Tight sales in Kuwait real estate sector in Q3 2016
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).