KUWAIT: Kuwait’s real estate sales hit a two-year high in Q2 2024 helped by sizable one-off deals across the main three segments. The underlying picture remains softer, highlighted by continued weakness in the residential segment, while prices also appear to have edged lower. Still, excluding one-offs, overall sales activity has stayed in a fairly narrow range for several quarters, pointing to a degree of market stability. We still expect improving economic conditions and potentially lower interest rates to lift the market in 2025. Meanwhile, plot distributions under the government’s housing program reached above 5,000 in H1 by our estimates, but the backlog of applications still edged up to more than 97,000. Addressing the housing shortage is set to be a key focus of the new government.

The level of overall sales rose 22 percent q/q in Q2 to KD 853 million. Without the outlying sales in the commercial, investment, and residential segments, we estimate that sales would have been broadly flat versus Q1. We also note that seasonal factors, including the Eid Al-Fitr and Eid Al-Adha holidays, may have weighed slightly on activity during the quarter.

Residential sales dropped -4.7 percent q/q to KD 337 million, following minimal growth in Q1 and just below the 2023 quarterly average. However, residential sales were also supported by one large land sale in Mubarak Al-Kabeer governorate (Al-Funaitees) of KD 32 million. Excluding this, the residential segment would see a sharper fall of -13.7 percent q/q, confirming the prevailing low sentiment and demand weakness factors including high costs of financing, the potential for global interest rates to remain higher for longer and still-elevated valuations within this segment.

At the same time, the investment segment registered its first quarterly decline since Q2 2023 of -3.7 percent to KD 223 million, despite a large building sale in Al-Salmiya of KD 22 million. The number of transactions in the sector also remained historically low. Data from the consumer price index show that inflation of actual rents softened to 1.4 percent y/y in May from the multi-year high of 3.2 percent in August 2023 and below the rate of inflation overall, providing for modest growth in rental receipts. A recent loosening of visa regulations (including removing the bachelor’s degree requirement to apply for a family visa albeit with income requirements) should offer some incremental support for apartment sector demand going forward.

In contrast to the other segments, sales in the commercial sector jumped during Q2 to a record high at KD 294 million. Some 46 percent of commercial sales by value were in Al-Salmiya (four building sale deals worth KD 71 million) and Sabah Al-Ahmad coastal area (10 plot sale deals worth KD 64 million). The increase in large plot deals in the Sabah Al-Ahmad coastal area over the past few quarters could be related to the lower prices per square meter compared to the inner areas. Meanwhile, growth in credit to the real estate sector (ex-housing loans) had picked up to 4.3 percent y/y as of May and its best since end-2022. While not strong by historical standards, it does point to broad market sentiment potentially ticking up.

Real estate prices ease

Our overall real estate price index, which is estimated from Ministry of Justice transactions data, declined for the third consecutive quarter, by -3.2 percent q/q in Q2 from -2.1 percent in Q1. This was driven by a -7.0 percent q/q dip in the investment segment index on lower building prices, while the residential index partially offset this by being unchanged in Q2. In year-on-year terms, overall real estate prices declined -3.9 percent in Q2 (-1.2 percent y/y in Q1), with falls across both the investment and residential segments. Solid plot distributions in H1 but outstanding applications move higher

According to our calculations from data on the Public Authority for Housing Welfare (PAHW) website, plot distributions under the government’s housing program for citizens totaled 5,005 during H1 2024 including 2,860 in Q2.

Most of these allocations were concentrated in South Sa’ad Al-Abdullah city (N3,4,5) with around 7,600 remaining under the project in addition to around 4,400 residential units in Taima and Al-Sulaibiya. Although this represents a solid pace of distributions, the outstanding balance of existing housing applications still rose by 5,973 (+6.6 percent y/y) to 97,144 in May 2024, highlighting the challenges faced by PAHW in addressing the housing shortage.

The PAHW has tendered four awards to construct 6,455 houses within the affordable housing project in addition to two infrastructure tenders for 13,812 plots in South Sabah Al-Ahmad that are expected to be completed in 2026-27,while two future large projects in Nawaf Al-Ahmad City and Al-Sabriya, of 52,000 residential units each, are in early planning stages.But a consistently fast pace of distributions is needed over the coming years to reduce the backlog of housing applications and resolve the housing crisis.

Meanwhile, disbursed loans by the Kuwait Credit Bank, the public organization in charge of providing residents with home loans, saw a marginal increase of 1 percent y/y in Q2 to KD 115 million while approved loans fell by around 21 percent y/y to KD 126 million. Softness in this area could also be related to the impact of Eid Al-Adha & Eid Al-Fitr holidays during Q2.