Real Estate in Kuwait, Urgent Efforts are Needed to Reverse the Trend in 2022

Prices of real estate in Kuwait increased last year. 

The majority of real estate investors have allocated their financial resources to residential areas and undeveloped land. They also decided to change residential units into houses that can be utilized for rental purposes. 

The decision to do so was highly influenced by the government subsidies available in residential areas and the favorable laws for undeveloped land. These conditions have attracted investors to take advantage of the situation in order to create more opportunities to earn.

Increases in the price of lots located in residential districts went up by more than 35%. This drove the value of property assets higher, especially in the face of insufficient supply to meet the demand.

Tareq Al-Atigi, who was previously Kuwait Clearing Company’s director general, said that the prices of real estate in Kuwait, especially in residential areas, went up at unparalleled rates. Traders and brokers have been working hard to acquire lands that are uninhabited in East Al-Gurain. They bought these lands in July 2021 and sold them in November of the same year. Doing so earned them more than 10% of the profits.

Furthermore, real estate investors also purchased more houses in Al-Khaldiya and Al-Yarmouk. These are residential districts in Kuwait for its citizens. They invested in houses as big as 375 square meters for KD 500,000 each. Investors were then able to sell them for KD 600,000 since the value of the residential houses increased by KD 20,000 every month. As a result, in five months, the value of what they invested in increased by KD 100,000.

Houses in the residential areas for Kuwait citizens have also been renovated to become rental apartments. 

The provision of subsidies for water and power in residential areas pushed investors to maximize this benefit. Commercial zones, which have apartment buildings mostly utilized by other nationalities, are not given the same subsidies. This makes them less attractive to investors, since investing in commercial zones does not come with added value.

Undeveloped hectares of land previously acquired are left as is. For their own reasons, investors choose not to develop them. However, even when left undeveloped, it bears no consequences on them. 

This is because the taxation system does not work against these investors since there are no additional taxes on individuals who own more than one property. It then encourages them to purchase more land for possible future gains. 

This behavior, though, comes with negative effects on other interested citizens. The decrease in supply of such properties results in higher prices

Tareq Al-Atigi believes that changing these regulations will help prevent real estate prices from shooting up. Added taxes should be in place for residential areas. Subsidies should also not be given to individuals who have more than one property. This will result in increased prices and remove certain benefits that can hopefully persuade investors to avoid purchasing more properties than they should.

Apart from those mentioned above, he also said that developing more housing parcels in other regions and fast tracking government initiatives should be prioritized. 

He estimates that the prices of real estate in Kuwait can decrease by 5% this year on the condition that higher interest rates on assets of local banks are implemented.

Reports on the increase in the prices of real estate in Kuwait were similarly supported by Abdulaziz Al-Dghaishem, the Chairman of the Kuwaiti Union for Real-Estate Brokers. He said that houses that were listed during the first two quarters of last year increased by more than KD 1,500 per square meter. This occurred in Al-Assima and Hawally. 

There was also a 30% increase in the prices of residential units in Sabah Al-Ahmad Sea City. In all other parts of Kuwait, the price of private housing increased by 20–30%.

He said, however, that prices are expected to stabilize this year. 

Ali Al-Kadhemi, the Chief Executive Officer of Amtar Global Real-Estate Company, said that there were also other factors that contributed to the increase in prices. Liquidity and the solvency of investors and brokers played a role in this situation. 

The private sector should be tapped so that citizens can have access to houses that are within their budget. Projects should be created in areas outside of the main city, such as the suburbs and other small areas. This should be done together with the distribution of houses in the main cities.

Last year, three billion KD was the reported total value of all the property transactions that occurred for the year in the housing sector. 

Nearly Half of the Citizen’s Monthly Income Goes to Rent

A survey conducted by money.co.uk showed that individuals residing in Kuwait spent a higher portion of their income on rent compared to citizens living in Ireland, the USA, Australia, Canada, and the United Kingdom. 

The value goes as high as 38.20% of an individual’s monthly income for those living in Kuwait. 

A family with four members usually spends 770 KD on groceries, utilities, transportation, and entertainment. Additionally, the average rental fee for a three-bedroom apartment is 475 KD every month. With the aforementioned expenses combined, a family of four will need 1,245 KD per month to sustain themselves.

Will Prices of Real Estate in Kuwait Go Down in 2022?

In 2021, the rental apartments located in Kuwait were ranked as the 18th most expensive in the world. This was among 109 different countries and cities. A one-bedroom apartment located in the city costs $909 USD per month. A similar property is somehow priced lower in areas outside of the city, with an average monthly price of 730 USD.

Some experts in the real estate sector claim that the prices of private housing will decrease by 20–40% this year.

However, some believe otherwise and that the prices in the sector will continue to increase this year. Various reasons can contribute to this situation. First, there is a large volume of cash flow. Second, there is deferral of loan installments. Third, interest rates on loans remain low. Lastly, the private housing market is deemed as a more secure investment than other sectors. 

Investors are also expecting that the government will not sell more plots of land in the near future. Because of this, the residential sector seems more profitable than the investment sector. Investors can make more money in a shorter amount of time if they focus on the residential sector since the supply will not be increasing any time soon, but the demand remains.   

The investment sector was badly hit during the COVID-19 pandemic because many of the expats residing in Kuwait chose to leave the country. 

Given this, more reforms in the regulations, policies, and programs related to the real estate sector should be put into action so that citizens residing in the country can have access to affordable housing.