The real estate sector plays a crucial role in Kuwait’s economy, consistently ranking second only to the oil sector in its contribution to the gross domestic product (GDP). This sector extends beyond the mere buying and selling of buildings, apartments, and land; it also encompasses construction, materials, rental markets, real estate asset management, and engineering services.
Investment Real Estate: A Key Area of Growth
Among these sectors, investment real estate stands out as a significant area of investment in Kuwait. Investment construction percentages can reach as high as 250% outside the capital and even 400% within it. The current landscape of investment buildings, particularly those not overlooking Gulf Street, often reflects traditional architectural styles. Many of these buildings primarily house expatriates with limited incomes, resulting in a general lack of construction quality. Typically, the apartments in these buildings do not exceed 80 square meters, creating cramped living conditions.
Rental Prices and Income Disparities
The prices for investment lands vary significantly, with rates between 3,000 and 4,000 Kuwaiti dinars per square meter in the capital. In areas like Hawalli, Farwaniya, Mangaf, and Abu Halifa, prices drop to around 1,200 to 1,500 dinars per square meter. This disparity contributes to rising rents that do not align with the income of residents. Expatriates—who often work as teachers, employees, or small business owners—have average monthly incomes hovering between 500 and 700 dinars. With rental prices at approximately 250 dinars, housing costs consume about 40-50% of their income, posing a significant financial burden.
The Investment Landscape
Investment in residential buildings constitutes a substantial portion of real estate portfolios for both individuals and companies. There is a clear inverse relationship between interest rates and real estate demand; higher bank interest rates tend to diminish interest in real estate investments. Currently, the average return on real estate investment hovers around 7% after deducting management and maintenance expenses. According to the “Baytak” report on investment returns for the second quarter, opportunities for returns range from 6.80% to 7.8%. However, these figures do not include penalties imposed by the Kuwait Municipality for violations, such as unauthorized basement rentals or constructing residential units smaller than permitted sizes.
Average Returns by Region
By the end of the second quarter, average returns on investment properties were recorded at 6.24% in the Capital Governorate, with varying returns in other regions: 7.35% in Hawalli, 7.39% in Farwaniya, 7.49% in Ahmadi, 7.21% in Mubarak Al-Kabeer, and 7.39% in Jahra Governorate.
Challenges Facing the Sector
Despite the growth potential, several challenges need addressing:
Rental Prices vs. Income
The increasing prices of rental lands lead to rental values that often do not correspond with residents’ incomes. There is a pressing need for the state to either increase construction rates or provide land for investment housing at reasonable prices.
Parking Issues
Many buildings lack adequate parking spaces, leading to congestion and parking crises. Unfortunately, basements intended for parking are often misused as storage, creating safety risks for residents.
Construction Quality
The municipality must closely monitor construction materials, as low-quality materials can significantly affect building longevity and maintenance needs.
Improper Utilization of Residential Lands
High land prices and limited space have led some individuals to convert residential buildings into multiple rental units, degrading services in established residential areas.
Regulation of Residential Sales
While the sale of residential apartments has gained traction, establishing a regulatory framework and a property owners’ association law is essential to uphold the rights and responsibilities of property owners.
Recommendations for Improvement
Investing in real estate in Kuwait requires a proactive approach to addressing these challenges. Expanding the creation of specialized property management companies is crucial, as reliance on property owners for management can hinder effective oversight and maintenance. A qualified property manager can ensure properties are well-maintained, thereby increasing their return on investment and enhancing the overall real estate landscape in Kuwait.