In a recent Financial Stability Report, the Central Bank of Kuwait revealed concerning trends in the local real estate sector for 2023, reports Al-Seyassah daily. The report highlighted that this year marked the lowest average value of real estate transactions in the past five years. The report detailed a significant decline in both the value and total number of transactions, attributing this downturn to a gradual increase in local interest rates that began in early 2022.
The value of real estate transactions plummeted by approximately 28 percent, dropping to 2.74 billion dinars, well below the average of previous years. Furthermore, the growth rate of residential real estate prices also faltered, with the average price growth across the six governorates dwindling to about 3.5 percent -- a stark contrast to the 16 percent increase observed in 2022. The sluggish performance of the real estate market played a crucial role in this decline. The report indicated that the residential sector, despite still commanding the largest share of the total traded value, saw its share decrease from 50 percent in 2022 to 47 percent in 2023.
This shift was primarily due to a drop in the number of residential real estate transactions, which fell from 6,008 in 2022 to 4,357 last year -- the lowest level since 2016. The residential sector alone experienced a 30 percent decline, equivalent to 1,323 units, leading to a three-percentage-point decrease in its share of total trading compared to the previous year. The Central Bank’s findings revealed that the average value of annual real estate deals over the last five years was 366,000 dinars. In contrast, investment and commercial real estate recorded significantly higher averages of 701,000 dinars and 2.776 million dinars, respectively.
This disparity highlights the sensitivity of the total volume of real estate deals to fluctuations in the more liquid residential sector. Regionally, the report pointed out varying impacts of the market slowdown. The Capital Governorate, which had seen a remarkable price increase of 23 percent in 2022, faced the most substantial adjustment in 2023, with prices decreasing by 2 percent. While slight price increases were noted in other governorates, residential land prices in the Capital Governorate dropped by around 12 percent.
This decline is believed to be influenced by rising construction costs, which have the potential to sustain prices for built homes while investors’ expectations regarding the forthcoming implementation of the Anti- Monopoly Law for Residential Real Estate, issued in late 2023, may also have played a role in the sharp adjustments in land prices. The law introduces a fee of 10 dinars per square meter for undeveloped residential land exceeding 1,500 square meters, which will incrementally increase each year.
Looking ahead, the Central Bank of Kuwait anticipates a shift away from tight monetary policies by the end of 2024, as inflation rates begin to decline from their peak levels. This is expected to contribute to a return to stability in global growth trends. However, geopolitical tensions continue to pose significant risks to these growth prospects.
The upcoming US presidential election, along with elections in several other major countries, is likely to heighten uncertainty in global markets, increasing the likelihood of payment defaults due to rising credit costs over the past two years. On a national level, the report indicated that Kuwait’s economy is expected to remain resilient, bolstered by a balanced approach to monetary policy from the Central Bank, paired with robust government spending. The recent developments in the internal political landscape are anticipated to accelerate the necessary structural economic reforms.
