Abstract
The economic situation is obviously pivotal for the real estate market at
present – and is fairly gloomy.
The default by Investment Dar on a
US$100mn sukuk in May was a further blow for the debt-burdened
financial
sector, following the near-collapse of Gulf Bank in October 2008 (it was
bailed out by a
government guarantee) and the default of Global Investment
House in December. This may not be the
end of the story in the demise of
Kuwaiti investment companies: according to the Central Bank of Kuwait
(CBK), the collective liabilities of the country' s 46 conventional and 54
shari' a-compliant investment
companies amount to KWD16.932bn (US$58bn).
The government has pledged to back all banks, but, as
bailout facilities
are limited, investment houses may be allowed to go under.
We already see
consumer spending contracting by 2.0%, as expatriates leave the country and
Kuwaitis
lose their jobs, and there are risks to the downside as the
market returns to trend level consumption.
Certainly, there is strong
anecdotal evidence that job losses are starting to hurt, although the
government
does not produce any official statistics. A recent poll of more
than 10,000 professionals by the Middle
East' s number one job site,
bayt.com, in conjunction with research specialists YouGov, found that 67%
of
respondents from Kuwait were concerned about the job situation in their
country, with 50% saying that
there had been job cuts at their own place
of employment. Just under half said they expected further cuts.
While the
economic outlook is gloomy for 2009, a recovery should materialise in 2010. If
the government
and parliament begin to co-operate on reform and attracting
FDI, then Kuwait has the potential to
outperform its neighbours.
Kuwait is fortunate in having a large amount of oil per capita, meaning that
exports have always greatly
outweighed imports. As such, the oil price
collapse of H208 has not put its current account under any
threat. The
calamitous drop in revenues will plunge Bahrain, Oman and the UAE into deficit
on their
current accounts in 2009, but for Kuwait the damage has not even
taken the surplus into single figures: we
see a current account surplus of
US$26.4bn (or 25.7% of GDP) in 2009.
Our real GDP growth forecasts remain
stable this quarter, in spite of downward adjustments to the export
figures. The lower export figures were counteracted by a downward revision for
import growth – we now
see this declining in real terms –
which lessened the overall impact of the export downturn. The good
news is
that there will be a greater than expected recovery in 2010, with growth
coming in at 2.1%
(compared with our previous projection of 0.4%), and the
rate will average 3.4% over the remaining three
years of our forecast
period.
A long-awaited $5.17bn stimulus package was finally put into
effect in mid-April 2009. Funding will be
provided to investment firms,
some of which have already defaulted on debt, and to encourage banks to
offer new credit, which has been a critical problem – particularly in
the residential sector.
The bail-out package also provides 15-year
guarantees against any drop in the value of local banks'
investment and
real estate portfolios.
Early signs suggest the measure has brought some
stability to a Kuwait real estate markets that on some
measures performed
worse than Dubai’s during 2008. Property companies in Kuwait posted
total losses
of US$842mn in Q408.
The slowdown comes amid warnings
from some quarters about the state of Kuwait’s property market. In
May, Kuwaiti investment bank Markaz forecast that earnings of GCC real estate
companies could shrink
by 20% in 2009 as the squeeze continues from the
global crisis.
Kuwait has also seen many of its planned megaprojects at
home stall through the combination of the
global credit crisis and
turbulent domestic politics. However, there are signs of some stability
returning on
the back of stronger international sentiment and rising oil
prices. In April, real estate sales were up 8%
compared with March,
according to the National Bank of Kuwait.
The bank said that real estate
sales had fallen significantly in 2009 up to that point, with the average
value
of sales during the first four months of the year 56% lower than the
same period last year. The number of
transactions was 54% lower.
Most
of the decline in sales during the period occurred in residential property
with their sales values and
transactions down by 62% and 63%,
respectively.
Approved housing loans increased moderately by 2% to 460 in
April over March, though the value of
loans approved by the bank was down
by 10.7%. Nevertheless, these levels were sharply up from March
with the
number and value increasing by 84% and 146%, respectively.
Real estate
projects in Kuwait will still go ahead, but developers need to review their
plans to meet
changing market conditions, according to Jones Lang
LaSalle.
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