Kuwait’s construction and real estate sectors are significant contributors to the country’s economy, propelled by government initiatives, private investment and the country’s robust oil wealth. New Kuwait 2035, the country’s long-term plan for economic diversification and sustainable growth, elevates the sectors’ importance with the intention of increasing the quantity and quality of infrastructure projects, while evolving legislation aims to create a more favourable business environment.
The sectors face several challenges, including fluctuating oil prices, geopolitical tensions and political gridlock that has slowed the pace of regulatory reform. The ongoing housing shortage and restrictions on foreign ownership create further barriers for expansion. As demand for affordable housing grows, the government is promoting the development of commercial and mixed-use projects to diversify the economy and attract businesses. The government’s focus on promoting public-private partnerships (PPPs) is meant to stimulate growth, reduce the burden on public finances, and stimulate the adoption of innovative and sustainable building practices. Looking ahead, a growing population and rising incomes bode well for both the construction and real estate sectors’ future expansion.
Strategy
The government of Kuwait places a strong focus on infrastructure development as a pillar of New Kuwait 2035. Accordingly, an increase in infrastructure projects has sparked demand for advancements in the national framework, with global consultancy firm KPMG estimating in April 2023 that the combined value of projects in the bidding stage in Kuwait was $27.6bn, setting an optimistic tone for the construction sector’s future. Indeed, as of late 2022, $16.3bn had been earmarked for transport infrastructure development works across the country. To address long-term obstacles to development and foresee infrastructure needs, in September 2023 the Cabinet approved the fourth Kuwait Master Plan 2040. The blueprint sets out a comprehensive vision for the country’s urban, economic, social and environmental development. Recognising future population growth, the roadmap focuses on land utilisation for private housing, investment, and commercial and industrial purposes.
Other strategic growth drivers for the construction and real estate sectors include the development of housing and new city projects, although progress on such projects has seen some delays in recent years. Highlighting the importance placed on such projects, in 2020 the government approved KD13.8bn ($44.9bn) for new city construction and infrastructure development. More recently, around KD774m ($2.5bn) was earmarked for such projects in the 2022/23 budget, although slower project execution resulted in a spending mismatch, with only KD335m ($1.1bn) utilised.
In addition to strategic growth drivers, other factors influencing demand are at play in Kuwait. The Kuwaiti dinar’s peg to a currency basket that includes the US dollar dictates monetary policy. While Kuwait generally aligns with the rate hikes of the US Federal Reserve, it exercises some autonomy, taking into consideration domestic inflation. The period of high interest rates that followed the Covid-19 pandemic elevated borrowing costs, which has an impact on real estate demand. Additionally, restrictions barring foreigners from land ownership and business engagement without Kuwaiti partnership act as a constraint on construction and real estate growth, particularly as expatriates constitute approximately two-thirds of the population.
Oversight & Delivery
The construction and real estate sectors operate under the guidance of two primary government bodies: the Public Authority for Housing Welfare (PAHW) and the Ministry of Public Works (MPW). The PAHW focuses on the regulation of housing policies, allocation of units and supervision of related projects, while the MPW oversees public infrastructure such as roads, bridges and utilities. Complementing the two are various other entities, such as the Municipal Council, the Environment Public Authority and the Kuwait Authority for Partnership Projects (KAPP), each playing a part in regulating and advancing construction initiatives.
A slowdown in large-scale projects that rely on government support has constrained growth in Kuwait’s construction industry in recent years. Disagreements between the government and Parliament have hindered additional funding for proposed mega-projects. Consequently, in 2022 Kuwait saw a decline in project awards amounting to KD832m ($2.7bn). Although the fourth quarter of 2022 saw a rise in awards, led in particular by Kuwait Oil Company (KOC) contracts, the overall trend remained lower compared to the previous year.
At the start of 2023 projections for that year anticipated contract awards worth KD4.9bn ($15.9bn), predominantly in the electricity and water sectors, according to a report by National Bank of Kuwait. However, sustaining this momentum requires a commitment to infrastructure development in line with the New Kuwait 2035 plan. The government allocated approximately KD1bn ($3.3bn) for public projects in the first half of FY 2023/24, effective April 1, 2023. However, local media – citing a government report – suggested that around 10% of the allocated budget, or KD108m ($351m), was spent on such projects between April and October 2023. Of 130 approved projects for FY 2023/24, as of October 60 were in progress, 52 were in the preparation stage, 13 were awaiting decisions and five were completed. Delays in approval and contractual processes were cited as the main reasons for the sluggish progress, along with several legal challenges.
According to UK-based data analytics firm Global Data, Kuwait’s construction market was valued at $17.2bn in 2022 and was projected to expand at an average annual growth rate of more than 3% between 2024 and 2027. However, the pace of growth will largely depend on the government being able to expedite the process of project approval and delivery. Elsewhere, data research firm Statista estimated that the value of Kuwait’s real estate market was $830bn in 2023.
Business Environment
Activity in Kuwait’s construction sector is driven mainly by commercial, industrial, infrastructure, energy, utilities, institutional and housing projects. Residential real estate market preferences lean towards upscale, contemporary properties, driven by rising incomes and lifestyle shifts. Demand for high-end residential spaces with modern amenities is increasing. Commercial properties in prime locations are also in demand. Key sector trends include mixeduse projects that cater to diverse needs by blending residential, commercial and recreational spaces.
Sustainability is also in focus, with developers embracing green practices and energy-efficient technologies, aligning with government initiatives and buyer preferences for eco-friendly properties. Stable economic growth in recent decades driven by oil activity and government investment has boosted disposable incomes, making property ownership more accessible, although challenges remain due to high land prices.
Nevertheless, the housing segment witnessed a contraction in early 2023, mainly due to the uncertain global economic climate and its impact on the local market. This downturn resulted from factors such as high interest rates deterring purchases, limited investor liquidity, caution stemming from global crises and geopolitical tensions, reduced purchasing power due to inflation and a shift from real estate to more secure bank deposits among capital owners.
Kuwait also values regional partners, with its political leadership often discussing infrastructure aims with Saudi Arabia. In an effort to diversify investment and secure sustainable non-oil revenue streams, the Kuwait Investment Authority, the country’s sovereign wealth fund, has backed key Saudi infrastructure projects such as King Abdullah Economic City and the Riyadh Metro.
Materials & Workforce
Construction costs in Kuwait increased in 2022, albeit at a slower pace compared to neighbouring GCC countries like Saudi Arabia and the UAE. According to Kuwait Financial Centre, the cost for construction materials such as iron, steel and cement saw increases of 8.7% to 100% between January and early June 2022. This trend was particularly notable in primary raw materials such as structural steel beams, reinforced steel, softwood timber, copper pipes and cables. Coupled with labour shortages in the construction sector across the GCC, this resulted in a significant hike in construction costs. However, Kuwait has comparatively lower construction expenses in contrast to the UAE and Saudi Arabia, likely due to the government’s subsidisation of construction material prices and restrictions on the import and re-export of crucial building materials like lumber and iron.
The Kuwaiti construction equipment industry is projected to experience a compound annual growth rate (CAGR) of 4.2% between 2022 and 2029, according to Ireland-based market data research organisation Research and Markets. Earthmoving equipment dominated in terms of the market share in 2022, with excavators holding the largest share within the segment. Anticipated rising investment in housing, warehouse expansions and public infrastructure initiatives are expected to further boost the demand for excavators.
However, many Kuwaitis prefer to work in the public sector, leading to a shortage of skilled workers in construction. Moreover, the sluggish pace of delivery in public infrastructure projects has prompted several Kuwaiti companies to shift their focus to neighbouring markets, negatively impacting the local market. The departure of around 205,000 expatriates from the private sector in 2021 during the pandemic also adversely affected local businesses in terms of labour supply.
Strategic Projects
Mega-projects have the potential to significantly boost the construction and real estate sectors if legislative and bureaucratic challenges can be addressed. Silk City – a large-scale, mixed-use project in the north of the country – ranked as the world’s fifth-most-expensive ongoing mega-project by investment value as of April 2023. The project is set to span 250 sq km in the Subiya area, and include housing, commercial zones and entertainment centres in addition to a large central park.
Kuwait unveiled plans in April 2023 for Silk City to include Burj Mubarak Al Kabir, the world’s tallest tower, at 1001 metres, with an estimated construction cost of $1.2bn. Other important project awards in the pipeline include the development of four sites on the Sheikh Jaber Al Ahmad Al Sabah Causeway, valued at KD165m ($536.8m), and phase 2.2 of KOC’s Mina Al Ahmadi township redevelopment at KD129m ($419.7m). In February 2023 KOC awarded a $77.5m contract for a construction project involving pipelines at two of its northern oilfields. Though Kuwait’s 2022 project awards dropped to $2.8bn, below the $5.6bn average between 2016 and 2021, its $100bn long-term infrastructure plan highlights Silk City and a $10bn national railway as projects with the potential for driving diversification and attracting international construction players.
In September 2023 Kuwait and China intensified their collaboration through the signing of seven memoranda of understanding, targeting pivotal construction endeavours. Key focuses include the completion of the Mubarak Al Kabeer Port – which was 50% finished at the time of signing – renewable energy, low-carbon recycling systems and water treatment stations.
Elsewhere, phase one of Kuwait Port Authority’s $160m Shuwaikh Port redevelopment is under way, led by South Korea’s Hyundai, and Kuwaiti Gulf Dredging & General Contracting Company, aligning with Kuwait’s multi-billion-dollar infrastructure agenda to attract private investors. Meanwhile, as of February 2024 the MPW had not awarded the tender for the Raqqa infrastructure project, which encompasses stormwater channels, road construction and ongoing maintenance at an estimated cost of $70m.
Housing Shortage
One of the construction segments with significant growth potential is housing. While Kuwait’s housing shortage has been ongoing for years, it has been exacerbated since the pandemic. For decades Kuwait has allocated a portion of its oil wealth to construct residences for its citizens, given that most cannot afford homes without subsidies due to high land prices. In Kuwait City and nearby regions, a 1000-sq-metre plot can sell for over KD1m ($3.3m), while prices dip slightly in more remote areas. In July 2023 Parliament approved a new housing development law aimed at expediting the process of building homes for Kuwaiti nationals by allowing strategic foreign investors to construct housing units without the need for a local agent. Crucially, the legislation was accepted by the government in a welcome sign of political consensus. During the parliamentary debate on the law, it was highlighted that there are 25,000 vacant plots in Kuwait, with 15,000 controlled by 146 large entities. Real estate prices in Kuwait average 13 times the income of local families, surpassing the ratio in Saudi Arabia three-fold and that in the US by 2.5.
The backlog for housing applications stood at 92,000 Kuwaiti families as of July 2023, with some seeing a wait of more than 15 years. As a result, an emerging trend in Kuwait is families adding floors to accommodate newly married children. Government-assigned housing often takes years to be distributed, and, as such the new housing law has been welcomed in Kuwaiti society.
Strategic Partnerships
Law No. 7 of 2008 focused on build-operate-transfer projects, paving the way for regulated frameworks. However, this was superseded by Law No. 116 of 2014, ushering in a more investor-friendly environment for PPPs, catering to investors, lenders and public entities driving sponsorship. The establishment of KAPP in 2014 further cemented this trajectory, directing attention towards PPP initiatives and encouraging private sector involvement in vital infrastructure ventures. Since KAPP’s inception, Kuwait has seen the launch of diverse PPPs, spanning Kuwait International Airport’s Terminal 2, desalination plants, oil refineries and hospitals.
Recent developments have expanded the scope for foreign investors. With the enactment of the housing development law, foreign entities can venture into Kuwaiti real estate and related infrastructure projects. The law empowers the Kuwaiti government to establish housing development firms in collaboration with local and foreign private players. The private sector and citizens alike can engage as stakeholders and partners in these development firms through initial public offerings, easing the financial load on the government.
The legislation aims to address Kuwait’s housing scarcity, compounded by soaring property prices beyond most locals’ means. Notably, a majority of Kuwaitis, as indicated by an August 2023 poll conducted by Kuwait’s Real Estate Union, support the government’s decision to engage foreign developers in constructing residential cities under partnership agreements. Survey results showed that around 51.8% of Kuwaitis believed that building residential cities is a viable remedy for the housing crisis. The legislative shift emphasises the role of private sector businesses and citizens as stakeholders and partners in development ventures, thereby reducing the government’s financial responsibilities.
Residential Segment
Kuwait’s residential real estate segment exhibits significant growth potential. The emergence of integrated living communities with a variety of lifestyle amenities are attracting potential buyers. The trend towards pre-completion sales is gaining traction, enticing purchasers with the promise of customisation and lucrative investment prospects. Moreover, government initiatives to enhance affordability have contributed significantly to the market in recent years. The stability of the economy, coupled with substantial oil reserves and favourable mortgage conditions, has further propelled this growth trajectory.
Projections indicate that residential property transactions in Kuwait are poised to hit $5.3bn in 2024 and record a CAGR of 3.7% between 2024 and 2028, reaching an estimated $6.1bn. As an example, the KD113m ($368m) infrastructure contract secured by Kuwait Arab Contractors in April 2023 from the PAHW for the South Sabah Al Ahmad project marks a key step forwards. This development of 10 neighbourhood clusters south of Kuwait City is intended to accommodate 280,000 residents and generate 145,000 jobs.
At the end of 2022 there were approximately 207,000 private housing plots in the country, encompassing an area of around 99.5m sq metres. Forecasts indicated that the total area of private housing plots would surpass the 100m-sq-metre mark in 2023 due to the initiation of new PAHW projects. However, the real estate landscape is not without its challenges. The first half of 2023 witnessed a 41% drop in residential transactions, totalling around 1500 deals valued at KD736m ($2.4bn), contrasting with the nearly 2600 deals worth KD1.75bn ($5.7bn) in the corresponding period the year before. Despite this decline, individual deal values increased by 16.6%, averaging KD483,000 ($1.6m) per deal in 2023 compared to KD414,000 ($1.3m) in 2022.
The transaction volume decline was attributed to a shortage of new land plots and offers, further driving price increases. As of mid-2023 there were around 2200 vacant investment residential lands in the country, or approximately 14.7% of total residential properties, in contrast to neighbouring rental markets where the rate exceeded 40%. At the same time, escalating interest rates on the Kuwaiti dinar have resulted in brokers in the private sector opting for local bank trusts rather than investing in residential rental properties. Additionally, the scarcity of residential investment offerings could impact supply, potentially leading to heightened occupancy rates and prices. Forecasts suggest a potential annual decline of 5% in commercial sector rents until 2024, following a correction of 10-15% over the 18-month period ended in April 2023.
In response to environmental concerns, sustainable architecture is gaining traction. Plans for XZERO City, a net-zero community in southern Kuwait catering to 100,000 residents, were unveiled in August 2022. Set to commence construction in 2024 and slated for completion by 2034, this project symbolises the country’s ambitions towards integrating sustainability principles into economic development and diversification.
Retail & Commercial
The commercial real estate market was forecast to reach a market value of $173.2bn in 2024, with an anticipated increase to $174.1bn by 2028. In the commercial segment, diverse properties contribute to the leasable area. Commercial complexes occupied 16% of leasable space as of the end of 2022 with nearly 910,000 sq metres, while shopping centres covered 6% of the total, or around 329,000 sq metres. Other properties made up 74%, with around 4.1m sq metres across various regions. In 2022 total office space in use by the public and private sectors reached 7.2m sq metres, with the government utilising 47% and the private sector 53%.
As Kuwait advances its economic diversification plan, a tourist resort project on Failaka Island was announced for development in May 2023, estimated at KD205m ($667m). The project involves infrastructure development costs of roughly KD75m ($244m), with the remaining funds allocated for capital expenses. With regards to ongoing construction, there were 265,000 sq metres of office space under development as of April 2023, with around 183,000 sq metres in Kuwait City and nearly 83,000 sq metres elsewhere. The Capital Governorate accounted for 70% of available commercial real estate space at the time, with Kuwait City’s properties generating an annual rental income of $314m.
Independent studies have raised concerns regarding an increase in land acquisition by public entities for commercial development. One such 2023 study by the publicly listed Aayan Real Estate company highlighted discussions among government bodies to acquire land in Kuwait City for building their offices. According to the study, this could have a direct effect on office occupancy rates, projecting a drop from 81.1% to 74% by 2025 if privately owned government-occupied offices are vacated for new buildings. Such a scenario could trigger asset devaluation, loan repayment challenges for banks and job losses within the private sector.
Outlook
The sector’s short-term trajectory will be largely determined by the government’s approach to accelerating the delivery of large-scale infrastructure projects, which would benefit from greater harmony between the legislature and executive. In parallel, as Kuwait diversifies away from its reliance on petrochemicals, it will count on boosting oil production to enhance revenue streams that can be channelled towards facilitating increased investment in public infrastructure. The sector could also see growth stem from government programmes that encourage the development of renewable energy and transportation infrastructure.
Some challenges remain though, as the supply of residential real estate continues to lag behind demand, highlighting the importance of easing issues related to land availability, project financing and delays. Political gridlock and the global interest rate environment could adversely affect in-country developments. Successful government efforts to promote PPPs, attract foreign investment, and keep infrastructure front and centre of the national agenda may help mitigate obstacles.
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