Higher oil prices support a growing roster of private and public real estate developments in Kuwait

 

After some years of slowing growth, Kuwait’s real estate sector saw signs of a significant revival in 2018, with sales increasing and prices stabilising. At the same time, new projects are under way, with some of the first of a number of large-scale, mixeduse developments nearing completion. Better economic growth overall, fuelled by rising oil prices and a government infrastructure programme, has also created a more buoyant economy, despite some global and regional headwinds. A limited supply of land is another factor increasing prices, although this has also caused bottlenecks in meeting housing demand, with Kuwaiti citizens particularly affected.

Meanwhile, major urban expansion works have been unveiled as the Silk City mega-project takes a step forward with the opening of the Sheikh Jaber Al Ahmad Al Sabah Causeway across Kuwait Bay. This has potentially opened up areas beyond the Kuwait City metropolitan area, while also promising development space on the causeway’s own artificial islands.

Structure & Oversight

The residential real estate market in Kuwait is divided into two segments: investment development and private housing. “Investment housing is mainly lease-driven and open to all, but it is primarily for expats,” Tarek Al Kazzaz, chairman of Al Mutawir Real Estate Development Company, told OBG. “Meanwhile, private housing can only be owned by citizens of Kuwait or the GCC.” This is the result of the ownership and housing laws that allocate state housing support to Kuwaiti nationals.

The Public Authority for Housing Welfare (PAHW) was originally established in 1993 to succeed the National Housing Authority. It is a public entity responsible for providing housing to nationals, and has its own budget. PAHW is headed by the minister of state for housing affairs. As of July 2019 this position was held by Jenan Mohsen Ramadan Boushehri, who was also appointed as minister of public works and confirmed as chair of PAHW in December 2018.

Al Diwan Al Amiri, which serves as the royal palace takes on key real estate projects, mainly involving public buildings, such as hospitals and health care centres, administrative and cultural centres, as well as palaces. It also takes on other projects, such as the rehabilitation of Entertainment City, a gaming, recreation and leisure facility in Doha.

Performance

Recent figures from the National Bank of Kuwait (NBK) show the real estate market rebounding from declining sales that started in 2014 due to low oil prices. With some 55% of Kuwait’s GDP coming from the oil and gas industry in 2018, the recovery in energy prices that began the previous year will likely contribute to more purchases.

The fourth quarter of 2018 showed the strongest sales growth in four years, reaching KD1bn ($3.3bn), representing an increase of 23% quarter-on-quarter (q-o-q) and 91% year-on-year (y-o-y). Of this figure, residential real estate made up the lion’s share. Investment housing sales increased by 241.5% y-o-y to comprise KD470.2m ($1.5bn) of the quarterly total, while private residential sales accounted for KD368m ($1.2bn). This was followed by commercial sales at KD184.9m ($609m).

The number of transactions rose by 48.3% y-o-y to reach 1757 in the same period, with commercial transactions up 138.5%, followed by investment (127%) and private residential transactions (45.6%). Prices were up with private housing rates rising by 8% in the last quarter of 2018, reversing a downward trend in the first three quarters of the year. Investment property prices also increased by 3.7% y-o-y.

The first quarter of 2019 saw sales figures decline, although they remained solid at KD789m ($2.6bn), reflecting a continuation of the recovery witnessed in 2018, according to the NBK. The drop came mostly from the investment segment, which fell by 47% q-o-q to KD248m ($816.8m). Investment sales volumes also slowed from 504 transactions in the previous quarter to 327, which the NBK attributed to subdued immigration growth. Still, the residential and commercial segments showcased a solid performance, with the former up 2% to KD377m ($1.2bn). While commercial sales decreased by 13.8% q-o-q to KD161m ($530.2m), this represented a 46% y-o-y rise.

Sector Trends

Commercial activity is benefitting from a recent trend that prioritises upgrading existing stock, particularly in downtown Kuwait City. This is especially prevalent in the office segment. In 2018 a 5800-sq-metre building in Sharq, for example, was sold for KD45m ($148.2m), or KD7758 ($25,600) per sq metre. The average rate for commercial space stood at KD5946 ($19,600) per sq metre at the end of 2017. The trend towards fewer but more valuable commercial transactions continued into 2019. NBK figures for February show the value of commercial sales rose by 400% at KD100m ($329.4m) that month, while the number of transactions had fallen by 30%.

NBK’s real estate price index also climbed slightly for residential homes. From a baseline of 100 points in 2010, the real estate index increased from 156 points at the end of 2018 to 159 in February 2019. While investment housing has undergone a period of recovery since 2015, a number of external factors are impacting the segment (see analysis).

Residential 

The government plays a pivotal role in driving forward the development of residential properties for the country’s growing national population. The PAHW provides Kuwaitis with three housing options. The first option is the provision of a government house built on a plot of land with a minimum built-up area of 400 sq metres or a 400-sq-metre apartment, along with a monthly rental allowance until the accommodation is available. The second option is a 400-sq-metre plot of land, along with a long-term, interest-free loan of KD70,000 ($231,000) from the Kuwait Credit Bank (KCB) to finance the construction of a house and subsidise material purchase for the amount of KD30,000 ($98,800). The third option is a long-term, interest-free loan from the KCB to buy or build a house or apartment with a minimum area of 360 sq metres. This system creates a key role for the KCB, while also stimulating both the construction and residential real estate markets.

Supply Challenges

At the same time, however, the PAHW faces two significant challenges. The first obstacle is the issue of pent-up demand for housing, which is contributing to a long waiting list. In August 2018, for example, local media reported that some 100,000 applicants were waiting for accommodation, with wait times averaging between seven and 18 years depending on the desired location. This bottleneck is partly a result of population growth over the past few decades.

According to the Public Authority for Civil Information, there were 4.8m people living in Kuwait in 2019, up from 2.7m in 2008 and 1.8m in 1998. Of this, Kuwaiti nationals accounted for 1.4m, or 29.4% of the entire population. The second challenge for PAHW is to increase housing supply over the longer term to cope with future demand, as almost twothirds of Kuwaitis are under the age of 30, of which approximately half are under the age of 15.

Adding to the demographics challenge is land scarcity. In Kuwait, the state is the largest land owner, holding around 80% of the total. This extensive portfolio includes land owned by state institutions, such as the Kuwait Oil Company and other so-called “K Companies”, as well as state ministries and authorities. The availability of land for new housing is thus largely determined by the state, which periodically releases territory to provide space for new buildings.

At the same time, private developers are not permitted to develop private residential projects for Kuwaitis, with only an individual Kuwaiti national or the government able to do so — which ends up putting more stress on the latter. Private companies, however, are allowed to be contracted to design and/or build property in these projects.

To try and ease supply constraints on residential housing, in 2013 PAHW adopted a strategy with the goal of distributing 12,000 new units per year. This initiative has been largely successful, and in 2014, 2015 and 2016 a respective 12,030, 15,240 and 12,000 units came onto the market. In addition, a total delivery of 60,000 homes was pledged under the National Development Plan 2015-20.

Future Cities

Alongside these strategies, critical to further increasing supply will be the development of future cities, which form part of the country’s ambitious New Kuwait 2035 Vision (see Economy chapter). Across the country, PAHW is overseeing a number of ongoing, mixed-use mega-developments aimed at adding a new supply of apartments and villas, as well as fresh territory for building.

On the agenda is the 104-sq-km South Al Mutlaa City development, which is set for completion in 2023. In addition to public and commercial areas, hospitals and schools, 28,363 new houses for over 40,000 residents will be built. As of May 2019 the project was reportedly 39% complete. Both slated for completion in 2029, the 59-sq-km South Saad Al Abdullah and the 60-sq-km South Sabah Al Ahmad developments will provide 20,000 and 25,000 new units, respectively. As of May 2019 both projects were around 10% complete. Meanwhile, the scope of the Al Khiran Residential City project includes 35,000 units on a 140-sq-km site, as well as commercial areas, hospitals, and sports and entertainment venues. The project will be carried out in five stages, each adding between 4500 and 8500 units.

PAHW’s future plans also include building some 52,000 homes in the Nawaf Al Ahmad City project, approximately 60 km north of Kuwait City. The city will bring to the area new commercial and office spaces, a shopping mall, sports and tourism facilities, hospitals, schools and mosques.

Other major residential projects currently under way include the Abdullah Al Mubarak suburb, which was 35% complete as of May 2019 and scheduled to finish in 2025, as well as the Jaber Al Ahmad City, which upon completion in 2022 will provide housing for 80,000 people. The 80-sq-km Al Sabriya City development will also contribute a further 52,000 units. This and other projects in the north of Kuwait are now being re-examined, as part of the broader Silk City and Boubyan Island redevelopment scheme (see Construction chapter).

Legislative Reform

To further tackle the housing shortage issue, a new draft mortgage law was under review by Parliament as of July 2019. Currently, Kuwait lacks a mortgage market despite real estate forming a major part of banks’ balance sheets. This sector is largely composed of lending to the commercial and industrial segments, while lending to the residential segment tends to take the form of instalment and consumer loans. The draft law seeks to expand the market to the residential segment, effectively tripling the amount customers can borrow for real estate purposes.

The new legislation would also remove much of the burden of financing new homes from the KCB, a task that has become increasingly arduous. For example, in order to meet the target of building 12,000 new units per year, the KCB requested raising its core capital from KD750m ($2.5bn) to KD3.8bn ($12.5bn) in May 2019 to meet funding obligations.

Citizens are expected to retain financing benefits currently on offer from the KCB. However, the draft legislation would see ordinary banks take on the responsibility of providing loans under the same long-term and interest-free terms. The KCB will still have a financing role by paying banks the mortgage interest at a rate it will determine. The law was still at the draft stage as of mid-2019, but there is pressure for it to be adopted soon, with Qais Al Ghanim, the secretary of the Kuwait Real Estate Association, telling local media in September 2018 that the KCB would not be able to provide the required loans for property in the South Al Mutlaa City, South Saad Al Abdullah and Abdullah Al Mubarak developments.

Foreign Participation

Given the constraints on private residential housing, many real estate developers have concentrated on the investment housing market (see analysis). This is open to foreign and local participation, although ownership of land is restricted to Kuwaiti citizens only. NonArab, foreign ownership of real estate in Kuwait was explicitly ruled out by Law No. 74 of 1979, with non-Kuwaiti Arab nationals limited to a single property in designated areas. The Commercial Law No. 68 of 1980, meanwhile, requires companies to be at least 51% owned by Kuwaiti nationals. The latter law was liberalised to a degree in 2013 by Law No. 116 regarding direct investment, which allowed 100% foreign ownership of a Kuwaiti-registered company, provided it meets certain criteria, such as generating significant employment opportunities, allowing the transfer of knowledge and technology, or would provide assistance to local small and medium-sized enterprises. In practice, real estate developers are thus generally majority Kuwaiti-owned, with growing pressure to increase the number of local employees in such companies (see Economy chapter).

Key Players

While public infrastructure projects are integral to sector performance, private actors also play a key role. Kuwait Real Estate Company, which is behind the Pearl Marzouq apartment properties and the Arabella dining and entertainment complex, was the first company to list on the Kuwait Stock Exchange (KSE) in 1984. As of July 2019 there were 36 real estate companies listed on the KSE main board and one – Mabanee Al Kuwait Real Estate – on the premier board. Mabanee was the lead developer behind The Avenues shopping and leisure destination, which in 2018 saw the completion of a phased expansion project bringing total gross leasable area to 360,000 sq metres. The Avenues is also expecting to see a 400-room Hilton Garden Inn added to the site before the end of 2019, while a Waldorf Astoria hotel is also in the pipeline.

Meanwhile, Tamdeen Group was named “Real Estate Developer of the Year” at the 2019 Arabian Business Real Estate Awards. Tamdeen is known for its large-scale projects, including the Sheikh Jaber Al Abdullah Al Jaber Al Sabah International Tennis Complex, which is due for completion by the end of 2019, the Al Khiran Outlet Mall in Sabah Al Ahmad Sea City, as well as the entertainment, culture and trade development project in South Sabahiya. Other sector heavyweights include Alargan International Real Estate, the National Real Estate Company and United Real Estate Company.

Mixed-Use Developments

Going forward, incoming supply is planned for the investment and residential segments, with several major projects in the former category edging towards completion. United Real Estate Company’s Hessah Towers development in the Hessah Al Mubarak district saw construction of its first phase start in December 2018. As the first large-scale, mixed-use venture of its kind in Kuwait City, the district will house medical, retail and commercial areas, with 82 plots set aside for high- and low-rise residential buildings and duplexes. The project is headed by the Kuwait Projects Company (KIPCO), which announced in April 2019 that 80% of the plots in the district were currently under development either by KIPCO outfits or third parties. The first tenants are expected to move into the Hessah Al Mubarak district in 2020.

Elsewhere, the Al Assima project, next to KIPCO’s headquarters in downtown Kuwait City, is also progressing. This includes a six-level shopping centre, a 120-room extended-stay residence for business travellers, and the 54-storey Assima Tower, which will be home to 150 professional offices.

Adding to the country’s growing retail space is the 10,356-sq-metre Al Andalous Complex, which will bring a shopping mall, a cinema complex, office space, a hotel, serviced apartment buildings, and restaurant and entertainment facilities to Kuwait City. There are now some 50 malls in the country, according to Dubai real estate surveyors Cavendish Maxwell, with the largest being The Avenues.

In the longer term a fresh supply of residential, investment and commercial stock is planned, as new projects north of Kuwait Bay are being carried out. After the opening of the 37.5-km Sheikh Jaber Al Ahmad Al Sabah Causeway on May 1, 2019, linking Kuwait City with Subiya on the north side of the bay, news later that month reported that the artificial islands created along the causeway would be opened to tourism and real estate development. Subiya itself could also be due for major expansion, if current proposals for the 250-sq-km Silk City mega-development come to fruition. Plans for the $86bn first phase were announced in February 2019.

Outlook

Current data suggests that the sector overall has made some progress in recovering from the slowdown in activity, with an uptick in oil prices giving the project pipeline fresh momentum. At the same time, increasing housing supply may mean a year of price stability, rather than major rises. Demographics also remain a challenge, as fewer expatriates are incentivised to live and work in the country, a situation that will impact investment housing the most. Supply bottlenecks in the residential sector may ease as current projects are completed, yet with the current backlog, waiting lists are likely to remain a reality in the medium term.

Looking further ahead, much depends on the mega-projects currently being planned for the north of the country, which have the potential to transform Kuwait into a more multi-polar real estate market. Finding new ways of attracting citizens and foreigners into these new projects will also be crucial, with the GCC region a competitive investment destination for mixed-use developments. Current debates over the future of investment regulations will thus have far-reaching consequences in the years to come.

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The Report: Kuwait 2019

Real Estate chapter from The Report: Kuwait 2019

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