Investment sector posts drop in sales and prices

KUWAIT: Real estate sales in the first quarter fell back from a four-year high in 4Q18, but remained solid at KD 789 million. The decline came mostly from a drop in investment sector sales following a strong end to last year. The residential sector continued to post robust sales and growth, while the commercial sector, having improved noticeably in 2018, extended its good performance into 1Q19 with relatively solid sales and activity levels.

Decent sales levels in 1Q19 reflect a continuation of the recovery observed in 2018 and an indication that market confidence and liquidity is intact. Real estate prices however were mixed. While the residential sector continued to register solid annual gains, the investment sector was recently subjected to renewed downward pressure.

Investment sector
Investment sector (apartments and apartment buildings) sales in 1Q19 stood at KD248 million, a sharp 47 percent decline from the exceptional KD 470 million recorded in 4Q18 and down 31 percent y/y. Sales volumes also moderated to 327 transactions from 504 the previous quarter. The declines were possibly due to softer demand stemming from subdued immigration growth, while the supply of new apartment buildings continues to increase. These headwinds seem to have led investors to reconsider the pricing and timing of potential deals. Apartment prices also fell, by 11.7 percent q/q, and 2.2 percent y/y, while apartment building prices declined less severely, by 3.8 percent q/q and 1.4 percent y/y. Apartment rents also fell slightly in March as indicated by the housing component of the CPI, reflecting the general weakness in the sector.

Residential sales maintained their strength in 1Q19 at KD 377 million, a 2 percent q/q increase (and +26 percent y/y) despite a slight decline in transaction volumes. The easing in volumes was likely due to the significant rise in prices for both residential homes (10.5 percent) and land (8.4 percent) that has occurred over the past year. Looking ahead, support for this sector may come from the possible approval of the mortgage law later this year, which should provide a healthy boost to demand. Further the recently proposed KD 750 million capital increase of the Kuwait Credit Bank, the entity responsible for granting housing loans to citizens, if enacted may further enhance access to home financing and reduce the large backlog in housing applications.

Commercial sector
Commercial sector sales were strong in 1Q19, at KD 161 million. Although below the sales peak of 4Q18, this is still up 46 percent y/y and also well above the quarterly averages for 2015-2018. Strong sales were due to some exceptionally large size deals, which nearly doubled the average transaction size of 1Q18. Three large ticket transactions stood out in 1Q19: a complex in Jahra (KD 39 million), a plot in Khaitan (KD 26 million) and a commercial building in Sharq (KD 25 million). These three transactions had a combined value of KD 90 million and comprised more than half of all 1Q19 commercial sales.