Interview: Khaled Al Mashaan
Which segments are showing strength in the present real estate environment?
KHALED AL MASHAAN: Currently the market is flat; however, this climate does present an excellent opportunity for the real estate sector. The main challenge is the limited availability of land released by the government to develop projects, a challenge that doesn’t look likely to end soon. Demand is indeed growing, and may have to turn to existing developments.
Two types of assets remain strong: residential houses and office spaces. The residential market is still very attractive for both lettings and sales, and is expected to remain strong given that there are very few new housing units coming to the market. This would only change if the government were to release additional land for housing development. Recently Kuwait’s Public Authority for Housing Welfare has discussed the prospect of partnerships between the public and private sectors developing housing on new land. However, such developments appear unlikely to take place in the near term.
The second type of real estate demand is in office spaces. Following the 2003 boom in the local real estate market, large investments were injected into developments in the commercial real estate sector, particularly into office assets. However, investments came to a complete stop between 2009 and 2010. In the past four to five years few new office spaces have been built, meaning an increase in occupancy of existing spaces and higher demand of these assets.
Should asset managers factor sustainability into their real estate asset valuations?
AL MASHAAN: Profitability and payback periods are the two essential aspects of a development valuation. Therefore, when it comes to sustainability factors, they need to support these aspects of valuation. ALARGAN conducted a study on sustainability and green initiatives, and found that green buildings in Kuwait would require an 88-year payback period under the current energy subsidies. Such a period is not attractive for the private sector, and subsidies would need to be reduced or fully removed in order to encourage the development of green buildings.
Globally, the shift to sustainable and green developments has already been made, making the sector far more competitive. An example of this is the 30% drop in solar panel prices in the past five years. The fall in prices and continued development of alternative energy sources have given way to renewable technologies and ultimately opened the trend towards sustainability. Asset managers should definitely consider this in their valuations, though in Kuwait it currently does not make business sense.
To what extent does risk analysis play a role in how you work and make decisions?
AL MASHAAN: There’s no doubt that risk analysis is crucial to making informed business decisions. It also depends on the availability of up-to-date data. Unfortunately, Kuwait does not yet have an integrated data centre or the right data infrastructure to allow us to comprehensively and qualitatively analyse the real estate sector. We do our own data collection and market monitoring, but this is not enough. The lack of current and readily available data impacts the sector’s ability to make properly informed investment decisions.
Having said that, we can never fully eliminate risk and we will always have periods of boom and bust, but our ability to mitigate risk is what matters. We are home builders in the affordable market segment and always have been, but now we are also building income-generating properties that provide a steady cash flow to mitigate future market risks. This allows for faster regional expansion and diversification, and having regional and demographic differences helps to spread, and thereby lessen, any market risks.
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