Many expats are leaving the country on special repartriation flights via Kuwait aiport as their situation in Kuwait becomes dire, and some areas in Kuwait are under lockdown. This has caused several real estate buildings to empty as owners can’t find renters. This is a familiar scene in recent times as the government implements a replacement policy and many expats are losing their jobs, in addition the government is endeavoring to alter the demographics to make sure the ratio of citizens and expatriates in the country is 70:30; meaning 70 percent citizens and 30 percent expatriates.
The number of expatriates who have left the country has so far exceeded 100,000, including residency violators, and those desiring to go to their home countries. While many citizens appreciate the government’s approach in this regard, there are some who are worried about the large exodus of expats, especially the impact on the real estate sector.
Expats make up the main section of residents in apartment buildings as well as marginal commercial workers, and consequently the real estate sector has suffered. Adding to the expats trouble is having to endure reduced salaries and being trapped in total lockdown areas making it difficult for them to work. This has affected the income of many tenants, as a result they can’t pay their rents. All of these factors have directly effected the returns and revenues of property owners.
With the increasing departure of expatriates, real estate experts expect the deterioration of the condition of the real estate sector in the coming period or until COVID-19 crisis is solved, at least. A main outcome of these expectations is a probable decline in real estate investment in terms of prices and performance. According to the most recent report prepared by the National Bank of Kuwait (NBK) in the real estate sector, it was expected that the real estate market, especially the commercial and investment sectors, as well as the residential sector would be affected, albeit to a lesser degree, in the second quarter of 2020. This is due to the COVID-19 pandemic outbreak and the precautionary measures imposed to contain the pandemic, particularly the curfew and restrictions set up on commercial activities, which has effected working conditions and caused job losses especially among expatriates. The report stated that sales in the investment sector have decreased by 42 percent on a monthly basis and by 18 percent on an annual basis to KD 62 million in February. This monthly decline is due to lesser prices and average size of transactions.
As for the prices, they have remained relatively low in this sector, which was negatively affected by weak basic constituents since early 2017, partly reflecting weak demand from the expatriate category on one hand, and the continued increase in supply on the other. The prices of buildings and apartments, as of January, decreased by three percent and five percent respectively on an annual basis. It is expected that the prices and sales of the investment sector will be affected negatively due to repercussions of the COVID-19 outbreak. One of the reasons is that the rents for this type of real estate is paid for by the expatriate workforce, which has been affected by the curfews and closures of businesses due to lack of activity.
It is almost certain that the curfew imposed to handle the COVID-19 outbreak will directly affect the commercial sector negatively, leading to a reduction on sales and revenues of businesses.
Various reports also highlight the difficulties faced by some companies in paying the rents of commercial space, which has caused a decrease in rental value and prompted some business tenants to postpone payment on various commercial businesses, although the category of retail tenants is the most affected by the increase in the shopping center rents.
NBK’s report did not hide the fact that the view of the future of the real estate sector in the country has changed. Instead of stable expectations, it is clear that this is no longer the case. The decline in oil prices may increase the fears of investors and buyers, which may lead to the postponement of upcoming purchases. In addition to the study by NBK, several real estate experts and property owners did not hide their concerns regarding the future of the real estate sector.
Secretary of the Real Estate Union Qais Al-Ghanim expressed his dissatisfaction with what is happening. He stressed the need to review the current procedures and decisions, saying: “I am shocked by the large number of decisions that were taken without consulting the private sector. So far, these decisions have not yielded any noticeable results, not to mention those concerned with restructuring the population. This will result in many negative repercussions on all sectors, such as the real estate, consumer and industrial sectors.”
Al-Ghanim clarified, “I support the idea of restructuring the population, provided it is applied in a deliberate manner so that we do not lose the personnel and labor we need. In the end, there are activities that citizens did not and will not accept to work in, such as repairing cars, electrical works, plumbing, etc.”
Meanwhile, the Vice President of the Real Estate Development Company Suleiman Al-Mudyan affirmed that the enforcement of distribution of jobs of 70 percent citizens and 30 percent citizens is an unrealistic and almost impossible theory, as it needs more research if the state wants to achieve its goals and future projects. He said the state’s decision to restructure the population is good, but it will not be easy to implement realistically, especially in terms of the percentages referred to by the government.
Al-Mudyan stressed the need to do a careful study of the proposal before setting the proportions in order to be more realistic and to take into consideration the interest of the state in the future. He did not hesitate to disclose the fact that the state cannot dispense with expatriate workers, as the strength of the state is based on diversity, adding that the expatriate category will remain necessary to support economic sectors on one hand, and achieve the New Kuwait 2035 vision on the other.
Al-Mudyan underscored that modifying the population density will lead to a significant vacancy in the housing sector at a rate of up to 16.5 percent. He opined that the correction of the current situation can be possible through the deportation of marginal and infringing workers, and orientation towards creating some jobs, as well as putting an end to the recruitment of expatriate workers based on a clear time plan until the desired goals related to population density are achieved.
When asked about the future of building materials, Al-Mudyan said, “The contracting sector is divided into two parts – building materials and the construction sector. “I believe that the construction sector will suffer the lion’s share of vulnerability as a result of the scarcity of workers, specialists and technicians working in construction companies. Therefore, the rates of labor wages will witness a significant increase, which will in turn increase the cost of construction. “Regarding the building materials, it will witness a slight impact as a result of the stagnation in the construction sector. The situation will depend on the extent of activity of state and real estate projects in the future.”
Furthermore, despite the concerns raised by the experts regarding the future of the real estate sector, expectations of the real estate expert Abdulaziz Al-Dughaishem was less negative, especially if there were some solutions to be adopted. From his point of view, there will undoubtedly be an impact on all real estate, investment, commercial, residential and industrial sectors, but it will be in varying proportions in the investment sector, despite the departure of many expatriates including residency visa violators recently. However, expectations indicate that there will not be a strong impact if the government issues strict laws prohibiting housing more than four people in one room and preventing rotation of workers in an apartment. Consequently, it is necessary to organize and monitor the tenants who pay rent, and limit the number of tenants.
In this manner, the demand for investment housing will increase, and the vacant apartments and buildings will be occupied. However, if the matter remains as it was before, the impact will be significant. Al-Dughaishem said, “We have seen in one of the areas where more than 800 to 1,000 people resided in one building. This was discovered by the responsible authorities recently.” He added, “As for the commercial sector, it is the worst affected. Activities will be concentrated in the shops and commercial complexes that overlook the front end of the areas. As for the shops located in the interior parts, the mezzanine and the basement, they will be affected significantly.
