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KUWAIT – HOUSING SHORTAGE CONTINUES

UAE
OVERVIEW EGYPT KUWAIT QATAR SAUDI ARABIA TURKEY UAE

December 2015

Kuwait’s overall real estate market has largely been stagnating in 2015. “We didn’t see as much growth as we’ve seen in the past years which is due to the lack of confidence as a result of the decline in oil prices and the geopolitical turmoil in the region,” comments Ramy Echo, Chief Investment Officer of Kuwait-based ALARGAN International Real Estate Company.

In terms of investment activity in the housing market however, Echo points out that the rental market has been performing very well. “We’ve seen an increase in prices and demand. There is a shortage in supply as it is getting more and more difficult to deliver housing in Kuwait which is largely due to the high land prices. In some cases land prices have reached 80% of the total construction cost of a project,” Echo says.

On the sales side, the market is facing the same issue. “An additional constraint that impacted on the market was the restriction of ownership of residential land for sale to institutions, meaning that today, as a company, I cannot buy residential land for sale. This was done in order to curb land speculation however it backfired and constrained the supply side even further,” Echo explains. “As a consequence, the development of residential land is limited to individuals, meaning it is left to a segment which lacks both professionalism and financing (Kuwait doesn’t have an existing mortgage law.)”

Retail and offices

“Over the past few years, retail has been doing extremely well and has continuously grown in terms of pricing. There’s a huge demand and still not enough supply but I think we’ve reached a point now whereby the supply is catching up with the demand as a lot of new schemes are entering the market and existing malls are being expanded,” Echo says.

Kuwait’s retail sector is driven by strong indigenous demand and not by tourism like in Dubai for example. “Kuwaitis are big spenders and possess a high purchasing power. Furthermore, most of the entertainment here revolves around eating and shopping which is contributing to the strong performance of retail in the country,” Echo says.

In the office sector, prices have recovered from the financial crisis and currently stand at around KWD 10 per square metre [around USD 33], according to Echo, while vacancy rates stand at a “healthy 15%.” However, low oil prices and the region’s geopolitical situation are likely to pose a constraint on office sector performance over the next few years, he says.

Outlook for 2016

“The major challenges for 2016 relate to the supply, availability and prices of land. For developers and investors, the housing shortage is both a challenge as well as an opportunity. From a public sector perspective, there is a challenge in finding ways to incentivise projects and offer subsidies where needed so developers are able to deliver housing projects, as well finding ways of increasing private sector involvement. Furthermore, there is the need for putting end user financing schemes in place so that end users are able to acquire housing,” Echo comments.

On a broader scale, the expert believes that the low oil prices will create a challenge in terms of infrastructure and certain real estate projects as budget constraints may lead to a delay in delivering these. “I don’t see oil prices increasing any time soon. Economic diversification away from oil is now more important than ever,” he concludes.

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