Kuwait real estate sales reach KD 1 billion in Q4 2018
Commercial sector sees renewed strength in 2018 helped by business-friendly reforms by MoCI
RReport prepared by NBK
eal estate sales rose to their strongest levels in four years in 4Q2018. Sales were in excess of KD1 billion (up 23% q/q, 91% y/y), marking the fifth consecutive quarterly rise in sales and reinforcing the positive trend that started to emerge in late 2017. The strength came primarily from the investment (i.e. apartment) sector, helped by rising prices. The residential sector also saw a rise in prices. Meanwhile, the commercial sector has benefitted from higher demand helped by business-friendly reforms by the Ministry of Commerce and Industry, giving rise to better sentiment and renewed demand in this sector.
For 2018 overall, all three sectors saw a significant rise in sales from 2017 levels, and NBK real estate price indices (covering land, homes, apartments and multi-unit buildings) have posted year-onyear gains. The improvement was likely driven by a better economic backdrop relative to 2017, higher average oil prices which lifted sentiment, rising employment and slightly faster growth in the expatriate population which may have supported rental demand. At this juncture, the real estate market appears to be in a good state. Volumes and liquidity have been mostly restored to pre-slump levels (2014), while prices have been stable since mid-2018 and are now on a mildly positive trend. Housing rents have also been steady since mid-2018. These positive trends have been consistent for some time, with the market gradually improving since 4Q17.
Investment sector sales reached KD470 million in 4Q18, up 19% q/q and more than triple the level of 4Q17. Higher sales were driven by a rise in transaction volumes, coupled with an increase in prices. Transactions rose 18% q/q and 127% y/y, while the NBK investment real estate price indices were up by an average of 1.5% q/q and 3.7% y/y, led by multi-unit buildings. The rise in investment sector prices was likely helped by more stable rents compared to 2017 and early 2018 when rents were falling. The sector could face headwinds in the near to medium term from new supply in the pipeline, and from a possible increase in interest rates in 2019. But there are potential tailwinds, too: possibly higher government capex and project awards in 2019 may stimulate non-oil growth and boost employment, which could in turn boost demand in the rental market.
The residential sector registered sales of KD368 million, up 16% q/q and 33% y/y. The rise in sales was driven by a higher number of transactions and a rise in prices. Transactions rose by 26% q/q and 46% y/y. Prices, slightly negative in 1Q-3Q18, surged by nearly 8% q/q in Q4, helping residential prices cross into positive year-on-year territory from November for the first time since 2016. Higher prices were likely helped by improving demand, reflected in much higher activity levels relative to 2017. Downside risk in this sector may emerge in the form of large government housing distributions planned for 2019, coupled with a potential rise in financing costs. Meanwhile, a draft mortgage law is under consideration by the National Assembly.
The law, if passed, should boost demand in the residential sector with citizens benefitting from improved access to financing. The law will also help lower the growing backlog of government housing applications.
The commercial sector was the scene of a big improvement in activity and sales in 2018. After showing encouraging signs earlier in the year, the sector gained traction, with the fourth quarter being the strongest of the year. Commercial sales in 4Q18 reached KD185 million, the highest in two years, and gained over 50% on a quarterly and annual basis. The number of transactions surged 139% y/y in 4Q18, but were unchanged from the previous quarter. Higher sales in 4Q18 were driven by a rise in average transaction size, suggesting that relatively larger properties or more prime locations, or higher quality properties were traded in Q4 compared to Q3. For instance, a commercial building of 5,800 sqm was traded in Sharq for a value of KD 45 million, much higher than the sector average. The sector has benefitted from various business friendly reforms by the Ministry of Commerce and Industry, the latest of which is the launch of an electronic system for the issue of commercial licenses.