NBK ECONOMIC REPORT

KUWAIT: The Kuwait real estate market witnessed its first pickup in activity in five months, though sales remained down from a year ago. Since April, total real estate sales have been trending downward, exacerbated by seasonality and softening consumer confidence. Sales across all sectors totaled KD 1.84 billion year-to-date (ytd), down 26 percent from the same period last year. October's price performance, as reflected in NBK's real estate price indices, indicates some convergence of price trends across sectors and stabilizing prices, with the exception of residential land.

Residential sector sales bounced back in October following an anemic quarter. The sector registered 254 transactions during the month, lifting KD sales up to KD 79.9 million. Both transactions and KD sales were up 9 percent year-on-year (y/y), their first positive growth in 2016. October sales improved by 50 percent from the previous month, to around the level of average monthly sales thus far in 2016.

Residential real estate prices slipped further in October to mid-2013 levels. The NBK residential home price index slipped by 1 index point to 153.3 during October, retreating by 12.5 percent y/y. The NBK residential home price index has been trending downward since the beginning of 2015, when it peaked at 186 in January 2015. NBK's residential land price index declined to 177.9, down 10 percent y/y. Land prices were the first to correct two years ago.

The surge in distribution of residential land plots by the Public Authority of Housing Welfare (PAHW) may have put some downward pressure on land prices. PAHW distributed around 25,000 plots since the fourth quarter of 2014 to date, adding significant supply to the market. PAHW has committed to reducing the backlog of applications significantly in the coming years through new housing projects like South Saad Al-Abdallah and Sabah Al Ahmad in 2018, and Khairan in 2019.

Investment sector sales also improved in October. Sales totaled KD 58.6 million, up 45 percent m/m, but remained relatively subdued. 106 transactions were recorded, up 19 percent y/y. A strong pick up in building transactions (big ticket investments) helped boost the sector's KD sales in October. Out of the 28 buildings sold, half of them were located in Hawalli and Salmiya.

Downward trend

Investment-building prices edged up slightly in October. The NBK index rose 2 points to 183, but remained down 13 percent y/y. After posting modest gains since the first quarter of the year, the index was on a downward trend for the last seven consecutive months. The correction in the price index was steeper during the last three months, coming off from record high levels between June and August 2015 (i.e. basis effect).

The commercial sector posted weak performance in October. Sales totaled KD 10 million, down 71 percent y/y. This was on only six transactions; the largest two transactions recorded were one commercial building in Hawally for KD 3 million and another commercial building in Jahra for KD 4.6 million. Some slowdown in commercial property sales may be expected ahead of the implementation of the new utility prices on the commercial sector in May 2017. The electricity tariff on companies will rise from two fils per kilowatt hour (kWh) to 25 fils, irrespective of the level of consumption. Shopping malls and commercial centers are expected to be among the most effected. As a result, real estate companies are rewriting their rental contracts, allowing them to pass any increase in utility prices to their tenants.