Kuwait’s real estate sales rise modestly in Q2 2018

Residential sales fall 5% y/y in Q2 to KD 306 million

KUWAIT: Real estate sales in 2Q18 rose modestly compared to 1Q18 but were up strongly on a year ago, boosted by higher sales and lower prices in the investment sector. Total sales reached KD 774 million in 2Q18, up 31 percent compared to the same quarter in 2017, with the volume of transactions up 13 percent year-on-year (y/y). Although the market remains soft relative to the highs of 2014-15, the improvement in activity levels versus last year and a recent modest rebound in residential prices are encouraging signs. The improvements were likely helped by a better macroeconomic outlook and a confidence boost from higher oil prices.

Investment sector

Sales in the investment sector reached KD 347 million in 2Q18, almost double its performance of last year, supported by a sharp rise in the volume of transactions. Prices have fallen significantly since 2017, with prices of buildings and apartments down 10 percent and 6 percent, respectively, on a year ago. Sellers and buyers may be in the process of converging to a new lower equilibrium price, in line with lower building valuations and high vacancy rates for apartments (approximately 13 percent according to the Real Estate Association). We expect prices in this sector to stabilize once the gap between demand and supply narrows, although this may take some time. Building prices remain in a fairly steep negative price trajectory, while the pace of decline in apartment prices sold individually appears to be slowing.

Residential sales fell 5 percent y/y in 2Q18 to KD 306 million, driven mainly by a decline in transaction volumes. Further, home prices have posted a small (1.1 percent y/y) yet significant rise in the context of a trend that has been negative for a considerable period . Land prices also appeared to be stabilizing, with the y/y rate of decline slowing to -0.8 percent in 2Q18, possibly due to tightening supply following the glut that reigned over the market over the past two years.

Sales in the commercial sector jumped by close to 40 percent to KD 120 million in 2Q18, driven by a strong pickup in activity, with 29 transactions compared to 13 during the same period last year . This coincided with a pickup in commercial licenses issued by the Ministry of Commerce and Industry. The ministry recently eased business start-up requirements including a reduction of the minimum capital requirement, and has established a one-stop-shop for new company registration, reducing the time, cost and effort needed to start a business. Sales and activity are strong relative to previous quarters, and overall, prices have eased since last year to become more in line with demand. However, downside risk is still present. Rising interest rates may weaken demand for housing, and persisting oversupply in the rental market is likely to keep prices subdued. Meanwhile, home and land prices, although recovering, may see headwinds in the near-to-medium term as more areas and homes are introduced and distributed by the Public Authority for Housing Welfare. Our outlook therefore remains conservative.