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The Central Bank of Kuwait's latest Financial Stability Report reveals alarming trends in the local real estate sector for 2023, marking the lowest average transaction value in five years. With a substantial 28% drop in transaction value, residential real estate prices have also faltered. The report attributes these downturns to rising interest rates and changing market dynamics, particularly in the Capital Governorate, where prices decreased significantly.
In a recent Financial Stability Report, the Central Bank of Kuwait has unveiled troubling trends within the local real estate market for 2023, as reported by Al-Seyassah daily. This year has seen the lowest average value of real estate transactions recorded in the past five years. The report indicates a notable decline in both the total value and number of transactions, largely attributed to a gradual increase in local interest rates that commenced in early 2022. Advertisement
The overall value of real estate transactions dropped by about 28 percent, falling to 2.74 billion dinars-significantly lower than previous years' averages. Moreover, the growth rate of residential real estate prices has slowed dramatically, with the average price increase across six governorates now at approximately 3.5 percent, compared to a 16 percent rise in 2022. The sluggish performance of the real estate market has been pivotal in this decline, particularly affecting the residential sector, which, despite holding the largest share of the total traded value, saw its share shrink from 50 percent in 2022 to 47 percent in 2023.
This shift can be primarily attributed to a decrease in the number of residential real estate transactions, which plummeted from 6,008 in 2022 to just 4,357 last year, the lowest since 2016. The residential sector experienced a sharp 30 percent decline, translating to a loss of 1,323 units and contributing to a three-percentage-point drop in its share of total trading compared to the prior year. The Central Bank's findings also showed that the average value of annual real estate deals over the last five years was 366,000 dinars, whereas investment and commercial real estate transactions averaged significantly higher at 701,000 dinars and 2.776 million dinars, respectively.
This disparity underscores the sensitivity of the overall volume of real estate deals to fluctuations within the more liquid residential market. Regionally, the report noted varying impacts from the market slowdown. The Capital Governorate, which had previously seen an impressive price increase of 23 percent in 2022, faced the most substantial correction in 2023, with a 2 percent decrease in prices. Although slight price increases were noted in other governorates, residential land prices in the Capital Governorate dropped by around 12 percent.
The decline in prices is thought to be influenced by rising construction costs, which may sustain prices for developed homes, while investor expectations regarding the forthcoming implementation of the Anti-Monopoly Law for Residential Real Estate, issued in late 2023, have likely contributed to the sharp adjustments in land prices. This law introduces a fee of 10 dinars per square metre for undeveloped residential land exceeding 1,500 square metres, 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 are expected to decline from their peak levels, contributing to a return to stability in global growth trends. Nonetheless, geopolitical tensions remain a significant risk to these growth prospects.
The upcoming U.S. 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 indicates that Kuwait's economy is poised to remain resilient, supported by a balanced monetary policy approach from the Central Bank and robust government spending. Recent developments in the political landscape are expected to accelerate essential structural economic reforms.
In conclusion, Kuwait's real estate sector faces a challenging landscape characterised by declining transactions and prices, driven by rising interest rates and changing regulations. While the Central Bank projects a return to stability in the near future, ongoing geopolitical tensions and domestic reforms will be critical in shaping the market's recovery.
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