Tight sales in Kuwait real es­tate sec­tor in Q3 2016

Kuwait Times - - BUSINESS -

Slow ac­tiv­ity in the real es­tate mar­ket dom­i­nated the third quar­ter of 2016 as sales vol­umes slowed. The sum­mer sea­son was weaker than the pre­vi­ous year’s as con­cerns in­creased over the im­pact of util­ity price hikes in 2017 and con­tin­ued pres­sure on the gov­ern­ment bud­get. Sales across all sec­tors to­taled KD 1.69 bil­lion year-to-date (ytd), down 27 per­cent from the same pe­riod last year. Third quar­ter sales were down 39 per­cent from last year as the num­ber of trans­ac­tions fell by 24 per­cent year-on-year (y/y). Septem­ber’s price per­for­mance, as re­flected in NBK’s real es­tate price in­dices, con­tin­ued to re­flect an on­go­ing grad­ual cor­rec­tion that started in 2015, with some signs of sta­bi­liza­tion.

The res­i­den­tial sec­tor marks its low­est quar­terly sales since 3Q09. The sec­tor reg­is­tered 568 trans­ac­tions in 3Q16, down 20 per­cent y/y, while KD sales de­clined to KD 188 mil­lion, down 27 per­cent y/y. Septem­ber sales ac­tiv­ity alone de­clined by 35 per­cent y/y to KD 53.3 mil­lion, ag­gra­vated by the long Eid Al-Adha hol­i­day.

Res­i­den­tial real es­tate prices ap­peared to sta­bi­lize fur­ther in Septem­ber. The NBK res­i­den­tial home price in­dex slipped by 1.6 per­cent dur­ing the month to 154.3 points, re­treat­ing by 13 per­cent y/y. The NBK res­i­den­tial home price in­dex has been trend­ing down­ward since the be­gin­ning of 2015, when it peaked at 186 points in Jan­uary 2015. On the other hand, the NBK res­i­den­tial land price in­dex marked an uptick this Septem­ber; at 184.9 points, the in­dex was up 1.1 per­cent for the month, but re­mains down 7.4 per­cent y/y. Land prices were the first to cor­rect back in 2014 and it ap­pears that they are go­ing to lead the real es­tate

In­vest­ment sec­tor quar­terly sales mod­er­ate fur­ther in 3Q16 as small-ticket apart­ments dom­i­nate ac­tiv­ity. Quar­terly sales for the in­vest­ment sec­tor to­taled KD 155.5 mil­lion in 3Q16, down 42 per­cent y/y. Apart­ment’s share of to­tal in­vest­ment sec­tor trans­ac­tions has been on the rise for the last four years. In­vest­ment apart­ment trans­ac­tions rep­re­sent 67 per­cent of the to­tal trans­ac­tions recorded ytd, up from 36 per­cent for the same pe­riod in 2012. This Septem­ber, sec­tor sales barely ex­ceed KD 40 mil­lion over 99 trans­ac­tions. The NBK in­vest­ment-build­ing price in­dex slowed fur­ther from Au­gust’s level. The NBK in­vest­ment build­ing price in­dex, damp­ened by the sub­dued ac­tiv­ity in the real es­tate mar­ket, fell to 180.5 points, down 4 per­cent m/m. Af­ter mak­ing modest gains since the be­gin­ning of the year, the in­dex re­mained be­low the 200-mark through­out the third quar­ter, and is down 16.5 per­cent y/y. The cor­rec­tion in the price in­dex was steeper dur­ing the last three months, com­ing off from record high lev­els be­tween June and Au­gust 2015 (i.e. ba­sis ef­fect) when the in­dex av­er­aged 227 points.

The in­vest­ment sec­tor ap­peared un­der pres­sure with new util­ity prices ex­pected by the sec­ond half of 2017. In­vest­ment apart­ments will see their util­ity bills in­crease by 7-10 per­cent of the rental value on av­er­age de­pend­ing on the level of con­sump­tion. This would im­pose ad­di­tional pres­sure on de­mand at a time when sup­ply is in­creas­ing and the num­ber of va­cant apart­ments is on the rise. Nonethe­less, we ex­pect the im­pact of the cuts will be lim­ited es­pe­cially with users re­duc­ing con­sump­tion con­sid­er­ably to ac­com­mo­date for the higher rates.

Op­por­tu­ni­ties

Gov­ern­ment hous­ing projects re­flect op­por­tu­ni­ties for prop­erty de­vel­op­ers dur­ing a pe­riod of slug­gish de­mand for real es­tate. As the Pub­lic Au­thor­ity for Hous­ing Wel­fare (PAHW) is keen on de­liv­er­ing around 11 thou­sand hous­ing unit, the PAHW is open­ing the door for the pri­vate sec­tor through its hous­ing projects, mainly in Sabah Al-Ah­mad and Jaber Al-Ah­mad, north­west of Su­laibikhat, and in Wafra. As per a re­cent PAHW press re­lease, 26 hous­ing projects are cur­rently un­der­way at a cost of KD 683 mil­lion. These projects in­clude gov­ern­ment homes, va­cant plots as well as apart­ments. Com­mer­cial sec­tor posted its low­est quar­terly sales in two years. Only 14 trans­ac­tions were recorded this quar­ter, to­tal­ing KD 40.3 mil­lion, down 69 per­cent and 55 per­cent re­spec­tively y/y. Sales im­proved in Septem­ber, to­tal­ing KD 14.4 mil­lion on only five trans­ac­tions in­clud­ing two com­mer­cial plots in Sabah Al-Ah­mad Sea City (KD 7 mil­lion) and one build­ing in Hawally (KD 2.45 mil­lion).

prices on their re­cov­ery path.

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