Interview: Osama Jawad Bukhamseen
Are lower raw material prices being passed off to end-consumers, and could rising labour costs offset any potential benefits to consumers?
OSAMA JAWAD BUKHAMSEEN: Raw material prices and labour costs do not necessarily correlate. There are too many variables in determining their respective costs, such as the cost of fuel, regional instabilities, and other commercial and political factors. In the end, what the end-user stands to gain through the fluctuation in raw material prices and labour costs is the value that the contractor delivers through the standardising of construction quality and the completion of projects in a timely fashion, which offset any potential cost related losses.
What mechanisms need to be considered to encourage the private sector to build for the mid-level residential segment?
BUKHAMSEEN: In 2008 the Kuwaiti Parliament passed Laws 8 and 9, which restricted the trading of residential real estate property in an effort to eliminate speculation. The objective was to stabilise unnecessary fluctuations in real estate prices and to help the government exercise more control over speculation activities. The result has been a surge in the value of real estate across the entire country. At a minimum, those laws need to be revisited because they restrict the private sector from both ownership of residential land and the ability to invest in projects. Although the laws intended to eliminate a potential housing bubble, they have in fact caused a housing shortage which has seen prices sky-rocket. As the private sector is currently limited as to how is can serve the market, the consumer has only one outlet, the Public Authority for Housing Welfare, which is unable to meet increasing demand in the residential segment. Kuwait is in need of economic reform, and a good place to start would be to initiate a free-market system in the housing segment.
The real estate sector recorded its weakest January sales in five years. To what do you attribute this, and are you expecting to see a consolidation phase in the construction industry?
BUKHAMSEEN: The drastic fall in hydrocarbon revenues has meant that people are holding on to their cash until they see an improvement in market conditions. There are now concerns that the government will cut utility subsidies and perhaps even generous salaries in the public sector. These uncertainties are affecting the wider economy, not just the real estate sector. It is important for the state to carry through with major capital expenditures as part of the five-year Kuwait Development Plan. If we continue to upgrade and improve our infrastructure capacity, then investor sentiment will improve across the board. In saying this, there must also be a renewed sense of purpose for the private sector to effectively participate in this transformation. There has been talk of investing into some of Kuwait’s islands to transform the tourism sector. This is a good start, and should include the private sector, which has considerable experience in these matters.
What is the likely long-term impact that investment Law No. 116 of 2013 will have on development in the commercial segment?
BUKHAMSEEN: As of yet the new law has had a negligible impact on improving the long-term prospects of the commercial development segment in Kuwait. The law has been in existence for three years, and unfortunately there have been no obvious tangible results. In conclusion, it is clear that Kuwait needs more than just a law to improve the investment climate: we need a broad economic restructuring phase that will see a robust private sector emerge as the driver of the economy. As it currently stands, the public sector dominates and largely crowds out opportunities for the private industry to flourish.
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