Building more homes a better strategy for Kuwait, say experts

November 15, 2024, 7:56 AM

People on Kuwait City's Marina Beach. It is estimated that housing costs in Kuwait absorb one third of an average household's income

Restrictions on non-GCC residents
Ownership curbs meant to help locals
Lack of houses still an issue

Kuwait has tightened property ownership restrictions on non-GCC nationals in an attempt to make real estate more affordable for locals, but industry watchers say building more homes would be the better strategy.

The small, oil-rich emirate has already imposed strict standards on nationals of countries from outside the Gulf who wanted to purchase domestic real estate.

New rules introduced this month require citizens from outside the six countries comprising the Gulf Cooperation Council to live in Kuwait for 10 years before gaining access to the property market, according to local news reports.

They also limit non-GCC purchases of real estate to the residential segment and restrict expats to one home no larger than 1,000 square metres, among other conditions.

Expats currently make up around 73 percent of Kuwait’s 4.3 million population.

“Initiatives to boost housing supply, faster pace of reform implementation and private sector participation in residential development could serve to be more effective in normalising housing prices in Kuwait,” says MR Raghu, chief executive of Marmore Mena Intelligence, a research subsidiary of Kuwait Financial Center.

The government effort seeks to address the relative lack of affordability of Kuwaiti housing. But Raghu says the stricter regulations could weigh on foreign investment in residential real estate, with the exception of funds that can continue to flow from GCC buyers.

“However, based on the progression of Kuwait Vision 2035 initiatives, foreign direct investment into strategic sectors such as renewable energy, healthcare and education are likely to remain unaffected,” he says.

In Kuwait the median apartment price to family income ratio stands at 7.5, while the same score for Saudi Arabia and the UAE hover around 3 and 4, respectively, according to Numbeo.

The five GCC countries ranked by the data platform, which does not cover Bahrain, remain among the 15 most accessible property markets out of the 105 nations on the list.

The picture gets worse when focused on Kuwait City alone, which has a ratio of 9.4, making it more expensive relative to local pockets than Luxembourg City, Cambridge and San Francisco, among many others.

“Limited availability of land, higher demand, lack of supply and longer time to build infrastructure have led to the surge in housing prices,” Raghu says.

Slow-moving bureaucracy, speculation and the private sector’s marginal involvement in real estate are among other factors driving Kuwaiti property prices up, according to Dhari Al-Rasheed, a professor of economics at Kuwait University.

“The limited housing options and the restrictions imposed on supply through building and land use regulations such as those restricting area, classification, density, and ownership of divided units exacerbate the problem,” Al-Rasheed told the Kuwaiti newspaper Al-Seyassah in September.

Housing absorbs up to a third of household income in the emirate.

Sulaiman AlBader, an assistant professor of finance at Kuwait University, says the average Kuwaiti house now goes for KD300,000 ($975,000) while the average monthly salary is KD1,589 ($5,200).

Officials’ tendency to favour incentives like higher salaries over the years has resulted in the counterproductive outcome of making homes even pricier, he argued in an October blog post.

“Interest rate policy is largely influenced by the respective central bank policies of the basket of currencies the Kuwaiti dinar is pegged to,” AlBader wrote. “Policy makers are therefore left with one important factor to improve affordability of housing in Kuwait: supply.”

Housing support and development was the topic of discussion held by Kuwait’s minister of municipality and housing Abdullatif Al-Mishari and Saudi Arabia’s minister of municipal and rural affairs and housing Majid Al-Hojail in Riyadh this week at the Cityscape Global conference, according to the Kuwait News Agency.

Meanwhile, the latest annual Financial Stability Report by the Central Bank of Kuwait (CBK), suggests things might be calming down as the country’s real estate market “reassuringly” returned to its baseline in 2023 and 2024 after two overheated years.

The sharp rise in interest rates that began in 2022 led to declines of 28 percent and 27 percent in deal value and number, respectively, the following year, according to the CBK.

Prices also rose more slowly, falling from a 16 percent jump in 2022 to a 3.5 percent increase last year.