Kuwait’s mar­ket ac­tiv­ity re­mains soft in Oc­to­ber

Kuwait Times - - BUSINESS -

KUWAIT: As we en­ter the last quar­ter of the year, weak­ness in the real es­tate mar­ket per­sists de­spite a pick-up in the com­mer­cial sec­tor. As of Oc­to­ber 2015, to­tal real es­tate sales reached KD 2.5 bil­lion thus far in 2015, down 29 per­cent from the same pe­riod last year. Most of the real es­tate price in­dices logged weak pos­i­tive an­nual growth; the ex­cep­tion was the res­i­den­tial home price in­dex which con­tin­ued to show a re­treat from a year ago.

To­tal res­i­den­tial sales reached KD 1,138 mil­lion in 2015 and KD 73.2 mil­lion in Oc­to­ber. KD vol­umes and num­ber of units sold year-to-date (ytd) were both down 26 per­cent and 31 per­cent, re­spec­tively, com­pared to the same pe­riod last year. Year-to-date, only 1,579 res­i­den­tial plots were sold com­pared to 3,056 at the same time last year. Sabah Al-Ahmd Sea City, Abu Fatira and Khairan wit­nessed the sharpest de­clines in res­i­den­tial plot trans­ac­tions so far in 2015.

This re­cent drop in plot sales is likely, in part, the re­sult of ear­lier spec­u­la­tive ac­tiv­ity in the res­i­den­tial land sec­tor. This has been high­lighted as well by the Real Es­tate Union an­nual re­port pub­lished re­cently, that states that around 21 per­cent of the res­i­den­tial prop­er­ties are sold for spec­u­la­tive pur­poses.

Sales in the in­vest­ment sec­tor (mostly apart­ment build­ings) are the low­est in two years. To­tal KD vol­umes reached KD 1,027 mil­lion ytd, a 35 per­cent de­cline from the same pe­riod last year. In terms of trans­ac­tions, 1,168 sale con­tracts were ex­e­cuted ytd, 22 per­cent lower than last year. For the in­vest­ment sec­tor, 2014 was an ex­cep­tion­ally good year with real es­tate prices and trans­ac­tions soaring. In fact, com­pared to 2013, KD vol­umes are largely flat in 2015 though trans­ac­tions are down 18 per­cent. The com­mer­cial sec­tor re­mains ac­tive with sec­tor trans­ac­tions up year-to-date. KD vol­umes to­talled KD 331 mil­lion ytd, a slow­down of 15 per­cent from the same pe­riod last year, while ytd trans­ac­tions in­creased 8 per­cent from the same pe­riod last year. In Septem­ber, the sec­tor recorded nine trans­ac­tions worth KD 34.5 mil­lion. The largest trans­ac­tion was recorded for a 2,000 sqm plot of land in Far­waniya for KD 12 mil­lion.

Over the last few years, the Cen­tral Bank of Kuwait (CBK) has taken some macro-pru­den­tial mea­sures that may have helped calm the real es­tate mar­ket. In par­tic­u­lar in Novem­ber 2013, the CBK in­tro­duced new reg­u­la­tions re­gard­ing real es­tate loans. Also, in 2014, and as part of Basel III, the CBK be­gan phas­ing out the use of real es­tate col­lat­eral in cal­cu­lat­ing the reg­u­la­tory cap­i­tal charge on bank loans, a de­ci­sion that is likely to have damp­ened real es­tate lend­ing.

The rule was orig­i­nally in­tro­duced in the wake of the fi­nan­cial cri­sis to pre­vent se­vere real es­tate price de­clines. The phas­ing-out of the col­lat­eral use of real es­tate over five years is not ex­pected to have a dis­rup­tive im­pact on the real es­tate mar­ket. Real es­tate col­lat­eral is ex­pected to con­tinue to play an im­por­tant role in back­ing and se­cur­ing credit, but it can no longer be used to re­duce the cap­i­tal re­quire­ments.

With oil prices still un­der pres­sure and tighter credit reg­u­la­tions, the growth rates of the real es­tate in­dices con­tinue to slow in Oc­to­ber, strug­gling to main­tain pos­i­tive year-on-year growth. The in­vest­ment build­ing price in­dex re­mains in the lead up 8.4 per­cent, fol­lowed by res­i­den­tial-land as the res­i­den­tial-home price in­dex re­sides in neg­a­tive ter­ri­tory.

The res­i­den­tial home in­dex con­tin­ues to trend down­ward as growth re­tracts for the third con­sec­u­tive month. In Oc­to­ber, the NBK res­i­den­tial-home in­dex stood at 176.0 points, 3.6 per­cent lower y/y. The growth in res­i­den­tial home prices has been cool­ing off since Septem­ber 2013, when the in­dex logged a his­tor­i­cal high an­nual growth of 28 per­cent.

The res­i­den­tial land in­dex is strug­gling to re­main in pos­i­tive ter­ri­tory. The in­dex, at 197.1 points, is up 1.6 per­cent for the year, the low­est since Aug-15 and was down slightly for the month. Out of the 16 ar­eas in­cluded in the in­dex, only two ar­eas ex­hib­ited a price in­crease this month whereas nine out of the 16 ar­eas in­cluded in the in­dex were in­ac­tive.

The in­vest­ment build­ing in­dex was up 8 per­cent for the year, al­most half the growth recorded through­out the last six months. The in­vest­ment build­ing price in­dex stood at 208.5 points, 3 per­cent lower than in Septem­ber. Four out of the eleven ar­eas in­cluded in the in­dex were in­ac­tive. The re­main­ing ac­tive ar­eas mostly logged pos­i­tive monthly and an­nual growth.

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