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KD 100 allowance to Kuwaitis to face inflation

Subdued market activity likely to continue near term

KUWAIT: Kuwait’s real estate activity remained muted in Q3 2023, amid elevated residential valuations and higher borrowing costs, though sales did log their first quarterly increase since the final quarter of last year. Price increases in general have slowed over the last year, even turning slightly negative year-on-year in Q3 for the first time since 2018. More stable sales in the past two quarters suggest market activity may be bottoming out, though any pick-up going forward is unlikely to be a vigorous one. The prospects for a stronger 2024 would improve in the event that policymakers prioritize implementation of already-tabled housing initiatives.

Real estate sales saw a small uptick in Q3 2023, coming in at KD 678 million (+0.9 percent q/q), helped by an increase in investment sales (+6.1 percent q/q), while residential sales continued to decline, albeit at a moderating pace (-0.9 percent q/q). On a year-on-year (y/y) basis, real estate sales were still down 16.3 percent, but the pace of decline has slowed across all segments.

Continued subdued sales activity reflects high valuations in the residential sector and higher funding costs — growth in installment (i.e. home) loans to individuals and loans to property firms has slowed sharply this year. Activity has also been weighed down by investment shifts driven by higher interest rates and the uncertain pace of housing sector reforms and initiatives to improve the residency law and the supply of housing (outstanding housing applications reached 91K in September), for example.

Residential sales continued to trend lower at KD 354 million in Q3 2023 (-0.9 percent q/q; -18.4 percent y/y), declining for a third consecutive quarter, though the rate of decline appears to be easing. Residential sector demand has been subdued amid high house prices and more circumspect purchaser appetite against a backdrop of higher borrowing costs. On the supply side of the market, there have been further housing distributions by the Public Authority for Housing Welfare.

This includes distributions in the South Saad Al-Abdullah city, comprising 24,509 housing units (22,153 residential plots), with a total of 6,992 citizens already assigned units (applicants until December 2006), easing some pressures on the housing waiting list estimated at around 91k by the end of September 2023. Alongside this, state-run Kuwait Credit Bank approved loans of KD 186 million in Q3, the highest since Q2 2022, under the government’s housing program, while loans disbursements picked up 4.3 percent q/q to KD 115 million.

Investment sales (i.e., individual apartment units and apartment buildings) came in at KD 212 million in Q3 (-15.6 percent y/y; +6.1 percent q/q), with September seeing the lowest level of monthly activity in both value and volume since December 2020. For investors weighing up the risk-return, the higher interest rate environment has increased the appeal of fixed income and deposits at the expense of real estate. Investors may also be unclear about demand from expatriates since they are a key driver of apartment usage in the investor sector. Having said that, with expatriate inflows on the rise so far in 2023, the prospects appear better than they were last year.

Lastly, commercial sales growth remained volatile, with sales at KD 111.4 million during Q3 2023, slightly lower than the previous quarter’s sales despite double digit growth in transaction volumes, supported by renewed strong sales in the Sabah Al-Ahmad coastline area, which has benefitted over the last two quarters from the shift in attention to the Al-Ahmadi governorate from the inner-city areas (Kuwait City and Hawally).

Real estate price growth has trended lower in 2023, according to NBK’s real estate price index, which is based on Ministry of Justice weekly transaction data. In Q3, year-on-year price growth turned slightly negative (-0.7 percent y/y), a first decline since Q1 2018, on the back of lower investment sector real estate prices (-1.7 percent y/y), while residential prices saw an uptick on a quarterly basis on higher home and plot prices in the inner areas (especially in Kuwait City and Hawally). In fact, the increase in residential valuations helped push the overall real estate price index up on a quarterly basis (+2.8 percent q/q), offsetting essentially no change in the investor segment index.

Subdued market activity

Real estate sales activity is expected to remain subdued in the near term, amid continued high residential valuations and borrowing costs. However, prospects for a turnaround are better than they were a year ago, with sales more stable recently following steep declines previously. Meanwhile, the current interest rate tightening cycle looks at or close to its peak — a US Fed rate cut could also materialize before the end of 2024 — potentially spurring credit demand, while possible government/parliamentary moves to pass the draft mortgage law, amend the residency law and accelerate the disbursement of plots/houses (and reduce the backlog of housing applicants) would positively affect the real estate market.

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