Saudi and Kuwait push GCC real estate transactions to $68bn in 9M, up 15 pct

Supply-side dynamics still key for prices and rents

Following is the first part of KAMCO Research report analyzing real estate fundamentals in the GCC, studying demand-supply drivers and examining trends in transactions, prices and rents that drive the outlook for real estate in the region.

R— Editor

Report prepared by KAMCO

Research

E sale transactions in the GCC (excluding Bahrain) rebounded in 9M-19, as total value transacted improved by 15% to USD 68.8 Bn, as compared to USD 59.7 Bn in 9M-18, according to KAMCO Research. The number of transactions also gained by 25% over the same period to reach 429,410 transactions in 9M-19. The improvement in the region’s transactions was mainly driven by Saudi Arabia and Kuwait, as transacted value in Saudi Arabia gained by 36% y-o-y in 9M-19, while transacted value in Kuwait moved up by 9.4% as compared to 9M-18. Nevertheless, our estimates suggest that the higher transactions came at the cost of lower achieved prices, as the average value per transaction in the GCC declined by 8.0% to around USD 160,200 in 9M-19 from around USD 174,000 per transaction in 9M-18. On the lending side, aggregate credit to the real estate sector disbursed by GCC banks at the end of Q3-19 was down marginally by 0.7% q-o-q to reach USD 204.1 Bn.

The GCC residential real estate market will require a combination of lower upcoming supply and lower prices for transactions to sustain the growth rates witnessed over 9M-19 into the medium term. Tighter supply would also be needed to eventually restrict tenant migration and a resultant drop in rentals, in our view. Government initiatives like the formation of the Higher Real Estate Planning Committee from the Dubai Government should aid in reducing oversupply risks and monitoring private sector real developer activity in our view. Office demand in Kuwait continued to remain strong for premium office spaces, while government demand from companies as part of the Saudi Vision 2030 pushed Riyadh’s office market towards natural vacancy rates of 6%. Entertainment remains the biggest driver for retail mall space take-up in the GCC, while on-line retailing affects demand from retailers, and F&B looks to flexible models such as increased use of dark kitchens.

traded improved by 36.5% q-o-q.

Aggregate credit to the real estate sector disbursed by GCC banks at the end of Q3-19 declined 0.7% q-o-q to reach USD 204.1 Bn. UAE banks were the main contributors to the decline in Q319, as aggregate credit disbursed declined by USD 0.9 Bn qo-q, followed by Qatari Banks (USD 0.7 Bn).

In terms of mortgage lending, value of new residential quarterly mortgages provided by banks in Saudi Arabia improved by 19.3% q-o-q to SAR 18.2 Bn in Q3-19, while the number of mortgages grew by 22.6% over the period to 42,788 contracts.

Real estate sale transactions recorded by the Ministry of Justice (MOJ) statistics show that total sale transactions in 9M-19 improved on a y-o-y basis. Total number of transactions over 9M-19 jumped by 65% y-o-y to reach 233,885 transactions from 141,524 transactions in 9M-18. An increase was also seen in value terms, as value transacted increased by around 36% to SAR 131.1 Bn.

The improvement in sale transactions y-o-y in 9M-19, was mostly attributed to higher residential transactions which constituted around 90% of the overall transaction volumes and 75% of the overall value transacted. Residential transaction volumes were up 69% y-o-y in 9M-19 and reached 210,220 transactions, while value transacted went up by 43% yo-y to reach SAR 98.7 Bn. Commercial transaction volumes improved as well, by 40% y-o-y, to reach 23,665 transactions, while value transacted moved up by 19% to SAR 32.4 Bn.

Residential rents in Riyadh remained stable q-o-q in Q3-19 across apartments and villas, even as the government continues to roll out initiatives to increase home ownership. In Jeddah, rents for both apartments (-4%) and villas (-3%) declined q-o-q respectively as well, as per JLL, fueled by incoming and future supply.

Office In the office market, average office space rents in Riyadh declined marginally by 0.8% q-o-q in Q3-19 to reach SAR 1,240/sqm annum, as per JLL. Vacancy rates in Riyadh however dropped 200bps to 6%, as of Q3-19, ascribed to government demand, especially from newly created government companies. As per JLL, office rents in Jeddah stood at around SAR 887/sqm/annum, representing a decline of 1.6% q-o-q, as vacant office spaces amounted to 21% of total leasable space.

Retail as per JLL, retail vacancy rates in Riyadh increased from 14% in Q2-19 to 16% in Q3-19, while vacant retail spaces in Jeddah declined from 10% in Q2-19 to 9% in Q3-19. The sequentially lower vacancies in Jeddah was due to the take up of highquality spaces linked to more entertainment outlets. Overall in Saudi Arabia, retail mall space owners are including entertainment options to increase footfall both in existing and newer malls.

Sales Transactions Statistics from Kuwait’s Ministry of Justice (MoJ) show that total real estate sale transactions increased in 9M-19 on a y-oy basis. Total number of transactions improved by 16% y-o-y to reach 5,213 transactions from 4,481 transactions in 9M-18. Value transacted moved up by around 10% to KWD 2,846 Mn.

The improvement in sale transactions was mainly driven by Private Residential and Commercial Sale transactions. Value transacted in Private

residential transactions moved up by 24% y-o-y in 9M-19 to reach KWD 1,172 Mn, while number of transactions moved up by 17% y-oy to 3,559 transactions. Commercial transactions, the other major contributor to real estate transactions in Kuwait, saw the number of transactions improve by 4.5 times y-o-y to 430 transactions, while value transacted moved up by 31% y-o-y to KWD 497 Mn. Apartment transactions however declined in 9M-19, as the number of transactions declined by 11% y-o-y to 1,132, while value transacted fell by 21% y-o-y to KWD 920 Mn.

Residential Apartments which constitute a significant portion of the rental market, saw stable rental trends in Q1-19. In the Capital and Hawalli Governorates, apartment rents remained stable on a q-o-q basis, as the rental range for 2 BHK apartments remained between KWD 320–390 per month, as per KFH Local Real Estate Report: Q1-19. The report also stated that the range for larger 3 BHK Apartments stayed stable q-o-q at KWD 370-440 per month.

Office Prime office Space Rents in Kuwait remained stable on limited quality supply available for tenants, as the higher end of asking rents for the CBD area remained rangebound at KWD 10/sqm/month. The gap between the lower-end and higher-end of the band also remained stable at KWD 2/sqm/month, as landlords are able to command higher rents for quality office spaces.

To be continued tomorrow