Kuwait real estate contracts surge by 37% in January ’24

GCC countries experience lower inflation amid global trends January sees 411 real estate transactions

KUWAIT CITY, Feb 7: The total value of real estate contracts registered with the Ministry of Justice during January 2024 was about 268.16 million dinars, rising by about 37.02% from its level in the previous month of 195.71 million dinars, reports AlSeyassah daily.

Statistics issued by the Real Estate Registration and Documentation Department at the Ministry of Justice indicated that contracts for 411 properties were traded during the past month.

Trades were distributed among the six governorates, led by private real estate. This is 309 properties worth 141.38 million dinars, investment real estate with about 91 properties worth 76.91 million dinars, then commercial real estate with 8 properties worth 43.2 million dinars, two properties in the craft sector worth 4.55 million dinars, and a property in the warehouse sector worth 2.11 million dinars.

The Al-Ahmadi Governorate had the largest number of real estate deals, with about 148 properties, while a smaller number of deals were executed in Al-Jahra Governorate, with only 15 deals. Kuwait did not witness the registration of any agency contracts for this month.

GCC inflation witnessed broadbased decline in 2023

Inflation in the GCC countries trended lower during 2023 as compared to most other regions in the world where high inflation persists. According to the OECD, global headline inflation is estimated to decline to 7% in 2023 and 5.2% in 2024 as compared to an average of 9.5% in 2022. The persistently high global inflation for the last two years was underpinned by a combination of high energy prices and elevated commodity prices which were mainly driven by geopolitical tensions such as the Russia-Ukraine conflict. To combat the effects of high inflation, central banks around the world moved to raise their benchmark rates in unison, creating a higher for longer interest rate environment in the process. According to the IMF, central banks have raised rates by approximately 400 bps in advanced economies and around 650 bps in emerging market economies during the period between late 2021 and October-2023. This astronomical growth of global borrowing rates had an expected negative effect on the global economy. Currently there is a sentiment that the period of continuous interest rate hikes has come to an end as most of the global central banks kept their benchmark rates unchanged.

However, there are new geopolitical challenges facing the global economy especially the MENA economies such as the ongoing war on Gaza and the disruption of global shipping lines in the Red Sea. According to the BMI, Middle East consumers are the most exposed to the Red Sea crisis as 81.6% of the region’s imports travel along Red Sea routes that are exposed to the disruption. In 2022, USD 229 Bn of imported goods which were mainly from Europe and Asia reached the MENA region through these Red Sea routes. There are fears that the ongoing disruption in the Red Sea trade routes might heighten costs of goods and therefore put an upward pressure on the GCC as well as the MENA inflation.

Among the six GCC countries, only Dubai reported an increase in its average annual inflation rate which increased from 2.9% in 2022 to 3.3% in 2023. On the other hand, the rest of the GCC countries reported a decline in their annual average inflation rate from 2022 to 2023. Average annual inflation rate for Kuwait declined from 4.0% in 2022 to 3.6% in 2023. Similarly, average annual inflation rate for Saudi Arabia dipped from 2.5% in 2022 to 2.3% in 2023. According to the IMF, the primary factors that allowed the GCC regional countries to control their inflation so well are among other things, the combination of subsidies in energy sector, the prevalence of administered prices on basic food items and food security strategies, and the wider continuing economic diversification efforts.

Global Food Prices

Global food prices have fallen by 13.7% in 2023, according to the Food and Agriculture Organization of the United Nations (FAO). The decline in global food prices was attributed to 15.4% decline in the Cereals Index, recovering from price increases that took place after the start of the Russia-Ukraine conflict. World cereal production in 2023 is expected to reach an alltime high of 1,523 million tons in 2023 witnessing 1.2% growth from 2022 according to FAO. Another key contributor to the overall fall in global food prices was the 32.7% decline in the Vegetable Oil price Index during 2023, which was supported by improved supplies and reduced use for biofuel production. Nevertheless, the FAO Meat Price Index witnessed 1.4% decline during December-2023 extending its seventh month consecutive decline during the year. On the other hand, global sugar prices rose 26.7% during 2023. Furthermore, the UN Organization noted that despite the decline in overall global food prices, in many countries food prices are increasing faster than the overall inflation rate.

GCC Rate Hikes and Inflation

The global inflation slowdown during the last six months has prompted central bank leaders around the world to pause interest rate increases. Economists are now looking at rate cuts and even more importantly, the timing of cuts. The US inflation reached 9.1%, its highest point in 40 years, in June-2022 due to broad-based overall increase in rent prices, new and used vehicles prices as well as medical prices.

The GCC central banks which have their currencies pegged to the Dollar except for Kuwait (which has its currency pegged to a basket of currencies including the Dollar), have been raising interest rates and keeping up with the Fed rate hikes during this period. Kuwait increased its Central Bank discount rate eight times between March-2022 till July-2023 (from 1.5% to 4.25%). Afterwards Kuwait kept its discount rate unchanged matching the Fed’s stance. Similarly, Saudi Arabia’s central bank repo rate increased from 1% in March-2022 to 6% in July-2023 matching the Fed’s rate hike program. The remaining GCC countries have also matched the US Federal Reserve in increasing and pausing their benchmark rates during the period between March-2022 till July-2023.

Kuwait

The Kuwaiti Consumer Price Index’s latest inflation reading for December-2023 showed a y-o-y increase of 3.4% according to official government data . The increase was mainly led by a 6.7% growth in the Clothing & Footwear index followed by the Food & Beverages price index which registered 4.7% y-o-y growth. In terms of m-o-m performance, Kuwait’s (CPI) recorded a 0.3% m-o-m growth during December-2023 due to mixed movement of price increases in some major groups balanced by price decreases in other major groups.

Inflation in the Housing Services group, the largest weighted group, witnessed a y-o-y increase of 2.3% in 2023. Kuwait’s Education group prices were stable and only recorded a marginal uptick of 0.9% y-o-y during 2023. Comparatively, prices in the Transport Index, which has an index weight of 7.5%, registered 2.4% y-o-y growth due to the rise in prices of purchase of vehicles and operation of personal transport equipment during December-2023. The index for Furnishing Equipment Household, which has an index of weight of 11.4%, recorded 3.4% y-o-y growth in 2023 . In terms of monthly price movements, prices of the Foods and Beverage group recorded a marginal uptick of 0.07% due to an increase in prices of cereals, bread, meat, and poultry as well as fish and seafood. Similarly, prices of the Health group witnessed a 0.92% m-o-m growth during December-2023 because of an increase in prices of outpatient services as well as general hospital services.