• Global : Residential sales grew by 23.9% during 2007 while apartments and commercial sales grew by 39.2%
Global Investment House – Kuwait – Real Estate and Construction Sector- The sector constituted 6 % of Kuwait’s GDP in 2006. Real estate sector in Kuwait can be broadly divided into three main segments: residential, investment and commercial. Owing to the resolve of the Kuwaiti Government to provide a house to every citizen and concrete steps towards achieving the resolution, the residential segment is the most important market segment of the real estate sector in Kuwait. Investment segment represents investments in land and construction of either villas or buildings for the purpose of rent. Commercial segment represents the construction of commercial complexes and sale or rent of spaces in commercial complexes for offices and/or shop establishments.
Kuwait has had a “hot” real estate market for the last few years. The rise in house prices has been a great windfall to current owners who have experienced large returns on their housing investments. Under the current economic conditions, the Kuwaiti real estate market has performed exceptionally well, and since the economy continues to rapidly expand, it is the common prediction among experts that for the coming period the buying boom in the domestic real estate market would continue, albeit at a slower pace.
The strength of the real estate sector has ultimately been derived from the intensity of the overall economic scene in Kuwait. High oil prices, abundant liquidity, political stability and repatriation of funds have all been economic variables carrying the real estate market to unprecedented levels over the last few years. Local contractors estimate that over the next five years the private sector will invest up to US$8bn in the construction sector, on top of US$3bn to be spent by the government. According to recent report from Oxford Business Group, it is estimated that there were around US$250bn worth of projects underway or in the works in Kuwait by mid-2006. Moreover, Kuwait real estate sector would benefit from increased trade and contracts with Iraq as a greater number of companies would set up shop in Kuwait targeting Iraqi business. Therefore, demand for both office and apartment space would increase.
Massive increase in total units sold and average price per unit
Following the rebound in real estate sales during 2006, the average monthly sale of units continued the upward trend for 2007 as well to record 774 units up from 614 units in 2006. This translates into 26.1% increase that was mainly attributed to both ‘residential’ and ‘apartments and commercial’ sales. By the end of 2007, residential units’ sales picked up considerably by 23.9% reaching 7,779 units up from 6,280 units sold in 2006. Similarly apartments and commercial units sold increased from 1,085 units in 2006 to 1,510 units in 2007, or 39.2% increase.
Number of real estate units sold in 2007
Source: Ministry of Justice
The booming real estate prices since 2004 have continued its upward trend up to the end of 2007 as well. This has pushed average price per unit considerably to surpass the KD300,000 level by the end of 2007. Average price per unit reported 22.5% of growth during 2007 standing at KD302,000 up from KD247,000 reported for 2006. The rise was more drastic in case of apartments and commercial units than in residential units however both reported two digit growth rates. Apartments and commercial properties saw a rise of 23.9% as compared to 15% for residential properties to report average price per unit of 837,000 and 198,000 respectively by the end of 2007.
In residential segment, new residential areas are sprouting up across Kuwait as already developed areas are reaching high price levels. Similarly, the investment segment is seeing the addition of tens of new buildings every month, catering to an increasing demand within the expatriate population. The commercial segment is also seeing its share of activity. In Kuwait City, developers are sculpting a new skyline, filled with modern office towers, while commercial and entertainment complexes are dotting the country’s landscape.
Upcoming projects & private sector role
Significant growth in demand for housing and strong future demand indicate the need for rapid development of infrastructure in new areas. With the government doing its utmost, the private sector is given a more dynamic role in relieving the country of its housing shortage. The mechanism currently being used by the government is the B.O.T (Build-Operate-Transfer) route. This system allows private sector companies to develop and invest in plots that are owned by the government. The private sector has the role of operating and profiting from the investment for a period of 20 years or more, depending on the agreed contract period after which the project is returned to the government. Although happening at an unhurried pace, the government is keen to give more importance for BOT projects and to cooperate with the private sector to get maximum results form such projects. Moreover, privatization is another big step, which would lead to the success of infrastructure development. As a part of its efforts trying to rope in the private sector to develop BOT projects, the government is working on making BOT related regulations more flexible. Moreover, the government intends to apply the Public Private Partnership principle (PPP) to overcome the main obstacle facing BOT projects within public authorities, namely paper work.
Finally, a number of new projects are currently in the pipeline, which includes Failaka Island Project, Kuwait University Project, the Ring-road Project, the Boubyan Island Project and Project Kuwait. Mega Projects Agency (MPA), a division of the Ministry of Public Works, is entrusted with overseeing the development of the state’s two most important infrastructure projects, Failaka and Boubyan. Such projects are expected to stimulate the real estate market in Kuwait.
