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Lackluster realty sector could cause rents to fall
October 15, 2016, 5:53 pm

Oversupply, low demand and seasonal lull in activity are having a dampening effect on the realty sector in Kuwait. Property market analysts say that with the sector likely to witness further stagnation in the coming months, the year could very well end with realty in red and a fall in rents in many areas.

The Secretary General of the Real-Estate Union Qais Al-Ghanim, warned that unless activity and demand picks up in November and December, a period when residents usually seek to rent new apartments, the new year could witness sharp drop in apartment rents, even by as much as KD50 in some areas. He added that in such an eventuality, other sectors of the economy could also be negatively impacted.

Pointing to one of the reasons for the glut in realty supply, the Secretary-General said that a large segment of investors in Boursa Kuwait (Kuwait Stock Exchange), who have no experience in the realty business, shifted to the property sector because of easy access to bank loans at low interest rates. They then began investing in apartments or constructing new buildings without enough knowledge about the market or doing due diligence.

Large billboards in front of many buildings offering specific rents, is a clear indication of the inexperience of the new landlords and the plight they really are in, said Al-Ghanim. He added that many investors are also now panicking as they are worried that the Central Bank of Kuwait may in the near future impose stringent regulations on property credits.

Other factors leading to a subdued real estate market include the distribution of a large number of subsidized plots and homes by the government, and the shifting of many expatriate investors from realty to the business sector. Al-Ghanim advised citizens planning to purchase realty plots to wait till January, when prices are forecast to drop further.

Meanwhile, the National Bank of Kuwait (NBK), the country’s premier private bank, in its latest monthly assessment of the market, noted that the real estate market remained soft throughout summer. The NBK Economic report for August 2016 shows that overall sales across all sectors of the realty market totaled KD1.58 billion year-to-date (ytd), down 26 percent from the same period last year. August’s price performance, as reflected in NBK’s real estate price indices, continued to reflect an ongoing gradual correction that started in 2015, with some signs of slowing down.

Sales in the residential and investment sectors were down about one-third from last year, with the residential sector continuing to lag both, last year’s transactions by 10 percent and KD sales by 12 percent. The NBK residential home price index registered 156.5 points in August, retreating by 12.8 percent y/y and was down 3.4 percent for the month. The NBK residential home price index has been trending downward since the beginning of 2015, when it peaked at 186 points in January 2015. Similarly, the NBK residential land price index retreated in August; at 182.8 points, the index is off 8.1 percent y/y.

In its assessment of the realty investment sector, NBK found that the seasonal lull in activity pulled the sector’s sales down to a 5-year low. Sales for the investment sector totaled KD54 million, 34 percent lower than August of last year with smaller single apartments (for investment) representing 57 percent of total transactions. The sector’s activity remained weak with 76 transactions, half the transactions recorded in August of last year.

The latest data published by the Public Authority for Civil Information (PACI) for June 2016 also reveals that out of the 152,170 homes in the country, 87 percent were used for residential purposes whereas 12 percent of total homes remained vacant. The number of vacant homes has been steadily declining — from 25,773 in June 2004 to 18,275 in June 2016. However, the current strong demand for limited homes and the subsequent high premium on residences, could both suffer once government distribution of subsidized housing plots and built-homes gathers steam. The government tripled its annual housing distributions to over 15,000 units in 2015 from around 5,000 the previous year. In 2016, it plans to distribute more than 12,000 units.

- Staff Report

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