The Central Bank of Kuwait’s recent Financial Stability Report has revealed troubling trends in the local real estate market for 2023, indicating that this year has seen the lowest average value of real estate transactions in the past five years. According to the report, both the value and total number of transactions have significantly declined, primarily due to a gradual increase in local interest rates that began in early 2022.
Transaction Values Plummet
The value of real estate transactions fell approximately 28%, dropping to 2.74 billion dinars, significantly below the averages of previous years. Additionally, the growth rate of residential real estate prices has slowed considerably, with the average price growth across the six governorates declining to about 3.5%, a sharp decrease from the 16% increase recorded in 2022.
Residential Sector Struggles
Despite still commanding the largest share of the total traded value, the residential sector’s share decreased from 50% in 2022 to 47% in 2023. This decline was mainly driven by a drop in the number of residential real estate transactions, which fell from 6,008 in 2022 to 4,357 in 2023 — the lowest level since 2016. The residential sector alone experienced a 30% decline, representing a loss of 1,323 units, leading to a three-percentage-point decrease in its share of total trading compared to the previous year.
Comparative Value Analysis
The Central Bank’s findings also 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 much higher averages of 701,000 dinars and 2.776 million dinars, respectively. This disparity underscores the sensitivity of the total volume of real estate deals to fluctuations in the more liquid residential sector.
Regional Price Adjustments
Regionally, the report noted differing impacts from the market slowdown. The Capital Governorate, which had experienced a remarkable price increase of 23% in 2022, faced the most significant adjustment in 2023, with prices decreasing by 2%. While slight price increases were observed in other governorates, residential land prices in the Capital Governorate fell by around 12%.
Factors Influencing Price Decline
Rising construction costs are believed to influence this decline, which could sustain prices for built homes. Furthermore, investors’ expectations regarding the upcoming implementation of the Anti-Monopoly Law for Residential Real Estate, introduced in late 2023, may also have contributed to sharp adjustments in land prices. The law imposes a fee of 10 dinars per square meter for undeveloped residential land exceeding 1,500 square meters, with incremental increases each year.
Outlook for the Future
Looking ahead, the Central Bank of Kuwait predicts a shift away from tight monetary policies by the end of 2024 as inflation rates begin to decrease from their peak levels. This shift 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 increase uncertainty in global markets, raising 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 expected to remain resilient, supported by a balanced approach to monetary policy from the Central Bank and robust government spending. Recent developments in the internal political landscape are anticipated to accelerate the necessary structural economic reforms.
