Exiting expats impact economy – SPECIAL REPORT

As foreigners leave, services and real estate sectors slow

KUWAIT: “We sent our kids home today,” said Lissy Antony, fighting back tears that welled up in her eyes as she walked out of Kuwait International Airport’s departure area with her husband Antony Joseph. For Antony and his wife, parting with their young children Alan and Alena was a traumatic experience. And for their two children, aged 12 and 10, saying goodbye to the country they considered their home presented a psychological and emotional crisis.

As Kuwait introduces new rules and regulations as part of Kuwaitization, thousands of foreigners are either being laid off or restricted from taking up jobs in key sectors. While many expats are compelled to tighten their belts by resorting to the painful remedy of sending their children home, others are left with an even harder choice – leaving the country before things get worse.

While some are quitting Kuwait because they lost their jobs, others are doing it of their own volition in the face of a situation they call “beyond their control”. As the number of foreigners leaving the country rises, the impact has started to ripple through the economy, affecting sales in almost all retail segments – from automobiles and garments to food and beverages and household goods. “For decades, Kuwait remained an Eldorado for expats, especially for Asians. Not anymore. I think it is time we folded up,” said Riyas Ahamad, an Indian engineer working with an oil company in Ahmadi.

According to Expat Insider, Kuwait ranked last in a global poll about working abroad. Respondents reportedly considered a set of indicators including quality of life, ease of settling in and overall general satisfaction. Kuwait came 68th, a position it already held from 2014 to 2016, while it came second to last in 2017, the report said.

‘Lean and mean’

Large-scale retrenchments are taking place in the private sector too. As part of cost-cutting, private universities and schools are firing expats while organizations and hotels are easing out expat staff as part of their new strategy to become “lean and mean”. Many Asian schools admit, albeit secretly, that a large number of parents like Antony have opted to take transfer certificates of their wards to relocate them to their home countries amid radically “deteriorating financial conditions”. Several others are sending their families home as they find it hard to balance their monthly family budget.

“Be it the exorbitant fees for medical services, high petrol prices, new visa regulations or taxation moves, the tide is inexorably turning against expats,” said Alfred Williams, a lecturer at a private university in Kuwait.

“In most consumer segments, there is a palpable drop in sales. Usually there is a lull in sales during summer, but this time it has been slightly higher,” an executive at a supermarket said on condition of anonymity. However, he said no official estimates are available yet for the quarter.

According to a recent report by NBK, growth in its consumer spending index eased to 6.5 percent year-on-year in July. The consumption of durables was flat in July with growth easing to 7.3 percent year-on-year from 10.8 percent in June, as the sector continued to feel the impact of seasonally lower demand during the summer months. Sales of cars, furniture, and luxury items were weaker, while spending on electronics picked up, the report added.

Flats for rent
If the sudden spurt in ‘Flat for Rent’ hoardings across the country’s residential areas is any indication, one can assume that demand for apartments is in a fairly steep negative price trajectory. “During summertime, usually there will be a drop in demand for residential apartments. This is the time when expats normally seek a ToR (transfer of residence). But this year, we see an unusual trend. The number is surprisingly high,” said Anand Kumar, a supervisor at a real estate firm in Mahboula.
According to Al-Shall economic report, percentage of vacant buildings dropped slightly in the first half of the year, as per PACI figures, increasing to 11.2 percent. They numbered approximately 22,800 buildings out of a total of 203,800 buildings (23,400 vacant buildings, out of a total of 202,400 buildings in the end of 2017, i.e. 11.6 percent).

Hundreds of residential apartments in Kuwait are lying vacant currently amid declining demand and availability of newly-built apartments. Interestingly, apartment owners have begun to show more flexibility towards their customers, either to retain occupants or woo new tenants. In many residential areas like Abbassiya, Salmiya, Mangaf and Fahaheel, building owners have reduced rents to keep their properties occupied. As the rental market in Kuwait is oversupplied currently, rent declines in the country vary from roughly 2.5 percent up to 10 to 15 percent, according to some estimates.

“There were four flats vacant in our building two months ago. But today, there are eight flats vacant in the building,” said Yousef, a Pakistani taxi driver who stays near Don Bosco School in Salmiya.

Market experts are of the view that property owners and tenants may be in the process of converging on a new lower equilibrium price in tandem with building valuations and high vacancy rates for apartments – approximately 13 percent – according to the Real Estate Association. “We anticipate prices in this sector to stabilize only if the gap between demand and supply narrows. We don’t expect this to happen anytime soon because currently the market is oversupplied and the demand appears very weak,” said Fakruddin Ali, a real estate expert.

According to experts, building prices remain in negative territory. More than 75,000 flats in Kuwait are empty and need to be “absorbed” by the real estate market in four to five years, a recent study warned.

The balancing act
Kuwait has adopted a two-pronged strategy in the face of a volatile oil price scenario to reduce dependency on oil and balance the demography by slashing the burgeoning expat population in the country. According to UN estimates, Kuwait’s current population is 4,206,085 as of August 2018. Expatriates account for about 70 percent of the country’s population, with 1.1 million Arabs and 1.4 million Asians.

“For policymakers, it is a tightrope walk. No doubt we need to purge the illegal residents of the country and bring the number of expats down to a sustainable level. At the same time, expats are a critical component for the economic growth of the country and its sociocultural expansion. So the focus must be on the quality of the expat population while we adjust the demographics,” said Kareem Ibrahim, a professor at a private university in Kuwait.

By Sajeev K Peter

This article was published on 13/09/2018