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KIB: Investors' eyes are currently on the apartment and light industrial sectors

KIB: Investors' eyes are currently on the apartment and light industrial sectors

Tuesday, February 13, 2024/ Editor -  

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Kuwait, 13 February 2024: Kuwait International Bank (KIB) reported that the value of real estate deals concluded in 2023 reached KD 2,777,583,000, compared to approximately KD 3,937,630,000 in 2022, marking a decrease of 29.46%.

Real estate transactions in 2023 experienced fluctuations across various types of properties (apartment, residential, commercial, etc.), due to several factors. The Bank explained that the current investor trend is focused on the apartment and light industrial sectors, in line with the latest decisions made by the State of Kuwait.

In this regard, Engineer Hussam Al-Kolak, Real Estate Expert in the Real Estate Department at KIB, said: 'Despite the decline in the amount of real estate transactions during 2023, the value of the deals executed on some properties was high,' pointing out that these transactions occurred as a result of the availability of cash liquidity or the vision of major investors that it was an opportunity to own properties in prime locations.

Al-Kolak explained that the real estate sector is influenced by several factors, the most important of which are supply and demand, the rate of profit margin, demographic composition, and political stability in the region, in addition to the nature and condition of the property.

The Bank’s report addressed real estate deals in each sector separately:

First: The Residential Sector

The residential sector experienced a decline in real estate transactions, where the number of deals in 2023 reached approximately 3,114 distributed between contracts and power of attorneys, compared to about 4,545 deals executed in 2022, marking a decline of 31.48%.

Prices in private residential areas decreased by a range of 8% to 10%, except for properties in prime locations, which maintained their prices.

Al-Kolak added that the prices are expected to decrease again in 2024 as a result of the recent decision to ban the monopolization of vacant lands exceeding 1500 square meters, with the imposition of financial fees on those owning these lands in a progressive manner – starting from KD 10/m2 to KD 100/m2. Additionally, the law prohibiting mortgages on private residences will have a direct and negative impact on transactions in the private housing sector, which limits speculation on this type of property.

 

Second: The Industrial Sector

The industrial sector in Kuwait experienced a slight increase in property value during the first half of 2023, following a record increase in industrial properties in 2022.

The market is currently in a state of anticipation and caution regarding transactions in this type of property. This follows the state's recent decision to impose financial fees on the transfer of usufruct rights, in addition to prohibiting the transfer of usufruct rights from one person to another unless three years have passed since acquiring the usufruct right of the property.

 

Third: The Commercial Sector

The commercial sector experienced relative stability in property values during 2023. There was no significant change in rental values or capitalization rates, thus stabilizing property values except in certain vital commercial areas which witnessed a noticeable increase in property values, such as the Jahra area. This can be attributed to the limited number of commercial plots in the area and increased purchasing power, leading to higher demand.

Regarding commercial sector transactions in 2023, there were 117 deals compared to about 161 deals during the same period in 2022, marking a decrease of 27.3%. This decrease is attributed to the increase in profit margins.

 

Fourth: The Light Industrial Sector

In the light industrial sector, 35 deals were recorded in 2023, compared to about 55 deals during the corresponding period of 2022, marking a decrease of 36.3%.

It is noteworthy that property values and their rents saw a significant increase during the first half of 2023. This was due to an increase in permitted commercial activities and a rise in demand for units by investors, attributed to investors' preference for trading in these properties over “Right to Utilize” properties.

 

Fifth: The Apartment Sector

Despite the increase in profit margins in Kuwait and the decline in the occupancy rate of investment housing units, this sector witnessed record prices. The Bank noted that rental values did not see any increase with the decrease in the capitalization rate for properties, thereby increasing the values of these properties.

In 2023, the apartment sector recorded 1,149 real estate deals, between contracts and power of attorneys, compared to about 1,390 deals during the corresponding period in 2022, marking a decrease of 17.3%.

Al-Kolak stated that an increase in transactions and values of apartment properties is anticipated, driven by speculative investors in private and industrial housing moving towards the apartment sector following recent decisions. This has made apartment property the sole safe haven for real estate traders.

In his concluding remarks, Al-Kolak said that despite the rise in the profit rates of real estate financing, which may reach up to 7.25%, the real estate sector in Kuwait has proven to be a successful alternative for investments. “Real estate may fall ill but it does not die, and the profit rate is considered one of the factors affecting property values, but not necessarily the only factor,” he stated.Bottom of Form


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