authenticated by the embassies of the concerned countries where the property will be floated, in addition to having local and overseas banks act as guarantors. The ministry is also studying the possibility of suspending licenses for engaging in time-sharing — a real estate venture where several people jointly own a property and have the right to occupy the unit, usually a vacation-home or condominium, for a specific period every year.

The time-sharing real estate investment is a venture that the ministry is keen on discouraging as it has been found to have several negative aspects. In addition, reports indicate that in future any international real estate exhibitions will be held only under the auspices and supervision of the Ministry of Commerce and Industry so as to reinstate trust among the public in properties being displayed and sold at such exhibitions.

- Staff Report

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