Kuwait Times, Wednesday, Aug 02, 2023 | Muharram 15, 1445
Kuwait’s real estate activity eases in Q2 2023 on softening demand
Kuwait:
Real estate sales fell in Q2 2023, in a further
sign of a market slowdown amid high residential valuations and rising borrowing
costs. Sales dropped across all segments on a year-on-year basis, and we expect
activity to remain soft during the remainder of 2023. Meanwhile, the
government’s recent efforts in resolving the housing crisis could help in
reducing the number of outstanding applicants over the medium-to-long term.
Overall sales declined for the second consecutive quarter, reaching KD 672
million (-5.8 percent q/q) and the lowest level since Q3 2020.
There were also signs of a slowdown in other indicators, with our real estate
price index (incorporating both residential and investment segments) showing
price gains decelerating to just 1.4 percent y/y which is the slowest since Q3
2018. In addition, central bank data show real estate-related lending slowing
significantly so far this year. Admittedly however, weak sales figures in Q2
2023 may have been impacted by seasonal factors, with activity dropping sharply
in April which coincided with the typically slow Ramadan/Eid period. In terms of
market segments, residential sector sales saw only a modest decline in the
quarter though still fell to their lowest since Q3 2020.
Home sales remained concentrated in Kuwait City and Al-Ahmadi governorates,
accounting for nearly half of total homesales, while plot sales in Kuwait City
accounted for around a third of total plot sales during the quarter, some of
which may be related to the KD 55 million Mubarakiya development project.
Residential sales have been trending lower for the past two years with several
factors potentially at play. These include a normalization following exceptional
strength during the pandemic period, weaker speculative pressures due to
elevated valuations, and higher borrowing costs. Meanwhile, the residential
price index saw its third consecutive quarterly decline, resulting in the first
year-on-year drop since Q1 2018 (-0.3 percent y/y).
Home prices (as opposed to land) were still up (+2.2 percent y/y), reflecting a
rise in prices in Kuwait City, Hawalli, and Farwaniya governorates. Ahmadi and
Mubarak Al-Kabeer saw a decline in y/y prices, while Jahra saw no change.
Investment sales (which includes individual units and apartment buildings),
declined a steeper 21 percent in the quarter to their lowest since Q2 2021.
Nearly half of the apartment unit sales were concentrated in Al-Ahmadi
governorate (101 units), while 54 percent of apartment building sales were in
Hawally governorate (59 buildings).Price trends in the investment segment are
currently holding up somewhat better than in the residential market, up 3.5
percent y/y in Q2 2023.
We attribute this to two key factors: prices rose much less through the pandemic
than in the residential sector, meaning that valuations are lower; and demand
has been supported by the post-pandemic increase in expatriate workers, the main
demographic driving demand. The past year has also seen apartment rents picking
up in the Consumer Price Index figures, following a multi-year period of
stagnation/contraction. This said, activity in the segment is still well below
pre-pandemic levels. The potential re-opening of dependent visas could support
demand for apartment property over coming quarters. Finally, commercial sales
rose 18.6 percent q/q in Q2 2023, though was still down sharply on a
year-on-year basis.
The quarterly increase came mainly on a KD 21 million transaction in Kuwait
City. Excluding this item, sales would have been broadly stable compared to Q1
2023. Loans disbursed by Kuwait Credit Bank (KCB), the public organization in
charge of providing residents with home loans, fell by -13 percent q/q (-1.0
percent y/y) to KD 111 million in Q2 2023. Again, the weaker figures could
reflect seasonal factors during the quarter. However, we expect that disbursed
loans could pick up in H2 2023 and 2024 as the Public Authority for Housing
Welfare (PAHW) is accelerating plot distributions, the rise in the demand for
construction permits, the recent announcement of the availability of 30,593
plots for distribution in South Abdullah Al-Mubarak project, Khaitan, and Mutla
city suburbs (N1,3,4,5,12), and projects to develop the Al-Sabriya and Nawaf Al
Ahmad areas, which could make around 52,000 units available for future
distributions.
Moreover, the government’s recently published four-year action included
arrangements to distribute 15,094 lots in Qairawan and Saad Al-Abdullah, as well
as 42,932 building permits in South Sabah al-Ahmad- South Saad Al-Abdullah,
South Qairawan in the next four years. The plan also outlines steps to resolve
the housing crisis through several mandates including the passing of the real
estate financing and residential cities laws and their by-laws. Additionally,
the National Assembly passed and referred to the administration a law to
establish real estate firms for large-scale residential developments and other
key economic projects. With a more than 90,000-applicationbacklog for government
housing initiatives, the measure aims to increase home supply.
Private sector enterprises and citizens (via IPOs) will be important
stakeholders and partners in the companies, reducing the financial load on the
government. Residential market outlook The outlook for residential activity
remains soft for the rest of 2023, with high valuations and the higher interest
rate climate representing headwinds to demand. On a brighter note, the
government’s reform proposals and focus on addressing the housing shortage offer
the prospect of a supply boost in the future which would help reduce the large
backlog of applications for government housing and absorb new applications. In
the investment and commercial property segments, we expect that moderate growth
in the non-oil economy, the pick-up in rents and the recovery in expatriate
demand to provide some offset to downward pressures from the higher interest
rate environment, although given global trends the latter may be at or close to
their peak.