Kuwait’s real es­tate ac­tiv­ity picks up, but sales sub­dued

NBK ECO­NOMIC RE­PORT

Kuwait Times - - BUSINESS -

The Kuwait real es­tate mar­ket wit­nessed its first pickup in ac­tiv­ity in five months, though sales re­mained down from a year ago. Since April, to­tal real es­tate sales have been trend­ing down­ward, ex­ac­er­bated by sea­son­al­ity and soft­en­ing con­sumer con­fi­dence. Sales across all sec­tors to­taled KD 1.84 bil­lion yearto-date (ytd), down 26 per­cent from the same pe­riod last year. Oc­to­ber’s price per­for­mance, as re­flected in NBK’s real es­tate price in­dices, in­di­cates some con­ver­gence of price trends across sec­tors and sta­bi­liz­ing prices, with the ex­cep­tion of res­i­den­tial land.

Res­i­den­tial sec­tor sales bounced back in Oc­to­ber fol­low­ing an ane­mic quar­ter. The sec­tor reg­is­tered 254 trans­ac­tions dur­ing the month, lift­ing KD sales up to KD 79.9 mil­lion. Both trans­ac­tions and KD sales were up 9 per­cent year-on-year (y/y), their first pos­i­tive growth in 2016. Oc­to­ber sales im­proved by 50 per­cent from the pre­vi­ous month, to around the level of av­er­age monthly sales thus far in 2016.

Res­i­den­tial real es­tate prices slipped fur­ther in Oc­to­ber to mid-2013 lev­els. The NBK res­i­den­tial home price in­dex slipped by 1 in­dex point to 153.3 dur­ing Oc­to­ber, re­treat­ing by 12.5 per­cent y/y. The NBK res­i­den­tial home price in­dex has been trend­ing down­ward since the be­gin­ning of 2015, when it peaked at 186 in Jan­uary 2015. NBK’s res­i­den­tial land price in­dex de­clined to 177.9, down 10 per­cent y/y. Land prices were the first to cor­rect two years ago. The surge in dis­tri­bu­tion of res­i­den­tial land plots by the Public Author­ity of Hous­ing Wel­fare (PAHW) may have put some down­ward pres­sure on land prices. PAHW dis­trib­uted around 25,000 plots since the fourth quar­ter of 2014 to date, adding sig­nif­i­cant sup­ply to the mar­ket. PAHW has com­mit­ted to re­duc­ing the back­log of ap­pli­ca­tions sig­nif­i­cantly in the com­ing years through new hous­ing projects like South Saad Al-Ab­dal­lah and Sabah Al Ah­mad in 2018, and Khairan in 2019.

In­vest­ment sec­tor sales also im­proved in Oc­to­ber. Sales to­taled KD 58.6 mil­lion, up 45 per­cent m/m, but re­mained rel­a­tively sub­dued. 106 trans­ac­tions were recorded, up 19 per­cent y/y. A strong pick up in build­ing trans­ac­tions (big ticket in­vest­ments) helped boost the sec­tor’s KD sales in Oc­to­ber. Out of the 28 build­ings sold, half of them were lo­cated in Hawalli and Salmiya.

In­vest­ment-build­ing prices edged up slightly in Oc­to­ber. The NBK in­dex rose 2 points to 183, but re­mained down 13 per­cent y/y. Af­ter post­ing modest gains since the first quar­ter of the year, the in­dex was on a down­ward trend for the last seven con­sec­u­tive months. 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). The com­mer­cial sec­tor posted weak per­for­mance in Oc­to­ber. Sales to­taled KD 10 mil­lion, down 71 per­cent y/y.

This was on only six trans­ac­tions; the largest two trans­ac­tions recorded were one com­mer­cial build­ing in Hawally for KD 3 mil­lion and an­other com­mer­cial build­ing in Jahra for KD 4.6 mil­lion. Some slow­down in com­mer­cial prop­erty sales may be ex­pected ahead of the im­ple­men­ta­tion of the new util­ity prices on the com­mer­cial sec­tor in May 2017. The elec­tric­ity tar­iff on com­pa­nies will rise from two fils per kilo­watt hour (kWh) to 25 fils, ir­re­spec­tive of the level of con­sump­tion. Shop­ping malls and com­mer­cial cen­ters are ex­pected to be among the most ef­fected. As a re­sult, real es­tate com­pa­nies are rewrit­ing their rental con­tracts, al­low­ing them to pass any in­crease in util­ity prices to their ten­ants.

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