![](https://timeskuwait.com/wp-content/uploads/2024/08/1763161-780x448.jpg)
The real estate sector is considered one of the most sensitive sectors to interest rates globally, as it relies heavily on loans to finance the purchase, sale and construction of real estate. However, in Kuwait, the debate in this regard intensifies with every increase or decrease in interest rates, carried out by the Federal Reserve Bank and followed by the Central Bank of Kuwait, about the extent of the impact of such steps on the real estate sector, whether in terms of rising or falling prices.
A study prepared by the Real Estate Brokers Association pointed to the strong inverse relationship between the rise in interest rates and the decline in income-generating real estate in Kuwait, whether investment, commercial or residential. It reviewed two examples that illustrate the course of real estate prices in the local market, using residential real estate after it became part of it for investment (dividing the real estate into residential units, apartments – floors – duplexes – complete villas for rent).
The report by the Arabic daily Al Rai explained that during the pandemic, discount rates fell in the United States of America, to avoid the economy entering a major recession that could lead to a depression, and the economy was supported by several financial and monetary tools, but the focus here is on the discount rate, as it was at the beginning of the crisis in March 2020 in America at 2.250 percent and in Kuwait at 2.75 percent, after which it fell locally in the same month to 1.5 percent and this rate remained stable until March 2022 and began to rise to 1.75 percent in the same month.
The study compared the same periods of interest increases, the reflection of this on the average price of land in the Abu Futaira area with an area of (400) meters, based on reports from Kuwait Finance House (KFH), indicating that in the third quarter of 2020, the average price per meter was 744 dinars, and in the fourth quarter of 2020 it reached 788 dinars, and in the first quarter of 2021 the average was 844 dinars, and in the second quarter of 2021 it reached 869 dinars, and in the second quarter of 2022 it was 994 dinars, and in the fourth quarter of 2022 it reached 1013 dinars.
Here, the study shows the impact of the decline in interest rates on the rise in real estate prices, indicating that there are other factors, including accumulated demand due to Corona closures, but the focus here is on interest rates, which is one of a group of factors that affect real estate prices.
High interest
The study indicated that after this period between March and April 2022, the discount rate was raised to 1.75 percent and continued to rise. In January 2023, it reached 3.5 percent. We noticed a decline in the property price in the first quarter of 2023, and the average square meter decreased to 981 dinars after it was 1013 dinars in the fourth quarter of 2022, and it stabilized at the same price in the second quarter of 2023. In July of the same year, the discount rate was raised to 4.25 percent. Here, too, the average price per square meter decreased in the third quarter of 2023, falling to 975 dinars after it was 981 dinars.
Here, the effect of the rise in interest rates on the decline in real estate prices is shown, and there are other factors as well, but the focus was on interest rates and showing the clear and inverse relationship between interest rates and real estate prices.
The study showed that it sought to establish the scientific basis by collecting some economic concepts such as monetary policy tools represented by interest rates and the most important economic indicators and their impact on the price movement of real estate, as this scientific basis will be valid for application in the coming days.
The impact of the interest rate decreased between March 2020 – 2022 on the price of 400 meters in Abu Fatira:
- Q3 2020 reached KD 744 per meter – Q4 KD 788 – Q1 2021 reached KD 844 dinars – Q2 2021 reached KD 869 – Q2 2022 average KD 994 – Q4 2022 reached KD 1013
The impact of the interest rate hike between 2022 and July 2023 on the price of 400 meters in Abu Fatira:
- Q1 2023 the meter decreased to KD 981 – Q2 2023 the same price stabilized – Q3 2023 decreased to KD 975