The housing file has once again returned to the banking circle and with that what was proposed by Dr Adel Al-Sabih when he was Minister of Electricity and Water and Minister of State for Housing Affairs appears to hold water although 20 years ago when the proposal was floated, he did not find any support either at popular level or from the government.
With the state’s saturated financial condition, backed by high surpluses without any complexity, the proposal of Al-Sabih was based on adequate borrowing as an approach to solving the housing crisis, with land made available to real estate developers at high rates who in turn will develop the land, build houses and apartments complete with full-service housing complexes and markets, and then sell at pre-determined covering the cost of development and an appropriate profit margin.
With the state last year recording the biggest deficit of 10.8 billion dinars in its history, Al-Sabih’s perspective came back to the fore again, as it is an effective and sustainable solution that both the citizen and the government can accept in terms of financial cost instead of continuing with a housing system that is unable to achieve the hopes and aspirations of citizens after housing requests have increased and multiplied and by May 2021, the number of applications was 95 thousand, in addition to 33,500 applicants who are given plots of land – which appear only on paper because they have not yet physically received them and there are 12,200 applicants who have received the plots, but no funding, while the number of applicants who need funding is about 14,700 thousand and this figure is increasing annually at the rate of 8 thousand applications annually.
In this regard, sources told Al-Rai officials of the four biggest banks recently met Al-Sabih within the framework of anticipating the opinions of specialists and waiting for the Central Bank of Kuwait and other banks for their word on the perspective presented to the Council of Ministers to solve the housing crisis, as the open discussion in this regard as to what role the Kuwaiti banks can play to solve the housing file, taking into consideration the liquidity pressures faced by the General Reserve Fund that has affected government plans to finance housing requests.
The sources stated that the meeting included a number of valid proposals and questions, most notably the question about who will finance the infrastructure of the real estate cities developed for housing, from internal main roads and others that lead to these cities, in addition to establishing cooperative societies, schools, clinics and other main service buildings.
From an accounting point of view, if the developer bears the cost of the infrastructure, the financing that the citizen will need to obtain his home will rise, according to this perspective, which contradicts the concept of the real estate developer followed in the developed markets with these ideas and increases the value of the loan and facilities required by the regulator.
It is suggested that the financing installment be adequate in terms of shortening the repayment period to between 20 to 30 years instead of 58 years, but the banks suggest that the maximum repayment period should be no more than 15 years, and in the case of low-income customers 20 years.
It is clear this point has yet to be worked on, which prompted the postponement of the discussion to future meetings, while it was reported that the banks will finance the cost of the property obtained by the citizen, with the state guarantee and here comes the banking proposal that corresponds to allowing the banks not to calculate these funds from the value of the general provisions that you are obliged to create annually in order to precaution, at the rate of 1% of the value of the total portfolio.
For example, if the current discount rate is measured at 1.5 percent, loans can be provided at a rate of 3 percent, and thus the interest rate of housing loans for those eligible will be 1.5 percent lower than the current rate of 4.5 percent.
