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Rents fall as supply overwhelms demand in Kuwait real estate
July 8, 2017, 5:16 pm
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Political and economic fluctuations taking place in the region are beginning to fuel uncertainties among many expatriates living in the Gulf Cooperation Council (GCC) states. Lower oil prices, and a tighter economy, which led to many projects to be shelved or slowed-down has resulted in job loss or lower incomes for tens of thousands of foreigners employed in the six-nation GCC bloc. Qatar’s latest tiff with its GCC neighbors, United Arab Emirates, Saudi Arabia and Bahrain, has only further exacerbated an already volatile situation and increased the sense of uneasiness among many expatriates.

In early June, when the rift with Qatar first began to unfold, there were scenes of panic and food shortages in Doha and elsewhere in the country. Though the initial anxiety has since died down, many among the expatriate population are taking a cautious wait-and-see approach and several of them have send their families back to their home countries. If the situation fails to resolve and instead worsens in the coming months, the economic activity could be hampered and acitivity at many of the prime projects could be impacted. This could lead to further job losses at many companies and could see many more contemplating sending families back home.

Elsewhere in the Gulf, and particularly in Kuwait, where the fall-out from the Qatar rift has been minimal, the constricting economy, job redundancies, continuous uptrend in public fees and the increase in cost of living, are all having a dampening effect on expatriate sentiment. The timely advent of summer and school holidays are now prompting many foreigners to send their families back to their home countries either permanently or at least until the economic situation crystallizes.

Clearest evidence of the lack of confidence among expatriates about the current economic situation and their long-term prospects in the country is the increasing number of apartment blocks lying vacant with huge hoardings of ‘To-Let’ signs hanging on their façade.  While this could simply be a case of supply overwhelming demand in the real-estate sector — with more apartment buildings coming up than are being occupied — that does not reflect the significant fall in rents and empty apartments in older buildings located in many popular expatriate residential areas.

According to a recent survey by Arab Times, rents of apartments in Kuwait have dropped by up to KD100 in various areas depending on several factors related to the location and type of the apartment. The paper, quoting the Secretary General of Real Estate Union, Qais Al-Ghanim, said that rent increases in residential buildings have come to a standstill, and in many places they have fallen appreciably.

Depending upon the locality, rents have fallen by a third or more in many prime expatriate residential areas. Far-flung localities such as Sulaibikhat have witnessed an even sharper decline in rents, with a large apartment in the Sulaibikhat area being readily available for less than KD250 per month today. This was something that could not even be contemplated just a few months back.

The Real Estate Union official was quoted as saying that many expatriates were sending their families back to their home countries and that landlords will definitely be impacted negatively if this trend continues. He added that this will also affect the economy as money remittances to outside the country will increase as expatriates send more money home to take care of their families there. He warned that diminishing expatriate spending in the country will also have a significant adverse effect on retail sales in the country.

Official statistics from the Public Authority for Civil Information reveal that at the start of the year there were nearly 104,000 empty apartments in the country; this number is believed to have gone up considerably in the intervening six months with new apartment blocks coming to the market in nearly all areas of the country.

Elsewhere in the GCC, property prices have come down appreciably in Dubai and Abu Dhabi with prices in Dubai’s freehold neighborhoods displaying continued weakness. Meanwhile, buy-to-let investors are seeing declining rental values that outpace those in the sales market.

A new real-estate report covering the six-month period from September 2016 to March 2017 inclusive and aross the apartment market in 23 Dubai neighborhoods, found that sales prices fell in 17 districts and rental values in 21.

Dubai apartment rental values fell by a greater margin than sales prices in most areas, the report added, suggesting that landlords have proved more willing to cut their asking prices than those wishing to sell, and points to ebbing demand and over-supply.

Meanwhile, in Abu Dhabi, where a reduction in government spending in direct correlation to sluggish oil prices has reduced employment and demand for housing in the capital, has fueled the decline in rents.

In Abu Dhabi, villa sales prices fell in six of eight districts, including an 11.8 percent plunge in Al Raha Gardens, while villa rentals along with apartment sales and rentals were also predominantly in retreat.

The report confirms what most industry analysts have suspected — prices continue to ease, both in sales and rentals, across most communities in the UAE.

A number of factors seem to influence the lower rates, including high levels of construction in the lead up to 2020 World Expo that increased supply and competition for buyers and renters; a new reality of oil prices at $50 per barrel.

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